Convenience

Chapter 14:
Basic Elements of Control
4 3 7
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Developing Budgets
Traditionally, budgets were developed by top management and
the controller and then imposed on lower-level managers. Although some organizations
still follow this pattern, many contemporary organizations now allow all managers to
participate in the budget process. As a starting point, top management generally issues
a call for budget requests, accompanied by an indication of overall patterns the budgets
may take. For example, if sales are expected to drop in the next year, managers may be
told up front to prepare for cuts in operating budgets.
As Figure 14.5 shows, the heads of each operating unit typically submit budget
requests to the head of their division. An operating unit head might be a department
manager in a manufacturing or wholesaling firm or a program director in a social service
agency. The division heads might include plant managers, regional sales managers, or
college deans. The division head integrates and consolidates the budget requests from
operating unit heads into one overall division budget request. A great deal of interaction
among managers usually takes place at this stage because the division head coordinates
the budgetary needs of the various departments.
Division budget requests are then forwarded to a budget committee. The budget com-
mittee is usually composed of top managers. The committee reviews budget requests
from several divisions, and once again, duplications and inconsistencies are corrected.
Finally, the budget committee, the controller, and the CEO review and agree on the