Bottom Up Budgeting Definition, Process and Importance

Bottom Up Budgeting Definition

Bottom Up Budgeting Definition

Bottom Up Budgeting Definition – “A process whereby managers put together budgets that they feel will best meet the needs and goals of their respective departments or units. These budgets are “rolled up” to create an overall company budget, which is then adjusted, with requests for changes being sent back down to the individual departments”.

Unlike Top- down budgeting, here the managers of various departments provides numbers regarding their budgeted expenses and revenues. Then numbers from all the departments are combine and organization’s overall budget is made.

This type of budgeting requires to estimate the cost related to various projects. The process of bottom up budgeting is explained in detail.

  1. Identify various projects individually that the firm is going to take in the coming year as well as the cost associated with it. .
  2. Now estimate the budget of each and every department as per the projects that they will undertake.
  3.  Now combine the budget of all the departments and come up with some estimated amount for the budget of the coming year.
  4. This budget is submitted to higher authorities for the approval.

Related Financial Terms of Bottom Up Budgeting

Importance of Bottom Up Budgeting

The most important advantage of bottom up budgeting is that departments know the cost of undertaking or completing a project more accurate then the top level. The reason behind this is that they are closely related with the work.

At the same time, this type of budgeting also motivates and increases the morale of the employees. As they feel like they are also the part of important company decision. However, there are disadvantages as well. Sometime department heads even overestimate their budget. Every department want that they should have some extra amount of money so that they can accomplish the projects successfully. This results in adding extra money to the budget of individual department by the departmental head.

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