An Overview and Contrast of Top-Down Budgeting and Bottom-Up Budgeting of a Project

Budgeting a project is very important. It can be argued as one particular of the most essential elements of a project. De Waal (2005) states, “Traditionally, budgeting is deemed to be 1 of the most critical management tools to steer the organisation, evaluate its performance and motivate its people” (p. 56). Budgeting can make or break a project and can be very tough. There are several approaches to budgeting a project. Project managers should take into account numerous elements of the project ahead of selecting a budgeting procedure. The two main processes are prime-down and bottom-up budgeting. Best-down budgeting requires upper management offering an estimated overall budget based on past experiences. In contrast, bottom-up entails sub-tasks of the project becoming identified and budgeted initial. Both processes can be beneficial depending on the variety of project.

Top-Down Budgeting

When budgeting a project, a generally used method is best-down budgeting. Top-down budgeting requires passing the spending budget down the chain to be additional broken down into sub components. The highest management tends to make judgments based on previous experiences from related projects. The upper management estimates the price of the project and the sub-projects. The spending budget is continuously passed down to reduced-management down to the lowest level of the organization (Meredith, Mantel, & Shafer, 2015). Top-down budgeting is helpful if tasks and activities of the project are unknown. For instance, if an executive of a business decides to host an annual sales-meeting the organization might use top-down budgeting. If upper management is unsure of the subtasks of the meeting, best-down budgeting might be excellent. Because the meeting is annual the upper management can estimate expenses based on prior years. One benefit of leading-down budgeting is modest expenses do not require to be identified in the spending budget (Meredith, Mantel, & Shafer, 2015). When there is uncertainty of little tasks best-down budgeting might be considered. An additional advantage of prime-down budgeting is that agreeable budgets can usually be estimated simply. The downside is particular elements might be miscalculated (Meredith, Mantel, & Shafer, 2015). Top-down budgeting is ideal for projects with unknown subtasks nonetheless, it is not as correct is bottom-up budgeting.

Bottom-Up Budgeting

As opposed to top-down budgeting, bottom-up does not commence with upper management and work its way down. Bottom-up budgeting is the opposite. Tasks, schedules, and individual budgets are considered very first. Estimates are then based off resources which is then turned into the dollar amount. Throughout the bottom-up budgeting procedure, the men and women involved within the project are consulted to confirm the price range is sufficient to cover the sub-project (Meredith, Mantel, & Shafer, 2015). Bottom-up budgeting is an extremely organized approach. Considering that every single element of the project is considered it is more correct than leading-down budgeting. There is less area for error when employing this method. For instance, the reserve is integrated within the budgeting approach. The reserve contains a budget for unknown complications along the way (Meredith, Mantel, & Shafer, 2015). The reserve is like a safety net. It is there to defend incase of a fall. Bottom-up budgeting is helpful simply because it considers all elements of the project and consists of a safety net.

Examine and Contrast

Prime-down and bottom up budgeting differ in several elements. For instance, leading-down relies on upper-management to estimate the all round expense as opposed to bottom-up which relies on the sub-tasks. When a project’s tasks are defined then bottom-up scheduling is excellent. For instance, if a company decides to build a new workplace location than bottom-up scheduling may possibly be best. Because the project includes a number of sub-tasks that can mostly be defined such as constructing the floor, walls, windows, and electric the organization need to use bottom-up budgeting. If a organization is budgeting a project with many unknown subtasks than best-down budgeting may be excellent. Prime-down budgeting may well be ideal if the upper management has a sturdy knowledge to rely on. If a business has an annual project such as a sales meeting or organization outing, they can use the previous to estimate the project. It is essential to remember with top-down budgeting that with the benefits lessen with a lot more sub-projects or tasks (Kim and Chung-Keun, 2006). Top-down budgeting is truly excellent only for projects that do not have numerous sub-tasks.

Conclusion

In conclusion, it is extremely essential for firms to use a budgeting approach to acquire a a lot more accurate estimate. Leading-down budgeting relies heavily on encounter, upper management’s opinion, and does not focus on the sub-tasks. In contrast, bottom-up budgeting starts by defining the tasks and consulting how a lot each aspect of the project will cost. General, top-down budgeting is a lot more frequent because it is significantly less intensive but bottom-up budgeting is more effective since it considers numerous elements.