Project Budgeting
Part One: Advantages of Top-down and Bottom-up budgeting in projects
Budgeting is the most critical element of any organization or project’s success. The budget controls the entire organization’s functionality through expenses; thus, it needs careful and proper planning. Mismanagement of budget leads to organizations’ failure through wastage of financial resources (Tjosvold, 2015). They are various forms of budget development in different organizations. However, the most common budgeting process is top-down budgeting and bottom-up budgeting. Both have their advantages, and an organization should use the one that works best for them.
Top-down budgeting for projects
The process of top-down budgeting is a method by which a high-level budget is prepared by the senior management and passed to the departmental management for implementation. The top-down budgeting process starts with senior management coming up with strategic objectives and goals of the year. Then, the senior management makes the projections and determines the high-level targets in terms of the expenses, sales, and profits. The senior management takes these projections based on the previous department’s financial performances, and when they may ask for suggestions from the departmental managers, the decision to use those suggestions is determined by the senior management (Kim & Park, 2006). Once the target budgeting process is over, it is passed to the financial department to make allocations for the departments. Top-down budgeting has several benefits.
Advantages of top-down budgeting
The processes feature a holistic corporate functional management since the top management has the common good for the overall organization. Further, the senior management allocates the resources with a primary goal of driving the organization towards success while giving priority to the most sensitive department.
Also, top-down budgeting helps to save on time for departmental management. The lower management is saved from the resources and time they would incur in formulating the budgeting from scratch.
Rather the departments formulating their budgets, and then combining top-down management allows the formulation of one overall budget that is passed to the departments for implementation. Such a process is less tedious and quicker.
Bottom-up budgeting
Bottom-up budgeting is the opposite of top-down budgeting and starts at departmental management and moves up to senior management. The lower managers make their specific budget projections based on their past performances and experiences and pass it on to the senior management for review and approval. The budget also relies on the current market status and the margin pressures to make it more real and also ensure it can be attained (Kim & Park, 2006). The departmental manager should ensure that every aspect of the budget is explained, and they should be ready for further explanation if the need arises. They are various advantages of bottom-up budgeting, as illustrated below.
Advantages of bottom-up budgeting
Enhances better budget accuracy-Bottom-up budgeting allows the budget estimates to be calculated from the lowest level, thus increasing the accountability and accuracy since the lower management are the ones in actual implementation, thus has more information on the market situations. Since all the individuals in the lower management are involved, the budget estimates will reflect an almost reality.
Also, bottom-up budgeting increases the employees’ motivation since they develop a sense of appreciation and self-ownership, thus will work hard towards the realization of the overall goal. The employees’ suggestions and insights play a more significant role in budget formulations.
Part two: Reflection
The last two lessons focused on project management and how to strategically develop actionable plans that would lead to meeting the project goals and objectives. As the school is committed to teaching courses that are applicable in real-life situations, the knowledge of project management is significant to the students. Business, organizations, and industries have moved from the traditional regime of management and development and are now executing their milestones through projects and programs that have short term goals objectives (Tjosvold, 2015). The changing business environment and technological innovations require short term goals and objective setting that are flexible for change. As I seek to work in highly competitive organizations that operate through projects, the knowledge and skills will be of significance for managing projects.
The knowledge on the fact that projects works under a scheduled time frame and specific budget allocations would be of great help while planning for the project executions, planning activities, and developing monitoring tools to measure success and project success. The knowledge of budgeting is applicable when developing budgeting plans and planning on expenditure. For example, since projects works on fixed budgets, I will develop expenditure projects that are as close to reality as possible to avoid financial constraints that may hinder the realization of project goals and objectives. Further, the knowledge of project management forms a base for personal and professional growth. I aim to become an exemplary project manager who would drive organizations towards success through meeting the expected goals and objectives within the required time and budget allocations. Also, the lessons have illustrated the need for integration in project management, which I will execute in all the projects that I will be leading. Team integration is the primary driver of an organization’s success, and every project manager must embrace it (Söderlund, & Maylor, 2012). The knowledge and skills will help in integrating corporate management, the stakeholders, and the entire project team in formulating plans and strategies for implementation. Finally, I aspire to implement the knowledge and skills not only for personal benefits but for the benefit of the overall society.
References
Kim, J. M., & Park, C. K. (2006). Top-down budgeting as a tool for central resource management. OECD Journal on Budgeting, 6(1), 87-125.
Meredith, J. R., Shafer, S. M., & Mantel Jr, S. J. (2017). Project Management: A Strategic Managerial Approach. John Wiley & Sons.
Söderlund, J., & Maylor, H. (2012). Project management scholarship: Relevance, impact, and five integrative challenges for business and management schools. International Journal of Project Management, 30(6), 686-696.
Tjosvold, D. (2015). Building the team organization: How to open minds, resolve conflict, and ensure cooperation. Springer.