What Is Participative Budgeting?
Participative budgeting is a type of financial planning strategy that involves the active participation of a wider range of employees in the process of creating a workable budget for a department or even an entire company. The idea behind this type of budgeting is sometimes referred to as a bottom-up approach, since not only owners and managers are creating the budget line items and amounts, but also employees who work in different areas of the operation. One of the benefits of participative budgeting is that employees feel a greater connection with the business, increasing morale and ultimately having a positive impact on employee productivity.
With a participative budget, employees throughout the company structure are invited to provide input into the assessment of the company’s needs for an upcoming budgetary period. Working within guidelines designed by company management, those employees consider various line items and determine how funding should be allocated in order to enhance the company’s opportunities for growth. In many instances, this approach has the benefit of identifying possible strategies that employees who are directly involved in the day to day operation of a specific area of the company can use to identify allocations that ultimately save money and help that area to function with a greater degree of efficiency.
The actual strategy involved with participative budgeting may vary. One approach is to invite specific employees within a department to design that portion of the company budget that focuses on their particular work area. At other times, the approach may call for employees from several different departments working together on the overall budget plan. The size and complexity of the company structure will influence exactly how the participative budgeting strategy is implemented, based on which model owners and managers believe is likely to produce the most effective results.
While participative budgeting does provide employees with more of a voice in how the company positions itself for an upcoming budget period, it is important to note that the final approval of the budget still rests with the company officers. Depending on income projections and other factors, the suggestions made by the employees may or may not be considered viable at that time. Even when this is the case, the ideas generated by the participatory budgeting approach provides a wealth of creative suggestions that can be drawn upon as the company continues to advance. Doing so helps to validate the efforts of the employees and can increase employee loyalty and motivate those employees to work more efficiently within their areas of responsibility.
@Terrificli -- That is certainly a major problem, but there are a lot of advantages of participative budgeting (and the article points those out quite well). The way to prevent the "rubber stamp" problem is to put different people in charge of approving the budgets every year.
The "rubber stamping" comes in when people get too familiar with the process, come to trust that the budgets will be fine and simply don't take their jobs too seriously. Changing out those people on a regular basis can go a long way toward making sure the budget process works as it is supposed to.
This approach has been known to get some companies into trouble fast. While everyone should understand that the company officers have the final say on the budget, that approval tends to turn into a rubber stamp after a time.
That typically becomes identified as a problem only after something catastrophic happens. If, for example, the employees turn a break room into an arcade full of classic games from the 1980s, who is to blame for that when that item was put in a budget that was hastily approved by management?
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