Anatomy of Agile Project Budgeting

Budgeting is an important but complicated business process that provides the management with vital inputs to make strategic decisions. There are many different types of budgets and different ways to categorize budgeting process. In order to simplify the analysis of agile project budgeting, let’s focus only on the two most related approaches.

Top-down and bottom-up budgeting

Top-down budgets are those broad, loosely supported financial projections used by senior management to set the financial goals of the organization, which should be subsequently reinforced by more detailed bottom-up financial estimates that serve to verify that the high-level plans of management can be met. Bottom-up budgets are the results of a detailed work breakdown and are the sum of the individual cost accounts required at every level of the breakdown structure. It is only useful on small pieces of the total effort since it depends on complete and accurate details. Neither top-down nor bottom-up budgeting by itself is reliable enough to guide most development efforts. Usually the combination of the two is used in an effective business budgeting process, as shown in the diagram below: