Discuss how participative budgeting can achieve acceptance of the budget from staff.

The process of gaining acceptance of the budget involves negotiation and subsequent revision of budget estimates. This lengthy and time-consuming process, called participative budgeting, allows managers at all levels to develop their own initial estimates for budgeted sales, costs and so on.
Top-down budgeting describes the system where senior managers impose budget targets on more junior managers-there is little participation or consultation in the budget-setting process. Budgets may be set at the corporate level and then cascaded down to the various responsibility centres-profit centres and cost centres-throughout the organisation. This may be a cost-effective and timely way of setting budgets, but there are two major disadvantages. First, senior managers may have less knowledge of the local business environment than do those managers working directly in the particular responsibility centres. Budget targets may not embody this knowledge and may be unrealistic. Second, limited involvement in setting budget targets can result in a lack of commitment by middle and junior managers to achieving the budget targets.
The term bottom-up budgeting is used to describe the participative process in which people at the lower managerial and operational levels play an active role in setting their own budget. Budgets are collected at the lowest responsibility centres of the business and are consolidated and fed up to senior management. This budgeting process operates in a bottom-up manner. Under this approach, we would still expect a certain amount of review and negotiation to take place before budgets are approved by senior managers. Participative budgeting can encourage coordination and communication between managers and a greater understanding and appreciation of the objectives and strategy of the wider organisation. Accuracy of the budget estimates may be enhanced because those people close to operations have the best knowledge of the likely sales in their region or the likely costs of running their responsibility centre.
It is generally believed that most people will perform better and try harder to achieve a budget goal if they have been consulted in setting that budget. Such participation can give employees the feeling that 'this is my budget', rather than the common feeling that 'this is the budget you imposed on me'.