Imposed Budgeting is the way in which top management prepares the budget and impose on lower levels manager to implementation. This budget is prepared and reviewed by only the top management with little or no input from middle and low management. Most of the time, the budget follows the company’s objective and mission.
After the budget approved, it will impose on all departments to follow. Each department needs to prepare individual targets to support the main objective. Sale team needs to ensure that the total revenue meets the target. Production managers have to control the cost under the standard cost in order to obtain the budgeted margin. Moreover, all departments must control their own fixed-cost under the budget, so the annual profit will be equal to or higher than the budget.
Important of Imposed Budget
|Advantages of Imposed Budget|
|Working as a team||Everybody in each department knows their own role and responsibilities. They know their contribution to the company objective. If they fail to fulfill their department’s objective, it will have a negative impact on the company’s target.|
|Easy and cheap||As the top management sets the target, it will take less time to process and approve. It will reduce the time to spend on revising to fit with management expectations. The bottom-up method will require all department to raise their own budget which faces with inconsistency and require a lot of work to put them together.|
|Management in Control||The top management will in control of the company’s objective. They set the target and allocate it to all staff which will work on the same strategy. So the management just set the top strategy and everybody will follow.|
|Disadvantages of Imposed Budget|
|Lack of Motivation||The middle manager and staff may feel a lack of motivation as they do not input any idea to the budget. They just follow the top management who pay attention to the bottom line and high-level strategies.|
|Not Practical||Top management may lack technical knowledge related to real-life work. By following such a target, it may be too aggressive which is only exist in the budget not for real. On the other hand, the target may be far below the capacity of the production.|