Participative budgeting
In one sentenceA method of preparing the budget in which department and branch managers take part by estimating their own figures, which senior management then reviews and approves.
Simply put
The person working in the branch knows its customers and expenses better than management, so involving them makes the figures closer to reality and increases their commitment to them.
Its drawback is that a manager may set easy targets to make their performance look good, so it needs review by management.
Example
A company with five branches asks each branch manager to estimate their sales and expenses for next year. Management then meets each manager to discuss their figures and compare them with previous years before combining them into the master budget.
Don't confuse it with
Budgetary slackSlack is the best-known risk of participative budgeting: a deliberate estimate lower than what is possible.