Advantages of Participative Budget

Advantages of Participative Budget

Under this technique the lower management effectively participates in the budget preparation process and mainly their recommendation is incorporated in the budget. The participative technique of budget preparation is suitable in relatively medium scale organization.

1.    Commitment

The first advantage of participative budget is improvement in management commitment. Managers will shoe more commitment to achieve the target set by them. The participation will act as motivating factor for the junior management and it will have a positive impact on the performance of the junior management.

2.     Improved Communication

The second advantage of participative budget is improved communication within organization. This method will improve bottom to up communication.

3.    Problem Identification

The third advantage of participative budget is problem identification to top management. This will help top management to understand the problem at lower level.

4.    Potential Identification

The fourth advantages of participative budget are potential identification of lower management to top management. Such identification will play important role in the career development of the lower management. Such identification will also help organization for effective utilization of talent.

5.    Confidence Improvement

The fifth advantage of participative budget is confidence improvement of lower management. This method will improve the confidence of the lower management and give him a motivation to work harder for achieving the organization objective. This technique will also have positive psychological effects on the junior management.

6.     Accurate Budgeting

The sixth advantage of participative budget is to bring more accuracy in budget preparation. Lower manager can project the figures more accurately because they are more related to operations and they have more detail knowledge of operations. They will prepare a budget after considering all the relevant facts and figures. Therefore the budget would be more appropriate.