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 money to operate, grow, and remain competitive. One of the most effective budgetary 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.
Here’s what you’ll find in this article:
- What is bottom-up budgeting?
- The 6 steps you need to plan your bottom-up budget
- The benefits of bottom-up budgeting
- And the downsides of bottom-up budgeting
Bottom-Up Budgeting: What Is It?
The traditional approach to management 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 stakeholders 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 budgeting 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.
Bottom-Up Budgeting in 6 Steps
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:
1. Identify individual spending
At this point, you want to assess how much each floor employee spends. Team leaders do this. They should determine how much money their team needs to reach specific goals over a set period.
2. Calculate departmental budgets
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 align with company goals.
3. Add departmental budgets
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 operational costs.
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.
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.
What are the benefits of bottom-up budgeting?
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.
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.
What are the negatives of bottom-up budgeting?
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.
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.
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: