Creating a budget for a project is a complex task that requires a careful analysis of the existing assets and an evaluation of the threats that the project in question may be exposed to. Traditionally, two strategies for calculating the budget are identified; these are the top-down and the bottom-up methods.
Although the two are often considered the exact opposite of each other, they, in fact, share a range of characteristics. However, for a project with a set budget, the top-down approach seems the most reasonable, as it sets the boundaries for the people planning the budget and, therefore, eliminates the chances for them to exceed the amount of financial resources at their disposal.
A bottom-up approach traditionally presupposes that the calculation of the future costs and the financial transactions should be calculated in order to define the overall amount of costs, therefore, leading to the identification of the required budget (Piercy, 2014). On the one hand, the given strategy helps the project manager be realistic about the options at their disposal and use the existing resources wisely.
A bottom-up approach sets certain expectations for the project, therefore, making the planned outcomes more realistic. Unfortunately, the given method has its problems, its design being the major fault. As a rule, the financial assets owned by the company are already known prior to the consideration of the budgeting options. Consequently, when one adopts a bottom-up approach, the threat of exceeding the existing amount of funds emerges (Piercy, 2014).
Top-down approach, also known as a parametric estimating (Burford, 2012), is often viewed as the exact opposite of the approach described above; however, it is only the direction of data analysis that sets the two strategies apart. Unlike the above-mentioned approach, the top-down strategy presupposes that the project manager should work within the boundaries of an already existing budget and allocate possible costs, as well as distribute the finances for different needs of the project and its members in a proper manner.
When knowing the limits that the project members should not overstep prior to the calculation of the costs that the project members may take in the process, one becomes capable of locating new avenues for addressing a specific issue and spending less money on it.
Therefore, the top-down approach should be viewed as an appropriate manner of designing a budget when the total amount of funds available is already known and fixed. Apart from the obvious advantage concerning the predictability of the outcomes, the top-down approach provides an opportunity to split the budgeting process into several tiers, thus, making the procedure more flexible (Shim, Siegel & Shim, 2011).
Creating a budget for a project presupposes managing the already existing funds, which must be distributed in a reasonable manner so that every single department should receive enough financial support (Shim et al., 2011). Therefore, the top-down approach, which allows defining a budget within an already existing amount of money available, must be viewed as the primary option.
Creating premises for the financial safety of all stakeholders involved, the aforementioned method of budgeting clearly should be viewed as the basis for creating a budget for a project. Therefore, when considering the existing options for planning a budget for a business project, one must view the top-down strategy prior to considering the other alternative.
Reference List
Burford, L. D. (2012). Project management for flat organizations: Cost effective steps to achieving successful results. Plantation, Florida: J. Ross Publishing.
Piercy, N. (2014). Marketing budgeting (RLE marketing): A political and organisational model. New York City, New York: Routledge.
Shim, J. K., Siegel, J. G. & Shim, A. I. (2011). Budgeting basics and beyond. New York City, New York: John Wiley & Sons.