Question

Does the participation of several levels of management in the budgeting process help or hinder the budgeting process? Does it depend on the organization's structure?

Answer 1

Budgeting is an important part of an organization as it helps it achieve its financial objectives and is a key element of management's control system. A budget highlights the management's plans in the coming periods and forces all the levels of the management to think ahead, anticipate results or restrictions that they might face and might also act as a motivator for individuals to achieve their stated goals. When various levels of management involve in a budgeting process, the concerns of various people at these levels are addressed. The senior level management would focus on achieving goals like employee engagement, onshore trips while the junior level would focus on achieving targets for their team or bonus for their subordinates. So in a way, involving various levels of management helps the budgeting process but the hindrance comes in when there is a disjoint between the various levels of management as the ultimate aim of a business is to generate value for its shareholders. When the top management communicates the long range goals and broad objectives effectively, this could help in the budgeting process. Various organizations also adopt participatory budgeting which means that all the levels of the management participate in budgeting and goal setting. The budgeting process depends on the organization structure. The organizations which involves management in goal setting and budgeting are likely to be more successful in terms of sticking to their budget as compared to organizations where budget is set up only by the top level management.