Month End Glossary

Bottom Up Budgeting

Bottom-up budgeting is a budgeting approach where lower-level managers and employees contribute to creating a comprehensive budget.

Bottom-up budgeting is a participative budgeting approach where budgeting responsibilities start at the lower organizational levels. This method emphasizes the involvement of individuals who are directly responsible for operations, as they have detailed insights into the resources and expenses required for their departments. Employees in each functional unit propose a budget based on their projected needs, which is then reviewed and combined as it flows up through the hierarchy.

This method contrasts with top-down budgeting, where senior management dictates the budget allocations. An example of bottom-up budgeting in action would be a company allowing department managers to estimate their operational costs and resource needs for the upcoming fiscal year, then consolidating these projections into the organization's overall budget.

The main benefit of bottom-up budgeting is that it ensures more accurate and realistic budget allocations since the input comes from individuals directly involved in each department's activities. Additionally, it fosters employee engagement and accountability in the financial planning process. However, one drawback could be that it may lead to a lack of coordination between departments, necessitating managerial oversight to align individual department budgets with broader organizational goals.

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