Authoritative Budget

Authoritative Budget (Top down Budget )

An authoritative budget ⇒ is developed from the top down. Senior management prepares all the budgets for every segment of the organization. The budgets are imposed upon the lower-level managers and employees.

Benefits of Authoritative Budget Development

1. An authoritative budget process gives senior management better control over the decision-making
   process than participative budgeting.
2. Authoritative budgeting places more emphasis on the achievement of the strategic plans developed
   by top management.
3. Authoritative budget development can be done more rapidly and with greater flexibility than participative budgeting because it eliminates the need to meet with lower-level managers to negotiate their budgets.
4. Budgetary slack is not a problem.

Limitations of Authoritative Budget Development

1. Because lower-level managers and employees (that is, those responsible for implementing the budget) have no input into the budget development process, they will usually have less commitment to the budget and be less accepting of it.
2. An authoritative budget is used to issue, or dictate, orders. People are likely to resent being given orders and a morale problem may result.
3. Because an authoritative budget lacks input from lower-level managers, its objectives may not be practical or possible to achieve because it does not take into account existing limitations that senior management might not be aware of.
4. Communication between senior management and lower-level management and employees is reduced with an authoritative budgeting process.