The benefits of participative budgeting include creating budgets that are more easily achievable and increased morale. This type of budget gives employees incentive to make sure the company stays within financial limitations.
Participative budgeting is a budgeting system in which all budget-holding employees have the opportunity to participate in making their own budgets. Unlike budgets that are handed down from management, participative budgets are more realistic in terms of expenditures. Employees also feel more valuable when they help create their budgets.
To help make participative budgets effective, management provides employees with guidelines for the company's overall direction and how individual departments fit into it. Managers also review the budgets and make adjustments where they are needed to ensure the budgets accurately reflect expenses.