The different types of cost in creating the budget This inevitably leads to totally unleashing not only the costs, but also the time required to complete the project. In fact, the risk in starting new projects or in the involvement of junior resources, may be that of not contemplating entire phases of activity and process. It is good for team morale because the project manager involves the team in budgeting.įor this reason, this approach is sometimes called participatory budget.Ī disadvantage of the bottom-up approach is th e difficulty of obtaining a complete list of activities and tasks necessary to complete the project, especially if it is something new, or if we are dealing with a young and / or inexperienced team. The advantage of the bottom-up budgeting approach is its accuracy, assuming that we have not forgotten any activity, and consequently its cost. The team is often involved in identifying the tasks and activities needed to complete the project and to estimate the various costs. In the second approach, bottom-up, literally from bottom to top, the project budget is built starting from the individual work stages, from the lowest level, and adding them up until reaching the total cost of the project. How to make a project budget: the bottom-up approach In fact, there is the risk that deliberately low budgets are created with the – false – belief that this will encourage cost savings and waste elimination. If this is not the case, a conflict may occur when a team member is assigned an unrealistic and insufficient budget to complete his work phase. The advantage of the top-down budgeting approach is that it focuses on achieving the project within the allocated budget and leads to efficiency and reduction of costly practices.Ī disadvantage is that it presupposes that the person who creates the budget has sufficient knowledge and skills to make a reasonable cost estimate. One should ask oneself if the balance sheet seems realistic on the basis of the experience of past projects, if there are any. In fact, it is necessary to explain how the work will be carried out and structured within the amount of budget allocated for each phase of the project. The top-down approach, literally from top to bottom, is more than simply a guess of the total amount on which to base the whole project. How to make a project budget: The top-down approach Bottom-up approach: estimate the total cost of the project, calculating the individual work steps, starting from the lowest level, and then adding the whole.īoth approaches, like all things, have their advantages and disadvantages.Top-down approach: decide how much the project will cost in total and divide the amount between the various phases of work.There are two main approaches that can be adopted when drawing up a budget: The different types of cost in creating the budget.