Distinguish between a bottom-up and a top-down approach to budget implementation

CIMA define a bottom-up approach to budgeting as ‘a budgeting process where all budget holders have the opportunity to participate in setting their own budgets’ . Where a bottom-up (participative) approach is adopted, budgets are developed by lower-level managers who then submit and agree their budgets with their superiors. This approach can be effective in very large organisations or where operational managers have strong budgeting skills.

A top-down approach to budgeting has been defined by CIMA as ‘a budgeting process where budget allowances are set without permitting ultimate budget holders the opportunity to participate in the process’. When a top-down (imposed) approach is adopted, senior management prepare a budget with little or no input from operating personnel. The budget is then imposed on employees who have to work to the budget figures. This imposed approach can be effective in newly formed or small organisations during economic hardship when precise co-ordination is required, or when operational managers lack budgeting skills.

A bottom-up approach encourages participation in the budget process while a top-down approach imposes a budget without allowing participation.