It has been argued that employee participation in the budgeting process will improve firstly staff motivation and following on from this the quality of budget decisions and the efforts of individuals to achieve their budget targets. This does however largely depend on the culture of the organisation, the personality of the individuals involved and the nature of the task or budget process. Participation budgeting is not right for everyone and all companies, the situation needs to be assessed carefully before a budgeting system is chosen.
It has been found that participative budgets are normally effective under the following circumstances.
-In well established organisations, a long established company likely has the expertise and experience within the industry necessary to introduce a participative system, a fairly new company may not posses these skills and knowledge.
-In very large businesses, it may not be efficient to use this method in a small organisation, the process is costly and time consuming and it will be easier for top management to prepare the budget if they only have a small number of areas to cover.
-When operational managers have strong budgeting skills, if department managers are not good at budgeting then the budget will undoubtedly suffer. Weak managers will slow the budgeting process down and may need help, they may also be de-motivated by such a daunting challenge.
-When the organisation's different units act autonomously, if a business unit acts autonomously then it may be difficult for management to prepare a budget as this would undoubtedly limit the autonomy of the unit if were to work to centralised budgets. Also top management may not have had enough contact with the unit in order to competently prepare its budget.
Ritz-Carlton fulfils many of these criteria, being formed in 1983 it has over twenty years experience.