Lot of banks prefer participative budgeting, any specific reasons?

Participative budgeting is when several or many people work on pieces of their company’s budget and submit it to management. This is usually done through a budget administrator who consolidates the individual budget pieces and creates a corporate budget for management review. It regularly takes several iterations of this process until consensus is achieved and management is satisfied with the results.

Yes, this process is usually more complex than a top-down approach when management (through budget administrators in the finance group) dictates the individual business units’ budgets but is often more realistic and is generally considered the right approach, as individual business units can deliver more accurate forecasts and can also be held accountable for their piece of the budget.

Participative budgeting has become much easier with the advent of purpose designed software solutions that manage the whole process, including the workflow element. The consolidation is automatically performed in the software, and multiple versions can be maintained. There is practically no limit to how many business units can participate in the budget, and the whole process takes place in a database with strict and tight controls.

It is encouraging to know that such solutions are also available to smaller enterprises, down to very small companies, and some of these applications can scale up or down to accommodate the needs of their users.

So my answer to your question is: Use this process if you have multiple business units that must be held accountable for their budgets and if you have the proper tools to perform this activity. Also remember that with participative budgeting, management can and should question the input received from the various business units and can actually dictate goals and limits for each unit. The actual data, however, will come from the various participants and will be rolled up to the corporate level.