Guest Post by Laura Ngan Tian, Senior Consultant for Blackbaud’s Financial Management suite
When creating budgets, I am curious which approach really works best?
Is it bottom-up, where individual participation is required to put together the budget? Or top-down, where key executives make the decision and let it trickle down the line?
With this approach, each department can build the budget based on how they want to plan for the year. Budget managers are held accountable to the budget because they are the ones who projected it to begin with and a big variance means that they were unable to plan accordingly.
The problem with bottom-up budgeting is that when the organizational budget is put together, there’s often a gap between the divisional and/or departmental budgets and the overall direction of the organization.
With this approach, key executives decide on strategies for the growth and development of an organization. Short-term and long-term goals are always a factor when building the budget and budget managers are often left with “working” within their budget instead of being involved with the whole process. There are sometimes unrealistic goals that are not checked during the process and budget managers are often burdened with having to explain variances.
I think that in a successful organization, a combination of the two methods is at play.
When the executive team has formulated their strategies and built overall budget guidelines, individual budget managers can be the ones bridging the gap and creating their own divisional and/or departmental budgets based on operational requirements.
When there is good collaboration between the visions and the operations, achieving organization goals will come naturally.
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