Saturday, 6 October 2012

Build-Up Budgeting

Build your empire by following Build-Up Budgeting approaches

Traditionally, firms have followed top-down budgeting methods with the top management taking all the decisions. But at present, companies have started to realize that it is very important to involve medium and lower level managers and employees in the process of budget allocation as well. That is why the build-up approaches have become more common nowadays. The different methods are listed below:
  1. Objective and task method – This involves formulating the objectives and deciding on the various activities and tasks required to be accomplished in order to achieve them. After this, the estimated costs to be incurred are calculated. This is how the budget amount is decided. This method ensures that the firm’s objectives are achieved with the help of budgetary allocations
  2. Payout Planning – The advertising and promotion for products will vary as per different stages of a product life cycle. For instance, you will know that initial spending will be more while the revenue may not be sufficient to cover these expenses. For this purpose, a payout plan is made out in order to project the possible revenues and expenditure of product. According to that, the budget amount for promotion is decided
  3. Quantitative models – These include computer simulation models which make use of statistical techniques and mathematical models to appropriate budgets. A major issue is that the techniques are employed on historical data and hence, does not give accurate results. Therefore, it is not widely accepted
The bottom up approach is explained with an example: