Budgeting refers to forecasting revenue and expenses over a designated period in the future, it is an aspect that plays an essential role in running companies, governments, or even households, and it helps run all these smoothly and efficiently when invested in heavily. It can be demanding for companies, especially when the plan of action is not articulated well or there are bumps on the road, like late payments from consumers or when sales are irregular. A budget, in general, attempts to implement a business plan tactically, and it goes through various stages before actually implementing the budget.

There are various types of budgets, the main one being the master budget, which is an estimate for the overall company and usually forecasts the whole financial year. Others include the static budget, which usually looks at how much a company has and will be spent; the operating budget, which includes expenses and revenue from day-to-day business operations and the cash flow budget, which helps managers know cash being generated during a specific period. Apart from various types of budgets, there are also different budgeting techniques an organization can use. They include incremental budgeting, activity-based budgeting, zero-based budgeting, value proposition budgeting and lastly, flexible budgeting.

After choosing a budgeting method, the organization or firm should now consider how involved the structure should be and which hierarchy should be involved and which should not be. Managers have three budget involvement ways to choose from, imposed budgeting, negotiated budgeting and participative budgeting (Lamba, 2022). The focus will be on participative budgeting in this case, and it is a budgeting process where the managers involve the people in the lower levels of management in the budget; it is simply a bottom-up process in which the employers take part in recommending goals and targets to the managers and executives.

Participative budgeting is effective in that it will allow the organization to have a sense of ownership and control; it will also allow the organization to better understand its departments’ economic needs, which in turn reduces losses. Even though this is the case, this method will only work better in an organization with an exemplary collaborative association between higher and lower-level management; this means great communication, trust and teamwork (Bragg, 2022). This type of budgeting makes the whole process more achievable, sustainable and efficient because the positioning of the lower hierarchy staff makes them understand where capital should be allocated and can point out areas managers and executives might sometimes write off. It might be effective, but the process can be long and tedious, seeing that many people are involved, and there is sometimes a tendency of overbudgeting by department heads who want the budget to also cater for the coming year’s budget.

A master budget, as we mentioned in the main budget used frequently by most companies since it is a projection for the overall firm and will include a forecast for items on the balance sheet, income statement and even the cash flow statement (Bragg, 2022). All the projections in a master budget will include expenses, operating costs, sales, revenue and capital expenditures; this goes on to show how the master budget will cover wide areas in the organization, from top to bottom. This aspect is where the master budget will coincide with the use of participative budgeting in making it work. All levels in the hierarchy are vital when creating a master budget; therefore, the company will have to be thorough for this to be efficient.

Having that cohesiveness in participative budgeting will assist in making the master budget effective, enabling the company to achieve specific goals and objectives for the business. The annual performance will be easier to evaluate since the master budget covers all aspects of the institution, and the use of participative budgeting makes all hierarchies involved to understand better the vital components of achieving the organization’s overall goals