Top-Down Budgeting Is:
In essence, a top-down budget is a budget that is made by management and shared downwards with department managers so that they can implement it. This approach is quite common, as oftentimes managers and department heads like to be the ones that dictate how things should be done, and then push this down to employees to execute.
Bottom-Up Budgeting Is:
Contrary to top-down budgeting, bottom-up budgeting is prepared the other way around- from employees and individual departments, and is then pushed up to management.
Which Should You Choose?
There are pros for both types of budgeting, you just need to choose the one that’s right for you.
Top-Down Budget Pros
- Budget is defined by management, which sees the big picture.
- This takes the burden off of lower management, allowing them to save time.
- This is easier to manage, as only one budget is created and them pushed down to all the different departments.
- Allows for each department to align with the goals of the company.
Bottom-Up Budget Pros
- Since these budgets are prepared by “those in the field,” they tend to be more accurate than budgets prepared by managers.
- Bottom-up budgets give the clearest picture of each department’s costs and resources.
- These budgets empowers employees at the lowest level to take ownership of their department.
- This type of budgeting motivates employees to meet financial objectives because they took part in defining them.
Learn more about bottom-up vs. top-down budgeting.
