Annual Budget Preparation: What Budgeting Approach is Most Likely Used?

A health services organization is preparing its annual budget. In doing so, the organization examines each line of the prior year's budget and makes adjustments to reflect changes in the operating environment (for example, inflation). Which of the following budgeting approaches does the organization most likely follow?

Group of answer choices

Zero-based budgeting

'Conventional budgeting'

Top-down budgeting

Participatory budgeting

Capital budgeting

'Conventional budgeting' is the most likely approach used in this scenario. Here's why:

• Conventional budgeting starts with the previous year's budget as a base and adjusts it for anticipated changes. This method is commonly used because it is familiar, efficient, and provides a baseline for comparison.

Let's briefly explore why the other options are less likely:

• Zero-based budgeting requires justification for every expenditure, starting from zero. This method is more time-consuming and resource-intensive.

• Top-down budgeting involves senior management setting budget targets that are then allocated to departments. While this can be efficient, it may not be as responsive to departmental needs.

• Participatory budgeting involves input and collaboration from all levels of the organization. This can lead to a more comprehensive and well-supported budget, but can also be more time-consuming.

• Capital budgeting focuses on major investments in long-term assets, not the organization's overall annual budget.