Empower cost centre managers with simple, real-time budgeting and review tool
What is bottom-up budgeting?
‘Bottom-up budgeting’ (the modern-day inverse of centrist, ‘top-down’ budgeting), is a collective process that engages cost centre managers in setting the business’s expectations for its expenditure in the year ahead.
The proven outcome of this form of budgeting is a more accurate and credible budget (overall and for individual cost centres), through the use of financial information harvested at the very coalface of the organisation.
Where top-down has failed
- Fait accompli
Traditionally, the finance department is tasked with compiling an overall budget for the business, with strategic input from the FD. It is then broken down into parts representing the position of each cost centre, and presented to them as a fait accompli.
The advantage of this method is its speed – a central department crunches the numbers. With the benefit of the executive’s understanding of the business, the budget even has a good chance of being accurate – albeit only in totality. Cost centres’ individual needs are catered for with a figure that is derived from calculations based on historical data.
- Arbitrarily assigned
The shortcoming of the top-down method lies in its failure to take cognisance of life at the lower levels of the enterprise. Since businesses are composed of their parts, arbitrarily assigned constituent budgets cannot direct the financial performance of cost centres with any credibility.
As a result, top-down efforts are largely ignored by cost centre managers, and the business loses the benefits of a budget that accurately reflects grassroots knowledge.
Bottom-up budgeting
- Roundly accepted
These factors have contributed to the acceptance of bottom-up budgeting by organisations small and large in every industry around the world. Businesses recognise that, if they can effectively harvest information at its source, this will result in unique budgets for every cost centre and a more cohesive whole.
Added together, these may well correspond with the figure of a top-down budget, but in a significant departure from top-down efforts, it will represent a unique expectation for every cost centre, created by an operationally involved manager acting in accordance with the needs of his or her domain.
- Empowered and responsible
The bottom-up budgeting method acknowledges that every business domain is different from every other. It empowers those in charge of their domains with the tools to set their own expectations, expectations that will be critically examined by the financial department and used to hold managers accountable for their performance.
The beauty of this method is that a cost centre manager empowered with the tools to set his or her own budget will do their utmost not to exceed it. With responsibility comes a sense of ownership, invariably leading to accountability, accurate budgets and good spending practices.
It’s all in the execution
But while companies recognise the value of this approach, their execution often falls short. Enterprises still tend to compile budgets using central spreadsheet templates, only distributed to the cost centres for completion in a seemingly endless cycle of amendments and approvals.
This can be a big time and opportunity cost involving hundreds of billable hours of operational as well as financial staff, and more often than not, the FD’s strategic role is compromised, by being elbow-deep in a process that is still centrist and uses a format that alienates non-financial operational personnel.
There is seldom time for multiple iterations of the budget cycle, and with pressure from the executive for a final budget, the finance team often ends up tweaking the numbers to what they know will be accepted. In this single side-step to produce the finished product, all the good work of including the business in the budgeting process is completely undermined.
While this version of bottom-up budgeting is at least more accurate than the top-down method, it is hugely wasteful, especially when the organisation has more than just a few cost centres.
The idu way
idu Software supports the bottom-up concept, but not in the way that it has been pursued. Instead, we offer a real-time, online (Web-based) system that is both easy to use and cuts through the delays of a centrist approach.
- Easy to use
Highly customisable (by financial personnel with administrative access), the user interface can be made exceedingly simple. Each screen reflects only a specific manager’s area of financial authority. Point-and-click links and drop-down menus enhance the intuitive simplicity of the system, resulting in great adoption rates.
- Faster queries
As each cost centre manager (or lower-level operator) populates the fields he or she is responsible for, this is visible to the financial department and the line manager to whom the cost centre reports, making for much faster querying – and reviews.
The financial department is thus far better able to take a strategic viewpoint across the business, tracking trends and spotting anomalies. Conversely, the line manager needn’t contact the financial department to obtain her or his numbers, as they’re available online.
- Time and cost savings
Because of this, idu customers’ budget cycles are typically three weeks or less. This often results in a 100% return on investment in the software within the first budget cycle!
idu-Concept incurs a once-off upfront and subsequent annual licensing fee – the latter for upgrade assurance. As a South African product priced in rands that allows very rapid deployment, it typically comes in at fraction of the cost of competitor offerings.
Empowerment = accountability
All in all, bottom-up budgeting with the correct tools results in greater financial empowerment, engagement and knowledge throughout the business. The ensuing sense of ownership leads to much greater sharing of responsibility and accountability within business domains, allowing their performance to be driven by their own (tested) expectations.
And when the pennies are cared for by their true masters, the pounds tend to take care of themselves.
[U1]I thought this referred to the total number…?
