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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Marlowe Components plc sets budgets entirely by top management and then communicates them to department heads, who are told to meet them. Managers say the targets feel unfair and they put little effort into achieving them. Which budgeting approach would most directly address this motivational problem?

A participative approach, where managers help set their own budgets, addresses the problem. Involvement increases ownership, perceived fairness and commitment to targets, whereas imposed budgets, tighter targets or finance-only forecasts keep managers excluded and do not improve motivation.

  1. AMoving to a participative approach where managers help set their own budgetsCorrect
  2. BMoving to an incremental approach based on last year's figures plus inflation
  3. CTightening the targets further to increase pressure
  4. DIntroducing a rolling forecast prepared only by the finance team

Explanation

The problem is lack of ownership caused by an imposed (top-down) budget. Participation by managers increases commitment and acceptance of targets. Incremental budgeting and tighter targets do not address ownership, and a finance-only forecast remains imposed.

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