ADVANTAGES OF TOP – DOWN BUDGETING APPROACH
Budget will have an overall corporate functional approach rather than divisional approach since management’s concern will be overall growth of the organization.
Budget will be in the experienced hands and management if required can take help of outsider.
Budget preparation will be fast and inter departmental issues shall be ignored.
Budget will be aggressive towards the growth of the organization.
DISADVANTAGE OF TOP- DOWN BUDGETING APPROACH
Managers / Lower management will be d-motivated as they don’t have ownership over the budget and tends to feel that management have set targets which are practically impossible.
Top management may not have close information about the organization and that may impact their budget.
Inter departmental communication will take a hit as they will have no idea how the management set targets for each of them.
Management’s considerable time will go into this and may lose from the path of strategy.
Budget shall be feared less accurate as the top level management cannot have idea of unit wise expenditures.
ADVANTAGES OF BOTTOM – UP BUDGETING APPROACH
The managers shall be motivated as the ownership of budget is in their hands.
The budget will be more realistic as managers will have a better knowledge of the operations of the organization.
Managers will be more committed towards the organization and targets set by them as they are the owners of the same.
Senior management will now only have to concentrate on the overall business strategy rather than a business unit wise.
The budget can be quite accurate for the individual task which leads to overall accuracy over the total budget.
DISADVANTAGE OF BOTTOM – UP BUDGETING APPROACH
Budget preparation will be slow and dispute between inter department may arise.
Management may lose the control over the organization’s forecasting.
Managers may set targets which are easy to achieve to reduce pressure from them.
TOP DOWN APPROACH BUDGETING EXAMPLE
A company prepares their budget through Top- down Approach. The management, to increase the overall profitability of the organization sets a target for sales team to sell 12000 units at a lower price for the year. However the production unit does not have the capacity to produce 12000 units in a year and this may leads to a day to day clash between sales and production. If the management would have taken inputs from the production unit too this situation would not have been arise. If the sales team has accomplished their target, they will expect an incentive for their target accomplishment even if the production is less. The management may have to bear this cost without any addition in the top line
BOTTOM-UP APPROACH BUDGETING EXAMPLE
The sales team budgeted the order of sale of 20000 units for lesser price, and the same units budgeted by production too with the extra incentive to all the workers. Eventually the sales team achieved the target at a lower price and production team too, but the overall profitability of the organization will take a hit as incentive given to production as well as sales team will sit into the cost. So the overall objective of the organization to maximize the profit will not suffice even if increase in sales and production.
“Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!”
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but splendidwritings.com proved they are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 14***| Rating: ⭐⭐⭐⭐⭐
"The company has some nice prices and good content. I ordered a term paper here and got a very good one. I'll keep ordering from this website."
