5.3.2 Bottom-Up Budgeting

Bottom-up budgeting pursues a diametrically opposite approach to that pursued by top-down methods. The most important prerequisite for the bottom-up approach is the availability of a detailed WBS that identifies all elements, work packages, tasks, and sub-tasks in the project. By utilizing the framework provided by the WBS, the bottom-up approach begins by constructing individual budgets by assigning both direct and indirect costs associated with labor, materials, and overheads for the most elemental tasks in the WBS. This is accomplished by consulting the personnel who regularly perform these tasks regarding times and budgets for these tasks. Such an approach ensures the most accurate budgets are created. The resulting total costs associated with each activity or task is then aggregated, first to create budgets at the work package level. Subsequently, these work package budgets are then aggregated to create the overall project budget.

In the bottom-up budgeting approach, it is critical that all task elements are identified and included in preparing the project budget. It is, however, considerably more difficult to develop a complete list of all tasks, particularly during the early stages of the project life cycle. In any event, the aggregate budgets developed from the bottom-up are then presented to top management. These top-level managers merge and streamline the various budget proposals and ensure that there is no overlap or double-counting of budgetary resources requested. It is the top management that is ultimately responsible for creating the final master budget for the organization.