How does management use bottom-up budgeting?

Management uses bottom-up budgeting primarily to ensure accuracy and to gain buy-in from departments. This approach involves departments preparing their budgets based on their own forecasts and needs, which are then aggregated to form the overall organizational budget. By allowing departments to contribute their insights and specific requirements, this method encourages a more precise estimation of expenses and revenues.

Furthermore, the involvement of different departments fosters a sense of ownership and accountability among managers. When departments have a hand in formulating their budgets, they are more likely to feel invested in the financial outcomes, which can lead to enhanced performance and cooperation across the organization. This method contrasts with top-down budgeting, where budgets are set by upper management with little to no input from lower levels, which can lead to inaccuracies and resistance from departments that feel sidelined in the process.