Reference no: EM131780170

Assume that you work in the finance department of a telecommunications firm with a large direct sales force selling high speed fiber optics access lines to companies wanting telephone and internet service access. Your firm uses top-down budgeting that sets the sales quota for each of its 150 salespeople. The salespeople are paid based on a commission as well as bonus whenever actual sales are better than their individual budgeted sales quota. Each salesperson's quota is estimated by senior marketing managers in the corporate offices based on the size of each customer in that salesperson's geographic area and projected growth of business in that territory.

A company that specializes in redesigning out-dated budgeting systems has made a presentation to your finance department after conducting a thorough analysis of your firm's sales force budgeting system. The consultants have emphasized that your current budgeting system does not take advantage of what your salespeople know about future sales in their customers' regions. By ignoring this information, your firm does not effectively plan for this growth, and you are at a competitive disadvantage when deciding to add capacity to your fiber optic network in a timely and efficient manner. Moreover, the consultants point to research suggesting that when people participate in setting budgets that are used to evaluate their performance, these people more readily accept the budgets and there is an increase in employee morale - that is, employees are motivated. The consultants have made a proposal to implement a bottom-up, participative budgeting plan to replace your top-down system.

Briefly describe the pros and cons of adapting the participative budgeting system at the telecommunication firm.