Top Down vs. Bottom Up Budgeting

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Most students tend to side with the bottom-up approach (my guess is that is because we all think we understand things better than our bosses).  It would seem to allow the people closest to the work to give a more accurate picture of things.  What often occurs is that plans end up being based on experience, and does not result in the target profits that are expected from management.

What I have often seen is a mix of the two.  Either management passes down the goals for each area, and the lower level managers find a way to meet those goals in creating their budget, or the original budget goes to management, and they send back down the line with changes that need to be made.

In the end, publicly traded companies have to try to meet investor expectations.  So regardless of which method is used, the resulting plan has to find a way to produce an expected level of income.  Lower level managers may disagree with the expectations, but not achieving the needed level of income will cause the stock price to fall.  Smaller companies face the same issues, but in place of the market expectations they have those of the owner.

    • 10 years ago
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