Top down budgeting

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Top down budgeting
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Top down budgeting is a planning system in which the budgeting process starts. In this system, the flow of information starts from the top of the organization and then goes to the lower levels of the organization. The information group contains templates to be filled out when translating budgets, guidelines that are used by managers and an outline of goals for a specific year. Top down budgeting and bottom up budgeting are two of the most common techniques of the budgeting process. In this budgeting process, everything starts with estimating the cost that is implemented in the organization for higher level tasks[1]. Top down budgeting can easily help understand boundaries and support of aggregate fiscal policy issues among decision makers. It makes it easier to set priorities in the government administration sector and of ensuring budget allocations compatible with those priorities[2].

Advantages of top down budgeting

There are a lot of different advantages and disadvantages of top down budgeting[3][4]:

Advantages:

  • Cost control: At the beginning of budgeting, the money is allocated to tasks from the highest level and only later to tasks from the lower level. Acting in this order helps project managers and company managers to manage costs executives and thanks to it limited resources are better allocated.
  • Development for management: Top down budgeting is a process that gives great opportunities to the management. It is the top managers who set the rules for developing the budget
  • Internal approachStrengthens and promotes internal relocation and avoids preliminary budget proposals from the ministries.

Disadvantages:

  • Need for expertise: Experience is obligatory. Members of the management team and managers must be properly trained and have specialized knowledge of top down budgeting. Without experience, they would not be able to allocate money properly. This type of budgeting requires a lot of knowledge from managers.
  • Process difficulties: Many process problems may occur in this process, for example, the manager's failure to provide the proper level of funding for lower level tasks may result in the placement of an employee from this level of the organization is wrong because he will not have the means to perform his tasks.

Top down budgeting cases

There are two known and commonly used cases of top down budgeting[5]:

  1. It is used as an instrument to improve budget stability. This is a very good option because it is related to prejudice in making public decisions related to excessive deficits.
  2. It can improve budget stability by warning about the preferences of parliamentarians and ministers. Top down budgeting can help you understand borders and provide support of aggregate fiscal policy issues among decision makers.

References

Footnotes

  1. Bolojan F. (2011), p.160, 162
  2. Ljungman G. (2009) p.13
  3. Bolojan F. (2011), p.163, 164
  4. Emery R. (2007) p.69
  5. Ljungman G. (2009) p. 12,13

Author: Aleksandra Majcher