Target vs Bottom-up Planning
Target vs. Bottom up Planning
In most organisations, budgeting is highly iterative process, sometimes requiring dozens of budget recalculations and adjustments in assumptions before the best possible results are obtained. There are various ways to streamline and simplify the budgeting or forecasting process, one method involves defining the organisation’s strategy and tactical goals at the beginning of the budget model.
All too often, a planners at Cost Centre level will lose sight of the organisation’s total targets when going through the many iterations that are needed to develop his realistic budget for the Cost Centre. By defining the target and strategy upfront in the budgeting or forecasting model, it is much less likely that the final budget will deviate significantly from the organisation’s original plan.
The Oracle Hyperion Planning tool provides an organisation with the capability to budget in a target (top down) or bottom up method, or to use a combination of the two methods to plan streamline and shorten the budgeting process.
- Target (Top down)
For target versions, planners enter budget data for members at any level in the dimension hierarchy herby defining the organisation’s high level target. Business rules can be used to distribute and allocate values from parent members (high level) to their descendants (lower level).
For example, sales numbers are set at the corporate head office level by the Head of Sales. These figures are then used to drive sales quotas and revenue plans for the organisation. This method of budgeting is often called Top-down or Target Budgeting.
- Bottom up
With bottom up version of the budget, planners enter budget data into bottom level members, and the parent member values are aggregated from bottom level members. The budget process builds a version of the budget from the lowest level of information up to the high-level total organisational plan.
For example, sales numbers are input by the individual employees responsible for doing the selling. They forecast what they think they can sell. These numbers are rolled up to create the total organisation revenue plan. This method of planning is often called Bottom-up Budgeting.
- Combining both Methods
Organisations can use target versions to set high-level targets for the budget model. Planners working with bottom up versions can reference these targets when they enter their department’s budget information. If there is a discrepancy between the top-down numbers and the bottom-up numbers, adjustments are made to the budget until the two versions meet. This solution addresses the challenge of performing top-down and bottom-up budgeting in the same plan.
For more information on Oracle Hyperion Planning:
http://www.oracle.com/technology/products/bi/planning/index.html
