Benefits of Self-Imposed Budget

Self-Imposed Budget

A self-imposed or participative budget is prepared with the full cooperation and participation of managers at all levels.

Advantages of Self-Imposed Budget

1. Individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management.
2. Budget estimates prepared by front-line managers are often more accurate than estimates prepared by top managers.
3. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above.
4. A manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this excuse.

Self-Imposed Budgets & Budgetary Slack

Self-imposed budgets should be reviewed by higher levels of management to prevent “budgetary slack.”

Most companies issue broad guidelines in terms of overall profits or sales. Lower-level managers are directed to prepare budgets that meet those targets.