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Bottom-Up and Top-Down Budgeting Essay

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Updated: Jun 19th, 2020

Bottom-up approach

The bottom-up approach encourages teamwork’s input in managing a project. Major components of a bottom-up approach include instructions for managers about compensation policies and techniques (Milkovich, Newman & Gerhart, 2013).

In this context, compensation policies and techniques determine whether unnecessary amount of funds will be misused in managing a project. Forecasting instructions and worksheets are components that require distribution among employees and managers. The bottom-up approach is characterized by managerial consultations, data collection and compiling of reports. In a bottom-up approach, financial forecasting and reviewing of the same as part of the budget management process is critical. In addition, the necessity of conducting and analyzing feedback with the management is considered a critical component. Finally, monitoring of the budget against actual cost increment is a mandatory aspect of the bottom-up approach.

Top-down approach

The top-down approach is characterized by a budgetary assessment from upper management to the rest of the organization. In this regard, a budgetary allocation of finances or payment is distributed to each manager who eventually disperses the same to the assistants. Therefore, a planned pay-level component strategy is a major characteristic of the top-down approach. The planned pay-level is determined by average level increase market competition, turnover impact, cost of living and ability to pay (Milkovich, Newman & Gerhart, 2013).

At the workplace, the top-down approach is considered the most appropriate because of the company’s size. In addition, the upper management can understand employees’ ability as required from their assigned responsibilities. The top-down approach helps the managers in making critical decision that have a great impact on the employees. For example, the upper management decides on the appropriate employee rewards that promote productivity and performance.

Bottom-up approach scenario

The bottom-up approach is effective when used in large organizations that develop projects requiring intensive input (Schwalbe, 2006). The probability of project failure in a large organization is imminent if the right managerial concept for the labor cost is not applied. The bottom-up approach encourages the establishment of a proactive team that is obligated to execute managerial processes. The bottom-up approach is necessary when conducting budgetary process of a large marketing project. In this context, each decision involves all team members. From this perspective, managers communicate goals, and the course of action to the assistants and fellow employees irrespective of the level of responsibilities. Each team member is expected to have a personal list of duties, strategies to execute the plan and timetable.

However, the teamwork decides the methods of implementing personal tasks to harness consistency. Nevertheless, the mid-level managers are assigned the responsibility of monitoring personal performance of the team members. The bottom-up approach ensures that the benefits accrued from budgetary processes override the cost of developing and implementing the same.

Advantages and disadvantages

The advantage of including managers in the budgeting process is that a good communication between the superiors and mid-level managers is developed (Shah, 2007). In this context, sharing of ideas is critical in the development of a budget. In addition, mid-level managers develop a positive attitude towards cost management. Moreover, the level of motivation and job satisfaction increases when the managers are involved in the budgeting process.

The disadvantages of managers’ participation in the budgeting process include the lack of an open attitude and relevant information (Shah, 2007). Sometimes, the increased responsibilities for the managers are overwhelming and exert pressure on time and cost resources.

References

Milkovich, G., Newman, J & Gerhart, B. (2013). Compensation: 11th edition. New York, NY: McGraw-Hill Higher Education. Web.

Schwalbe, K. (2006). Introduction to project management. Boston, MA: Cengage Learning. Web.

Shah, A. (2007). Participatory budgeting. Washington, DC: World Bank Publications. Web.

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IvyPanda. "Bottom-Up and Top-Down Budgeting." June 19, 2020. https://ivypanda.com/essays/bottom-up-and-top-down-budgeting/.

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IvyPanda. 2020. "Bottom-Up and Top-Down Budgeting." June 19, 2020. https://ivypanda.com/essays/bottom-up-and-top-down-budgeting/.

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IvyPanda. (2020) 'Bottom-Up and Top-Down Budgeting'. 19 June.

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