Let’s admit it. Budgeting can be an excruciating process.
It’s slow. It’s messy. It’s painful. And it’s tedious.
But it’s also essential for any company to determine if they have enough resources to operate, grow, and remain competitive. One of the most effective financial planning systems available is bottom-up budgeting.
While it won’t take away the painful element of sitting down drowning in numbers, bottom-up budgeting gives you the peace of mind that you have an accurate budget forecast, providing you with financial sustainability.
Here’s what you’ll find in this article:
The traditional approach to corporate strategy looks a lot like this: a leadership team sets specific goals, and the rest of the employees do their best to follow the plan. When it comes to budgeting, a lot of companies operate that way.
In most cases, leadership sets a specific budget they think will suffice to meet particular goals, and the rest of the employees are bound by the “rules” set by the said budget. This top-down budgetary system can be effective for smaller companies but will find its limits in larger corporations.
Bottom-up budgeting is the polar opposite of top-down budgeting. Instead of having leadership decide the budget for the coming month, quarter, or year, the bottom-up system starts at floor-level spending.
Employees estimate how much money they’ll individually need to perform their job. This way, team leaders and managers can take ownership of their expenses.
For example, in a marketing department, each team would calculate how much money they need to meet specific goals based on past spending. Each team leader or manager reports the numbers to the head of marketing, who then takes the numbers to high-level decision-makers for review and, hopefully, approval.
So, instead of having the information flow from upper management down to the floor employees, bottom-up budgeting reverses the flow of information, making the entire company more involved in the financial decision-making process.
This system not only gives employees an added sense of responsibility but is also an excellent way to accurately predict the budget needed for each department, ensuring optimal allocation of resources.
📰 Read more on key differences between top-down and bottom-up budgeting.
Bottom-up budgeting is straightforward. It starts with the individual, flows through teams, snakes its way to departments, and ends its course with the decision-makers.
You can envision this process in 6 steps:
The first step is assessing how much each floor employee spends. Team leaders do this. They should determine how much money their team members needs to reach specific goals over a set period.
This stage is super important so that every team’s financial needs and aspirations are covered.
Once each team has its budget estimation, add them together to determine the estimated budget per department. Department heads should review the numbers, ensuring they are in line with company goals.
From there, you keep going up the ladder and add up the budget estimations of each department. It will give you an overview of company-wide financial obligations.
You then submit your findings to the stakeholders for approval. But before that, the budget estimations should be examined closely to make sure that there aren’t any discrepancies.
The “submit” phase shows the company’s commitment to transparency and accountability.
Using real-time data and past spending, you should review and adjust the budget based on your findings. Some companies find it valuable to publish the budget to keep the entire organization involved.
Once your budget numbers are in place, you must keep track of your budget in real time, ensuring that your spending is moving accordingly. This is where MARMIND can help.
Cited and praised by The 2022 Forrester WAVE report, MARMIND makes budgeting easier. It helps you forecast your budget and set budgetary limits for each department.
You can trust MARMIND’s budgeting management cockpit to streamline your budgeting process across your organization. It’s designed to handle multiple budgeting systems, including bottom-up budgeting.
Here are more reasons that are in favor of tracking your bottom-up budgeting. ⬇️
Since each department creates its own budget based on unique needs and aspirations, variances can occur over time.
Missing the mark on these estimates might upset the overall company budget.
In contrast, if a departmental budget ends up unused, those resources could have been allocated elsewhere to fuel company growth. For this reason, monitoring real-time spending and comparing it to the planned projects and cost projections offers a dynamic way to correct course and match financial decisions with company objectives.
Without a proper tracking mechanism, the entire budgeting process might get out of control.
Bottom-up budgeting brings you clarity. It offers a more granular view of your overall spending and helps you determine where you want to increase or decrease your budget.
While top-down budgeting relies heavily on directives from senior leadership, the bottom-up budgeting process gives power to department managers and teams. It is up to them to prepare their own budget estimates, which directly impact the final budget proposed to senior management.
Additionally, bottom-up budgeting is a company-wide effort that can boost company culture. Employees are involved in important decisions, making them more responsible and aware of what the company wants to accomplish.
But it’s not the end! Bottom-up budgeting approach also:
The main issue with this type of budgetary system is the freedom it gives team leaders and managers. Since they’re asked how much money they’ll need to meet company goals, they can overestimate their budget to play it safe.
Having faith in your staff is essential to lead any company to success, but you should be cautious. If all your departments add extra cushion to play it safe, it can add up and cost the company a lot more than needed.
Take a look at more of the downsides of bottom-up budgeting:
The remedy? Make sure to carefully review your team’s projections and remind them that they should not cushion their budgetary needs.
Adopting a bottom-up approach doesn’t make budgeting easier. But it does make budgeting more accurate. And when budgeting is more accurate, you can plan your next moves with more certainty and confidence, ensuring a sustainable financial trajectory.
And to make it all under your control, use Marmind! Book a demo and see how it works in practice.
In the bottom-up budgeting process, individual departments or department managers start by creating their own budget estimates based on planned projects, employee salaries, and other operational costs like office supplies and equipment purchases. These individual departmental budgets are then consolidated to form the overall organizational budget. In contrast, the top-down budgeting process starts with senior management or upper management setting the overall budget, which is then allocated to different departments.
The finance department plays a crucial role in reviewing and consolidating the budget estimates from all the departments. They ensure that the final budget aligns with the company objectives and financial period goals. The finance team may also provide guidelines for resource allocation and cost projections to encourage managers to create an accurate budget.
Bottom-up budgeting relies heavily on employee involvement, as team members and department heads are actively engaged in the budgeting approach. While this can be time-consuming, it often results in more accurate and participative budgeting. However, the administrative costs may be higher due to the extra time and resources spent on gathering detailed information from different departments.
Bottom-up budgeting starts with individual departments reviewing their previous year's budget performance and planned projects for the next financial period. This allows for a more nuanced understanding of departmental changes and needs, which can then be aligned with the big picture of company objectives when creating the final budget.
One of the key challenges is the time-consuming nature of the bottom-up process. Gathering budget decisions and estimates from lower management and team members across different departments can be labor-intensive. Additionally, there may be issues with over-budgeting or allocating funds inefficiently if there is not effective coordination between departments and senior leadership.
In a bottom-up budgeting approach, departmental heads and managers have a greater say in resource allocation, including employee wages and equipment purchases. This often leads to a more realistic and accurate budget. However, it may also result in departments based on their own needs, potentially overlooking opportunities for allocating extra funds to other departments or company-wide initiatives.
Peter is Digital Marketing Manager at MARMIND and mainly responsible for website and lead management. When he's not busy creating content, he is developing new strategic approaches for campaign planning.
In this video, we show you the 5 main features of MARMIND’s budget & cost module – and how it can be used in the best way for your marketing purposes: