Top Down or Imposed Budgets
In case of Top-down budgets, the top management takes all the decisions without any participation from departments or the middle management. This might leave employees feeling unheard and disengaged.
A top-down estimation will usually be performed in the following way:
Bottom’s up Budget
In case of Bottom’s up or participative budgets. Here, managers and employees recommend their budget targets. Budget input starts from the operational level, moves up to the middle, and top-level management with full participation in decision-making.
So, the Bottom-up Sales forecast will be done in the following way:
Example: Top-down v/s Bottoms, Forecasting the revenues of a hotel:
Sometimes senior management can be unhappy with the preliminary sales forecast (Bottoms up), believing the company should aim higher. The senior management makes a top-down estimate while each division forecasts through the bottoms-up method.
Usually, the two sides reach a compromise that’s between the two forecasts. The budgeting committee plays the role of intermediary between the two parties.
