What is the difference between top-down and bottom-up budgeting?

• A. Combined approaches are common
• B. Top-down sets targets from management; bottom-up builds budgets from individual activities; combined approaches are common
• C. Bottom-up sets targets from management; top-down builds budgets from individual activities
• D. Top-down budgets are always superior

Answer: (B)

Top-down budgeting and bottom-up budgeting describe who initiates the numbers and how the budget is assembled. In a top-down approach, upper management sets the overall targets and allocates resources downward, often with less input from those who will execute the plans. In a bottom-up approach, budgets start from detailed estimates by the people doing the work or by departments, and those figures are rolled up to form the total budget. In practice, many organizations combine both: strategic targets from management are translated into detailed input from the operating level, then adjusted to fit overall constraints. This blended approach is common because it balances strategic alignment with on-the-ground accuracy.