What are the advantages and disadvantages of a bottom-up budget?
A sense of ownership may be achieved, along with increased job satisfaction. The disadvantages include a tendency for department heads to over-budget, to ensure they have enough money for the year.
A bottom-up approach often correlates with more autonomy in budget usage on the front lines. This limited oversight increases the risks of employee embezzlement or inappropriate use of funds. These risks could expose the company to potential legal or ethical problems or, at a minimum, wasteful spending.
1. Accuracy. Bottom-up budgeting typically has the advantage of being quite accurate because each department of an organization is aware of its expenses and resources. Summing up the budget estimates from each department could result in accurate budgets for the company in total.
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| Advantages | Disadvantages |
|---|---|
| A budget assists the business schemes throughout with the best utilization of the available resources. | Sometimes the budgeting might be very costly than the actual business plan which may or may not be affordable by all types of companies. |
Disadvantages of Bottom Up Budgeting. - People tend to overstate their budget requirements. - Management tends to cut the budget. Work Element Costing. - Labor rates include overhead and personal time.
Bottom-up budgeting refers to the flow of information from the 'floor level' employees in each department up towards senior management. Departments will decide their own forecasted expenses, and then request approval from higher ups.
A top-down budgeting approach is generally faster than a bottom-up method—and at the same time can create organizational transparency into business-wide spending.
The major advantages are flexible budgets, focused operations, lower costs, and more disciplined execution. The disadvantages include the possibilities of resource intensiveness, being manipulated by savvy managers, and bias toward short-term planning.
A bottom-up approach can help change that. Projects or ideas are collaboratively decided on, and employees will feel more closely aligned with the company strategy and their supervisors' expectations. This means they can go ahead and execute, confident that their work provides value to their team and company.
What are the advantages and disadvantages of bottom-up vs top-down?
While a bottom-up approach allows decisions to be made by the same people who are working directly on a project, the top-down style of management creates distance between that team and decision-makers. This can lead to poorly-informed decisions if leadership doesn't ask for input or feedback from their project team.
- Inaccuracy. A budget is based on a set of assumptions that are generally not too far distant from the operating conditions under which it was formulated. ...
- Rigid decision making. ...
- Time required. ...
- Gaming the system. ...
- Blame for outcomes. ...
- Expense allocations. ...
- Use it or lose it. ...
- Only considers financial outcomes.
- It Helps You Keep Your Eye on the Prize. ...
- It Helps Ensure You Don't Spend Money You Don't Have. ...
- It Helps Lead to a Happier Retirement. ...
- It Helps You Prepare for Emergencies. ...
- It Helps Shed Light on Bad Spending Habits.
What is a disadvantage of bottom-up planning? There is no guarantee that the sum total of all the affiliates' goals will coincide with those of headquarters.
Which of the following is a disadvantage of participative budgeting? Time-consuming process and Managers may pad the budget.
A second disadvantage is that participative budgeting can foster budgetary "gaming" through budgetary slack. Budgetary slack occurs when managers intentionally underestimate budgeted revenues or overestimate budgeted expenses in order to make it easier to achieve budgetary goals.
Benefits of incremental budgeting
As well as being easy to prepare, it is easy to understand. Less preparation time leads to lower preparation costs. Prevents conflict between departmental managers since a consistent approach is adopted throughout the organisation. The impact of change can be seen quickly.
Advantages of Rolling Budget
A rolling budget helps in planning and controlling more accurately. Therefore, It helps in reducing the uncertainty of budgeting. Rolling budget plans for the near-term future instead of the long-term. It helps management know where the company is moving in terms of sales and profitability.
The three types of annual Government budgets based on estimates are Surplus Budget, Balanced Budget, and Deficit Budget.
Advantages of Bottom-up Budgeting
Bottom-up budgeting calculates budget estimates from the lowest level, which helps boost the accuracy and accountability of the budget. The process involves all the individuals in each department.
Which is an example of a bottom-up budgeting technique?
Bottom-up budgeting is when all the departments or sections of a company create a list of all their anticipated expenses and then each department's list is totaled up to create an overall budget.
Bottom-up investing is an investment approach that focuses on analyzing individual stocks and de-emphasizes the significance of macroeconomic and market cycles. Bottom-up investors focus on a specific company and its fundamentals, whereas top-down investors focus on the industry and economy.
Each approach can be quite simple—the top-down approach goes from the general to the specific, and the bottom-up approach begins at the specific and moves to the general. These methods are possible approaches for a wide range of endeavors, such as goal setting, budgeting, and forecasting.
Bottom-up estimating approach: Allows teams to estimate how long each sub-task will take. This time then rolls up into an overall time-to-project-completion estimate. Top-down estimating approach: Starting with an estimate of how long the entire project will take, then breaking it down into the various tasks.
Which of the following is an advantage of zero-based budgeting? Zero-based budgeting forces managers to justify each dollar in the budget to ensure that some expenses are lower in a current year compared to what they were in previous years.
The chief advantage of zero-based budgeting is that it promotes efficiency. Incremental budgeting essentially assumes that the previous year's budget figure was the "correct" amount, and therefore the budget needs only to be adjusted based on projections for the coming year.
Zero-based budgeting (ZBB) is a way of budgeting in which the budget is prepared in alignment with the organization's strategies and goals. In ZBB the exercise starts from zero base (i.e.) all the elements of budgeting must be justified for every period of budgeting. It is basically made from scratch.
Lack of cohesion. When decisions are being made at multiple levels, your business runs the risk of operating without a clear strategy. You may receive quality input from multiple sources, but employees may be operating without checking in with one another.
Disadvantages of the top-down approach include: Low participation (this is likely to influence the implementation of the plans in a negative way). Requires a lot of knowledge at the top level. Does not use specialized knowledge which may be present in the lower echelons of the organization.
Benefits of Top-Down Design
It helps to identify systems and subsystems. Bring in more clarity on communication between two systems or subsystems. Comprehensive list of features and sub-features along with all business rules. No room for mistakes in implementing user requirements.
What is one advantage of using top-down planning over bottom-up planning?
The advantage of this approach is that decisions can be made and implemented very quickly. This is particularly important when time is limited. The other benefit of top-down project planning is that it helps align the project goals with the organization's strategic goals as upper management is giving the directions.
For example, bottom-up planning focuses on specific products or services of a company in a particular region and is based on sales forecast data and other information such as production capacity, department specific costs, and a subjective assessment of market trends by the planner.
A fixed budget does not allow any room for extra, unforeseeable monetary needs. Possibly the biggest drawback to fixed budgeting is that it does not allow an individual or business owner to adjust the budget based on a change in situation, such as the loss of a job or reduced profits.
Disadvantage: Lack of Specificity
One of the disadvantages of having a master budget is its lack of specificity. The dollar amounts and numbers written on the master budget are a collective sum of all of the departments' expenses and earnings.
What are the four benefits of budgeting? Identifies spending priorities, prevents potential conflicts with loved ones, aids the development of a financial plan, and encourages good stewardship.
- Master budget. A master budget is an aggregation of lower-level budgets created by the different functional areas in an organization. ...
- Operating budget. ...
- Cash budget. ...
- Financial budget. ...
- Labor budget. ...
- Static budget.
Preparing a cash budget has a number of benefits: It can identify any times where there may be a shortage of cash. This will allow the business to plan ahead and arrange extra funding such as a bank overdraft . It can help to regulate expenses.
Instability in the value of money - Too much of money reduces its value and causes inflation and vice versa. Illegal activities - Money is the root cause of thefts, murders, frauds etc and this occurs due to the greed for having money.
| Sl No. | Advantages | Disadvantages |
|---|---|---|
| 2 | Provide Specific Aims | Revision Required |
| 3 | Creates Budget Conciousness | Conflict Among Different Departments |
| 4 | Reduced Costs | Depends Upon Supports of Top Management |
| 5 | Determine Weakness | Discourage Efficient Persons |
Benefits of budgeting include providing "guardrails" (i.e., designated limits) for spending, achieving financial goals (if savings is included as a fixed "expense"), and for peace of mind.
What are the advantages of budgeting in a business?
- manage your money effectively.
- allocate appropriate resources to projects.
- monitor performance.
- meet your objectives.
- improve decision-making.
- identify problems before they occur - such as the need to raise finance or cash flow difficulties.
- plan for the future.
- increase staff motivation.
ADVERTIsem*nTS: The following points will highlight the six major limitations of budgetary control, i.e, (1) Uncertain Future, (2) Budgetary Revisions Required, (3) Discourages Efficient Persons, (4) Problem of Co-Ordination, (5) Conflict among different Departments, and (6) Depends upon Support of Top Management.
