return to homepage

Participative Budget

A participative budget is a budget in which important employees have direct input in an organization's budgetary process. This is helpful because it puts the budgetary process into the hands of the people most directly affected by it. These key employees are best positioned to inform the accountant where funds need to be allocated to be effective. This form of budgeting signals ownership has confidence in their staff. Staff members often work harder and more cooperatively towards attaining goals they help to set. This form of budgeting is also a great motivational tool.

A budget has the best chance for success if the people planning it have accurate knowledge of production and marketing costs. Participative budgets allow managers with cost control responsibility to regularly relay information to accounting. This approach is particularly useful if the manager's performance is controlled and evaluated based their budget management. The participative method allows a manager or group of managers to show their ability to efficiently run their departments. Any shortfall reflects directly on the manger.

Many organizations find this to be the most effective way to plan the budget. Budgets imposed from above often do not provide funds where they are most needed. This forces the managers to adjust their plans and can make them less effective. This can lead to resentment and division instead of the cooperation and commitment that will best serve the interests of the company and its customers. Allowing managers from all levels of an organization to work in coordination with the accounting staff has led to much more effective use of funds in many companies. It also may lead to more responsive and responsible managers.

Participative budgeting does not mean managers have unchecked power to demand and fund any budgetary line they wish. Most participatory budgeting systems are designed with several checks and balances. The budget flows upwards from lower through middle to top management. The budget can be assessed at each level with top management being given the final oversight. This oversight is designed to identify and eliminate waste and inefficiency. If changes are to be made in the budget, they are discussed before they are implemented. This helps managers to see their budgetary requests are not being dismissed out of hand. The changes are identified and explained.

Many consider participative budgeting to be the ideal system. It allows for the upward flow of information from people responsible for the company's day to day operations to the people charged with having an overall strategic perspective. This allows for each level within an organization to contribute its best towards an accurate, integrated budget.

Some people complain creating a participative budget is too costly and time consuming. They say such budgets give dishonest or ineffective managers too much power to negatively affect the budget. But overall most people like the concept. It allows people on all levels of an organization to know their input is valued. Managers can be held directly responsible for budget items they requested. Most of all a participative budget can motivate people to do their best to fulfill budgetary goals they had a hand in setting.   

Return from Participative Budget to Business Management Skills

Outstanding Leaders consider themselves a work in progress
 Dr Franklin C. Ashby 

lead and learn

Free Monthly  Newsletter

Subscribe to our free  e-newsletter and get new monthly articles and other management tools.

Management Skills Resource




Don't worry -- your e-mail address is totally secure.
I promise to use it only to send you Management Skills Resource.

Quote of the Month

Minds are like parachutes. They only function when they are open. Thomas Dewar

Management Terms

Decentralization -
pushing power and decision making downward.

MBO - Management by Objectives.


[?] Subscribe To
This Site

Add to Google
Add to My Yahoo!
Add to My MSN
Add to Newsgator
Subscribe with Bloglines

Enjoy This Site?
Then why not use the button below, to add us to your favorite bookmarking service?

Template Design
Copyright© 2008-2011 Management Skills Advisor. All rights reserved.