Bottom-up or top-down? How to make the right decision for your costing strategy

When planning and controlling project costs, companies are often faced with a key question: bottom-up or top-down - which costing strategy is the right one? Both methods have their advantages and disadvantages, and the choice depends heavily on the type of project, the company structure and the desired level of detail.

What does bottom-up top-down mean in costing?

- Top-down costing starts at the highest management level. The management determines an overall budget, which is then broken down into sub-areas and tasks. This method is efficient and fast, but is more suitable for routine projects with known parameters.

- Bottom-up costing, on the other hand, is based on the detailed estimates of the specialist departments. Each unit calculates its expenditure, which is then aggregated to the total. This method is more complex, but generally delivers more precise results - especially for complex or innovative projects.

Advantages and disadvantages at a glance

Top-down strategy:
Advantages: It enables rapid planning and provides clear targets.
Disadvantages: There is a risk that the assumptions are unrealistic.

Bottom-up strategy:
Advantages: This method offers a high level of accuracy and realistic planning.
Disadvantages: It is time-consuming and requires a high level of coordination.

When is which strategy suitable?

-Top-down is ideal when there is time pressure, the project is standardized or a quick budget approval is required.

-Bottom-up is more suitable for individual, risky projects where sound figures are required.

The combination of both approaches

More and more organizations are opting for a hybrid form: a bottom-up, top-down strategy. First, a framework budget (top-down) is set, which is then refined using detailed bottom-up estimates. This allows strategic targets to be combined with operational feasibility - an effective method for realistic yet ambitious project management.

Conclusion

The decision between bottom-up and top-down depends on the objective, the resources and the project context. If you know the strengths of both models and combine them flexibly, you can calculate projects not only efficiently but also realistically. This enables you to manage your project costs transparently, purposefully and economically.

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