What method of budgeting is more effective than the top down approach? (2024)

What method of budgeting is more effective than the top down approach?

More accurate budgeting: Because employees and the ones who know what individual items cost, bottom-up budgets are typically more accurate.

Which budgeting approach is best?

Which is better top-down or bottom up budgeting?

However, top-down budgets don't always take all project costs into account, sometimes making them difficult to stick to. On the other hand, bottom-up project budgeting allows for a detailed analysis of individual project costs, leading to more accurate forecasting and better control of project budgets.

Which one is not a top-down approach in budgeting?

Top-Down vs Bottom-Up Budgeting

In a top-down planning, departments must generate budgets within the constraints set forth by senior leadership. In a bottom-up budget, departments create their own budget estimates and send them to senior leadership. The two approaches are the two most widely adopted forms of budgeting.

What is a possible disadvantage of the top-down mandated approach to budgeting?

Cons of Top-Down Budgeting

Given that individual departments aren't involved in the budgeting process, they may not be motivated to see it succeed. Intra-departmental strife may also result if one department feels their goals are being deprioritized in favor of another department's objectives.

What is the strongest capital budgeting method?

Net Present Value. The net present value approach is the most intuitive and accurate valuation approach to capital budgeting problems.

Which budget setting method is most logical?

The most logical budget-setting method is the objective-and-task method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion.

Why is bottom-up budgeting good?

The main advantage of bottom up budgeting is that it is usually very accurate. Individuals in each department are best placed to understand their costs, resources, expenses and requirements.

Which is better top-down planning or bottom-up planning?

Even though top-down and bottom-up planning are very different methods, they both play crucial roles in a company's growth. Top-down strategic planning is often applied at businesses that are in their early stages, whereas bottom-up strategic planning is typically implemented at established companies.

What are the advantages of bottom-up budgeting?

What is the alternative to top-down approach?

Summary. The top-down approach to management is when company-wide decisions are made solely by leadership at the top, while the bottom-up approach gives all teams a voice in these types of decisions.

What are the alternatives to top-down management?

Bottom-up decision-making takes the opposite approach of top-down decision-making. Instead of setting goals before determining the process to reach those goals and leaving organization heads to make decisions on their own, input from multiple levels is considered in the process.

What are the three approaches to budgeting?

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.

What are the problems with top-down approach?

Limited Creativity: Employees are siloed in their responsibilities and are unable to contribute to the overall goals of the company — sometimes leading to frustration and a lack of motivation to perform. Dictatorial: The approach can seem oppressive to the employees who aren't a part of the process.

What are the disadvantages of top-down approach?

Top-down approaches are weak with regards to key factors such as local ownership, adequately building on local strengths, and locally-guided change of social norms. Quite often, the interventions used do not fit the local context. As a result, they are limited in their effectiveness and sustainability.

What are the disadvantages of top-down?

Why is NPV the best method?

It allows for the timing of cash flows. If a project has a positive NPV it offers a higher return than the return required by the company to provide satisfactory returns to its sources of finance. This means that the company's value is increased and the project contributes to shareholder wealth maximisation.

What is the easiest method of capital budgeting?

A simple method of capital budgeting is the Payback Period. It represents the amount of time required for the cash flows generated by the investment to repay the cost of the original investment. For example, assume that an investment of $600 will generate annual cash flows of $100 per year for 10 years.

What is the least used capital budgeting technique in industry?

The LEAST USED and MOST UNRELIABLE capital budgeting decision methodology is C PAYBACK (PB) INTERNAL RATE OF RETURN (IRR AVERAGE ACCOUNTING RETURN (AAR) 8.

Which budget is the most detailed and heavily used?

- The master budget is the most detailed and most heavily used budget in an organization. This budget is an integrated group of detailed budgets that together constitute the overall operating, investing, and financing plans for a specific time period.

What are the four 4 main types of budgeting methods?

Which approach to budgeting is most used by businesses?

Why is bottom-up better than top-down?

bottom-up is faster than the top-down one. Sometimes Bottom-ups are easier and most of the times the bottom-up are easy. Depending on your situation make your decision.

What are the disadvantages of bottom-up approach?

The bottom-up approach has disadvantages, including: Holding employees back: Employees may feel the responsibility of participating in decision-making is significant and it may distract them from fulfilling their regular daily work tasks.

What is a disadvantage of bottom-up planning?

A decisive disadvantage of the bottom-up planning approach is the high expenditure of time and coordination. It can also happen that subplans contradict each other in terms of content and the bar is set low for organizational goals.