Section A

GlobalStay, an international hotel chain, uses a 'bottom-up' (participative) budgeting process where local hotel managers prepare their own budgets, which are then consolidated by head office.

What is a potential disadvantage of this approach?

Participative (bottom-up) budgeting involves lower-level managers in the budget setting process. While it improves motivation and utilizes local knowledge, a major disadvantage is the introduction of 'budgetary slack' (or padding). Managers may intentionally underestimate revenues or overestimate costs to make their targets easier to achieve and secure performance bonuses.