Top-Down Budgeting Definition and Example
Top-Down Budgeting Definition – “A process whereby senior management sets specific objectives for items such as net income, profit margin and expenses. Unit managers then put together their budgets within these parameters”.
In general terms, in top – down budgeting the senior managers develops a budget for the entire organization. Then certain amount is allocated to each and every department. All the departments are require to work within this budget parameters.
Top-Down Budgeting Example
To understand top – down budgeting definition, let’s discuss an example. ABC Ltd is a manufacturing firm. Now senior management of the organization meets and decides the target for sales, profits and expenses. There will not be any departmental manager in the meeting or any other member.
Now the numbers that the senior managers have decided are allocated to various departments. It may vary with department to department depending upon the sales target they get. Now each and every department is ask to make a budget plan on the basis of the funds allocated to them. Then finance department collect all these budget plans and submit them. One more important thing to note is that your department budget could be reduced, in case other department made a solid point for increasing their budget.
Top Down Vs. Bottom Down Budgeting
|Top Down Budgeting||Bottom Down Budgeting|
|Tactical and has very limited coverage||The coverage is high|
|It took time to get return on investment||There are earlier return on investments|
|Huge impact over the organisation||High impact on the organisation|
|The cost of deployment is quite high||In initial stage, the cost of deployment is high|