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Sir I am self-studying and I have two questions related to the budgeting process. Please help me with them?
1) What is Budget Bias (i.e. budgetary slack)?
2) How to suggest to a company which budgeting approach would be good for them to follow?
Budget bias is when managers are preparing their own budgets and deliberately budget for more resources than they actually expect to need. They do this because they will be measured on their performance against the budgets and they are therefore more sure they will be able to ‘beat’ the budgets.
They need to know the advantages and disadvantages of participative (bottom-up) budgeting as against top-down budgeting. In principle participative budgeting is the better approach but needs to be carefully managed.
I do explain all of this in my free lectures on budgeting. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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