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
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.
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
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