The purpose of this article is to provide an overview of the two common methods of determining budgets for the individual tasks within a project. The two methods to be discussed are the top-down method and the bottom-up method. Included will be the advantages and disadvantages of each method, as well as a discussion of the role of the project manager in determining budgets for these tasks.
The first method of determining task budgets is the top-down approach. This method starts by reviewing the total project budget, which includes labor, materials, and other related costs. Next, the scope of each task is reviewed. Finally, a percentage of the total project cost is allocated to each task based upon the scope, resulting in a budget for each individual task. This method is used when a project manager has been allotted a specific amount of money to spend on the entire project. An advantage to using this method is that it helps reign in costs and prevents excessive spending. A disadvantage is that the total project budget may not be realistic, which could result in insufficient budget amounts for individual tasks.
The second method is the bottom-up approach. This method starts by determining the specific costs associated with each task, such as labor, materials, and other related costs. Next, the specific costs are totaled in order to establish a budget for each individual task. The sum of each individual task budget results in the total project budget. An advantage to this method is that it may help ensure sufficient funds for each task. A disadvantage is that individuals or groups within the company may overstate their actual needs, resulting in excessive spending.
The Project Manager Role in Determining Budgets
The project manager has many roles during the life of a project, and participating in the budgeting process is one of them. The project manager is responsible for defining the project objective, determining the project scope, dividing the project into specific tasks, and determining the activities that must be performed within each task. Therefore, it is the project manager that is in the best position to determine costs associated with the project. The top down approach requires the project manager to determine task budgets based upon the overall project budget and make adjustments if necessary in order to stay within that budget. The bottom-up approach requires the project manager to determine task budgets and then recommend an overall project budget based upon that information.