Project Management

1. What are the advantages are of top-down budgeting? Of bottom-up budgeting? What is the most important task for top management to do in bottom-up budgeting?

The advantages of top-down budgeting are as follows:

I. Aggregate budgets can often be developed quite accurately.

II. Budget categories are stable as a percent of the total budget, as well as the statistical distribution of each category, making for high predictability.

III. Small yet costly tasks need not be individually identified, nor need it be feared that some small but important aspect has been overlooked. The experience and judgment of the executive is presumed automatically to factor all such elements into the overall estimate.

The advantages of the bottom-up process are those generally associated with participative management and consist of the following:

I. Individuals closer to the work are apt to have a more accurate idea of resource requirements than their superiors or others not personally involved.

II. The direct involvement of low-level managers in budget preparation increases the likelihood that they will accept the result with a minimum of grumbling.

III. The involvement also is a good managerial training technique, giving junior managers valuable experience in budget preparation as well as the knowledge of the operations required to generate a budget.

2. In preparing a budget, what indirect costs should be considered?

The indirect costs that should be considered when preparing a budget are the cost of capital equipment not charged per piece of output, advertising and distribution, or sales. Also included are phone, materials personnel-clerical, utilities and direct labor.

3. Describe the purpose and use of a tracking signal.

A tracking signal monitors any forecasts that have been made in comparison with actuals, and warns when there are unexpected departures of the outcomes from the forecasts. It is a simple indicator that...