Running Head: BUSINESS POLICY AND STRATEGY 1
Business Policy and Strategy
Student Name
University Name
, BUSINESS POLICY AND STRATEGY 2
B1
Mandated Approach
This is the top-down approach of budget design. The senior management prepares the
budget which is based on the management objectives and it is passed down to the departmental
managers for implementation. Managers pass on their recommendations before the preparation
of the budget however, it is up to senior management's discretion to consider these or not.
According to this approach, departments are given specific allocations and goals. The
management considers past budgets and their experiences along with market conditions to
prepare the budget. Changes in legislation, profitability levels in the industry and increase or
decrease in salary levels, etc. are considered while preparing the budget. It is a good approach in
the sense that the senior management sees the big picture better. However, the lower level
management could get its motivation lowered as a result of the mandated budget as they do not
feel to be a part of the process.
Participative approach
In this approach, people at lower management levels in the organization get involved in
the budgeting process. Thus, the responsibility is shared with the lower levels as well and
managers at these levels get a sense of ownership of the business. These budgets are usually
achievable as lower-level management is better positioned to implement the budget (CFI,
2019b). This type of budgeting is used in organizations in which the top management trusts its
staff. Employees are motivated better to work. The disadvantages include too much time
consumption and the fact that the lower management employees might fail to see the big picture
and might not steer the organization in the right direction.
Business Policy and Strategy
Student Name
University Name
, BUSINESS POLICY AND STRATEGY 2
B1
Mandated Approach
This is the top-down approach of budget design. The senior management prepares the
budget which is based on the management objectives and it is passed down to the departmental
managers for implementation. Managers pass on their recommendations before the preparation
of the budget however, it is up to senior management's discretion to consider these or not.
According to this approach, departments are given specific allocations and goals. The
management considers past budgets and their experiences along with market conditions to
prepare the budget. Changes in legislation, profitability levels in the industry and increase or
decrease in salary levels, etc. are considered while preparing the budget. It is a good approach in
the sense that the senior management sees the big picture better. However, the lower level
management could get its motivation lowered as a result of the mandated budget as they do not
feel to be a part of the process.
Participative approach
In this approach, people at lower management levels in the organization get involved in
the budgeting process. Thus, the responsibility is shared with the lower levels as well and
managers at these levels get a sense of ownership of the business. These budgets are usually
achievable as lower-level management is better positioned to implement the budget (CFI,
2019b). This type of budgeting is used in organizations in which the top management trusts its
staff. Employees are motivated better to work. The disadvantages include too much time
consumption and the fact that the lower management employees might fail to see the big picture
and might not steer the organization in the right direction.
