5.3.1 Top-Down Budgeting

The top-down approach seeks to utilize the judgments and experiences of top and senior level managers as well as past data on similar activities in developing the project budget. This budgeting approach assumes that the experiences of the senior management in past projects will enable them to provide guidance to give accurate project cost estimates for future projects. In this approach, the senior level managers first estimate the overall costs of the project as well as the costs of major sub-projects that make up the project. These projections are then handed down to managers in the lower level of the hierarchy to further disaggregate these projections into detailed budget estimates for the specific work packages that comprise the sub-projects. This process is continued at each step down the hierarchy, until the project is broken into and ultimately evaluated on a task-by-task basis at the lowest level of the project organization's hierarchy.

The rationale behind top-down budgeting is that top management may not have the inclination nor the time to estimate the precise cost of each and every element of a project. However, they do indeed have the experience, the knowledge, and the savvy to provide a reasonable aggregate estimate of the overall project's budget. In order to provide more detailed estimates for the various work packages, and subsequently for the individual tasks associated with these work packages, you need to involve personnel in the lower levels of the organization's hierarchy where these work packages and tasks will be accomplished.