Definition

Bottom-up budgeting is when a company adds up the forecasted expenses of all the departments to create a total company-wide budget. This budgeting format is also known as participative budgeting, as each of the department heads helps in setting up the budget.

Example

Once all of the departments within a company are done planning their projects and associated expenditures, all the costs are added up to arrive at the net budget. For instance, if the projected costs of the human resource department are:$10,000 for recruiting employees$10,000 for employee pay$16,000 for administrative coststhe department's total budget will be $36,000Similarly, each of the department heads must come up with their respective department budgets to make a company-wide budget.

Why it matters

Bottom-up budgeting is considered an accurate budgeting approach as it begins with the needs of each department. This allows the budget to incorporate every detail of a project.Bottom-up budgeting can also help in boosting employee morale because individual contributors feel like they are making valuable contributions to the company. This is different than top-down budgeting because in this format, department heads do not feel constrained due to fixed budget allocation for a project or department.

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