From the course: Accounting Foundations: Budgeting

How does budgeting affect people?

From the course: Accounting Foundations: Budgeting

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How does budgeting affect people?

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- We make our living talking about accounting. - We like our job primarily because it's really the only thing we know how to do. - But we have two other brothers and both of them have real jobs. - One of them operates heavy equipment - front end loaders, bulldozers, track hoes. - The other one is a Quality Control and Safety Manager at a manufacturing facility. - Now years ago this brother was involved in the budgeting process at his manufacturing plant. - This plant is owned by a large company that has plants and operations all over the world. - Historically, budget planners and company headquarters had determined budget numbers for each one of the manufacturing plants and then it sent those numbers down to the individual plant managers. - This is a perfect example of top-down budgeting. - But one particular year our brother tells us company headquarters decided to implement a bottom-up budgeting process. - Each plant manager was told to organize an employee committee and these employee committees would create their own plant budgets after being given a sales forecast generated by company headquarters. - Now our brother was on the employee committee for his plant. He says that the employee group took this budgeting task seriously and given their collective experience created a budget for the manufacturing plant for that year. - They passed this budget along to the plant manager who forwarded it to company headquarters. - And a few days later the plant manager reconvened the employee budget committee. Company headquarters had sent a message, "This budget isn't quite what we had in mind. Please take another look and get back to us next week with a revised budget." - Okay, so the employee budget committee got together, again, (chuckles) revisited their reasoning, reviewed their numbers, and ultimately revised the budget. With some relief, because this budgeting process had now taken much more time than they had anticipated, they gave their revised budget to the plant manager who again shipped it off to company headquarters. - And again a few days later a message came back from company headquarters, "This still isn't what we're lookin' for. Please get back together and give it one more try." - Well by now the employee budget committee was sick to the teeth of this bottom-up approach to budgeting. Our brother was deputized to pass along this message to company headquarters through the plant manager. "Listen, just tell us what you want, specifically, and we will change the budget to match what you're looking for." - So much for the bottom-up approach. In the end it was still a top-down budget. - And the whole exercise had created a bit more cynicism and frankly a bit less employee loyalty. - Ultimately budgets are not about numbers. A budget is about people and the budgeting process must carefully take into account the people who will be working under that budget.

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