Running Head: BUDGETING PROCESSES 1

Budgeting Processes
William Pittman
PJM 310-2 Introduction to Project Management
Colorado State University Global Campus
Professor Ken Wallin
February 10 , 2014










BUDGETING PROCESSES 2

Budgeting Processes
When budgeting a project, there are two primary methods of allocating and compiling the
costs associated: Bottom up and top down budgeting. Before a project is kicked off, or in some
cases, even bid for, every cost category is individually budgeted and then combined into a master
total budget. This allocation of budgetary constraints is universal among projects, its just the
methodology that differs.
Top Down Budgeting is the use of comparative data from previous projects similar to the
project being budgeted. It relies on the experiences and knowledge of upper management. When
a project similar in nature has been completed a multitude of times, ideas form about how much
specific tasks and their combinations cost. This process is usually undergone by those who are
familiar with every aspect of the project, not necessarily professionals on the individual issues.
Thus, Top to middle management handles this type of budgetary process.
Top down budgeting is used when a feasible amount of confidence in repeating similar
work for comparable dollar figures exists among those in upper management. It should be used
when estimating projects with similar deliverables and scope. Top down budgeting provides a
quicker, easier to compile budgetary process for devolving project budgets. When this type of
budgeting process is used it is absolutely important that similar work to the project in questions
has been done under similar circumstances. Although every project is different, a top down
budgeting process can streamline the allocation of dollars to tasks within the project. Thus, this
type of budgeting proves beneficial when bidding on similar projects because of its efficiency in
execution. The Bottom up budgeting process take more time and consists of greater detail.

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Bottom up budgeting is often used rather than top down budgeting in situations where a
project team has not completed number of similar projects. This process utilizes the knowledge
from the individuals in charge of specific tasks on the project by allocating their expertise on the
project deliverables. Within this type of budgeting, every tasks budget allocation is estimated by
the individuals preforming the task. Using this process, is it critical that all elements be
included (Project Management: A Managerial approach p.291) in the total budget proposed.
One would think that this would always be the most accurate way to develop a budget,
however, individuals may inflate the individual task budgets in an order to anticipate budgetary
reduction later on in the project. This negative aspect of bottom up budgeting is superseded by its
accuracy derived from diversification. Some individual costs reported to be incurred may be
under actual while some may be over. This ebb and flow usually results in a figure accurate for
the projects success. Bottom up budgeting should be used in situations where is proves feasible
to spend the extra effort compiling smaller individual budgets that comprise the main budget. A
benefit of bottom up budgeting is the acceptability of members in charge of sub budgets within
the project. If the person preforming their task, bids their task, this increases the likelihood that
they will accept the result with a minimum of grumbling (p.292)
These two budgetary process both possess their own strongpoints and weaknesses. In
order to choose the proper process, a decision by senior management must be made based on
previous project information to use top down or bottom up budgeting. So, in essence, before the
decision to use top down or bottom up budgeting takes place, an analysis at the top end level
takes place to set forth what budgetary process will be used.

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References
Meredith J.R. & Mantel Jr. S.J. (2012) Project Management: A Managerial Approach.
Hoboken, NJ: John Wiley & Sons, Inc.