budgets are extremely important documents for the businesses in
this modern world. Budgets are based on the past data and also
include professional estimates and assumptions as well. It is
important to note that budgets must also include the latest possible
available information in order to make realistic budgets.
The traditional budgets are always helpful for the organization in the
following major ways:
• Help management to plan future activities of the business in a
more affirmative approach
• Budgets acts as a yardstick to measure the performances of the
relevant department and/or managers
• Budgets help in improving the communication within an
organization
• Realistic budgets always result in increasing motivation level of
employees, which also help in improving productivity of the
employees, etc.
The first starting point of preparing the master budget is to prepare
the sales budget and this is because of the reason that many other
budgets are dependent on the sales budget. Moreover, following are
the major approaches to prepare budgets:
• Participatory Budgeting Approach (i.e. the lower level
employees including managers must be involved heavily, while
preparing budgets) and this approach is usually considered to be
feasible for the businesses
• Top-down Approach (i.e. in this approach, the participation
from lower level employees has not been included or involved
at the minimum level)
The major drawbacks of traditional budgeting includes the budgetary
slack (i.e. intentional overestimation of expenses and/or
underestimation of revenues to ensure the favorable variances once
actual data compared with the budgeted results) and preparing
budgets are quite time consuming process.
On the basis of above details, I would prefer the use of the traditional
budgeting in comparison of the alternative approach to budgeting.
This is because of the reason that under alternative approach, only
