Professional Documents
Culture Documents
305/Q1 & 10
Q1) What are the advantages of top-down budgeting? Of bottom-up budgeting? What is the
Top-Down Budgeting:
This type of budgeting is based on collecting the ideas, experiences and decisions of top and
middle management and the available past data. These managers estimate an overall budget
1) The over-all budgets can be estimated and calculated accurately with a very few errors In
the elements.
2) The different categories of budget are stable along with the statistical distribution of each
3) The small tasks need not to be individually identified as sometimes those small task will be
4) The experience and decisions of the executive management are considered automatically
Bottom-Up Budgeting:
In this type of budget, tasks, their schedules and their individual budgets are constructed. The
estimates are made in terms of resources such as labour hours and materials
1) The members who are closer to the work tend to have more precise idea about the
requirements of resources compared to the ones who are not involved in that particular work.
2) Due to the direct involvement of the low level managers, there is an increase in the
3) The involvement in work for the junior workers is a good managerial training technique to
be used which will be useful while generating the budget as the experience provided to them
is valuable.
In the bottom-up budgeting the most important role by the senior management is to decide
whether to hand over the control of projects to subordinates whose experiences are
questionable. They are reluctant in giving the whole control to them as the each of the
projects lasts about 5 to 8 years and costs millions of dollars. The senior management see the
for projects(events) which are related to helping the poor and needy. The costs are to be
estimated and are to collected from member, students and different societies which are
willing to help us. All the budgets are managed by president, secretary and treasurer in our
organisation. We have to divide the costs according to the product type which are to be given
Q10) How does a risk analysis operate? How does a manager interpret the results?
distribution of input factors. Risk estimation and analysis don’t remove the ambiguity but it
just defines the uncertainties faced during decision making. While applying risk analysis, you
have to make assumptions about the probability distributions which are the key elements and
variables associated with a decision and then these factors are used to estimate the risk profile
for the outcome of a decision. This type of analysis can be achieved by using Monte Carlo
simulation, a technique which is easy to use that is well adapted to evaluate risks in some
particular needed situations. When the decisions contain numerous amount of variable in the
input, then complex calculations are done by using different analytical methods. The software
in which the analysis is done allows us to provide the input in a mathematical model and then
selects sample from the assumptions. This software will then put these input variables and
then will find the outcomes. This process is repeated continuously and then the statistical
distribution of outcomes is displayed. The main use of this software is to show the decision
maker the distribution of outcomes. This risk profile assess the value of the decision taking
estimated by using these to calculate the profitabilities helping the project managers to have a
way to make project based decisions. Simulation is the best way to evaluate such type of
situations. After checking the nature of input data, then crystal ball is used to check the risk
analysis in a budget.
Example: Non-Work- During our final year project in B. Tech, it was design, analysis and
optimization of truck chassis, we had to design and find the risk of failure of the chassis
frame under applied loads and under given conditions. The factors and limits are calculated
such the chassis frame can withstand huge amount of loads without causing any failures in