Top-down vs. bottom-up budgeting: Pros & cons

Budgeting from the top-down vs the bottom-up: What are the main differences?

Top-down, bottom-up, or hybrid? Which strategy will you implement to meet your company's unique needs?

When it comes to budgeting and financial planning, there are different methods your company can use to establish a solid budget. Two of the most popular approaches are top-down and bottom-up budgeting. Yet before establishing a budget for your business, you must understand the differences between the two and the pros and cons of each strategy.

Our team at Abacum has put together a useful comparison, so you can learn everything you need to know to tell them apart.

Download our latest infographic to discover the key elements to consider before choosing your ultimate budgeting strategy.

What is top-down budgeting?

Top-down budgeting is an approach to financial planning and budgeting where the budget is set based solely on the expectations of top management. This budgetary process requires executives to make broad strategic assumptions regarding future costs, resources, and revenues. Once these assumptions are established, department managers are responsible for developing specific budgets and objectives.

Top-down budgets help organizations ensure that decisions from top levels of management are reflected throughout the company’s operations, programs, and activities.

What is bottom-up budgeting?

Bottom-up budgeting is a type of financial planning process where individual departments or operational units propose their own budget requests and predicted expenses. This allows each department to prioritize its needs and makes budget decisions transparent.

Bottom-up budgeting is especially useful for organizations that experience rapid growth, allowing them to make necessary investments quickly and adjust for the changing demands of their environment. With this approach, there is more room for creativity, flexibility, innovation, and efficiency in the budgeting process.