Fundamentals of Management, 8th ed

Chapter 14: Basic Elements of Control

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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

Table 14.1

Developing Budgets in Organizations