Discussion Reply to Two Post

In responding to your peers, consider whether one process would result in more accuracy than another and discuss why.

POST #1 

Bottom-up estimating compiles itemized project costs from the lowest levels through to the highest project levels; the combined costs include all project activities (MindEdge Inc., 2017). This is one of the more accurate project cost estimating methods because the estimates are provided by those closest to the project work; additionally, the itemized project costs can be easily modified and updated if/when project plans change. This method can be costly – in terms of time – due to the level of detail required (MindEdge Inc., 2017).

Top-down estimating methods start at the highest project levels and are passed through to the lowest project levels (Meredith & Mantel, 2012). Top managers provide an overall project cost estimate and estimates for the next major project activities, and these are passed to lower managers who continue estimate breakdown. The process continues until all project aspects are accounted for. The disadvantage to this method, is that top level managers are perceived to or have a bias toward underestimating project costs. Additionally, to be successful, this method requires the lower level managers to dispute the underestimates with the upper level managers who provided them; this type of communication can be difficult or poorly received (Meredith & Mantel, 2012).

Like the bottom-up estimating method, the top-down method can be a more accurate cost estimating method (Meredith & Mantel, 2012). Unlike the bottom-up method, the top-down method does not require itemized costs for an accurate estimate; smaller costly projects overlooked during budget estimates are not necessarily detrimental to a project budget because the expert judgement of the top managers is assumed to have factored in these instances (Meredith & Mantel, 2012). Furthermore, the top-down method can be more cost effective, in terms of time, compared to the bottom-up method because less detail is required for an accurate estimate.  

The higher the quality and accuracy project costs, the more accurate the overall project estimate. In some cases, an accurate (and tight) project cost can help to keep project scope focused. For example, NASA’s tight project budget for the Mars Pathfinder and Sojourner Rover missions resulted in a 94% cost reduction, compared to earlier missions (Meredith & Mantel, 2012). This type of cost reduction would not have been possible if initial cost estimates were not accurate. Over/underestimating project costs can delay or stop partially completed projects, and are costly in terms of resources used/wasted – time, money, people, etc. Overestimating also ties up resources that would be beneficial to other projects or areas of the organization. Budgeting methodology also impacts behavioral responses. Research by Kramer and Hartmann (2014) suggests that top-down methodology enhances economic exchange (reduced budget slack) while a bottom-down methodology enhances social exchange (increased performance).

The past projects I have worked in employed the top-down method for cost estimating. I was working at the lowest managerial level so my input was minimal and for the majority of the projects, cost referred only to time and people. Management would provide the estimates and open the floor to discussion if the declared budget was insufficient. More often than not, the discussions due to an underestimate led to an increase in manpower vs. an increase in time.

References

Kramer, S., & Hartmann, F. (2014). How top-down and bottom-up budgeting affect budget slack and performance through social and economic exchange. Abacus,50(3), 314-340. doi:10.1111/abac.12032

Meredith, J. R., & Mantel, S. J. (2012). Project management: a managerial approach (8^th ed.). [Books24x7 version]. Available fromhttp://common.books24x7.com.ezproxy.snhu.edu/toc.aspx?bookid=44417

MindEdge Inc. (2017). Module one: Project management and the role of the project manager. [Interactive e-Learning material] Available from https://snhu.mindedgeonline.com 

POST #2

            The top-down budget estimating option has the upper level management determining the budget or costs and it is then passed down the ladder to the members of the project team (smallbusiness.chron.com,2017).  The obvious disadvantages of this process are:  no room for adjusting the numbers; management may/may not have consulted necessary departments to determine realistic cost estimates for project; may not be room in the budget for inflation/errors. An advantage of this budget estimating is the upper level management always has their hands on the budget purse strings.

            The bottom-up budget estimating option “compiles costs at the lowest levels of a project and aggregates those costs upward to estimate a total cost for the project; as costs aggregate, they include all lower level costs and encompass all aspects of the project” (MindEdge, 2017).  The advantages are it uses a very detailed view of the project and utilizes the detailed project to provide the real cost of the project (MindEdge, 2017). Bottom-up budget estimating is considered to be the most accurate budget estimating for projects; “Some sources quote the level of accuracy of the bottom-up estimate to be between −5% to +10%,⁵ because of the level of detail, but it does take time and knowledge to develop” (Dinsmore & Cabanis, 2014).

            An example of bottom-up budgeting is from a host of projects in the Philippines.  The Department of Budget and Management (DBM) has funding for proposed projects in the 2017 budget totaling P35 billion (Business Mirror, 2016). 

The goals of the plan along with the bottom-up budgeting with the projects:

• Local Government Units (LGUs) and civil society and community organizations jointly identify priority poverty-reduction programs and projects to be included in the proposed national budget
• to include citizens in local budgeting
• to strengthen LGU capacity and accountability
• to make the budget process work for the benefit of our communities (Business Mirror, 2016).

The program has been previously implemented and incentives are in place to encourage more growth with the programs to help with poverty-reduction goals.

The best thing about bottom-up budgeting is that it draws ordinary citizens into the local development-planning process. And because communities now have a hand in crafting the local budget, they're already enjoying better access to basic local government services. At the same time, bottom-up budgeting (BuB) has urged LGUs to improve their ability to serve their constituents. This is BuB's legacy, and it should continue, Tacurong City Mayor Lina Montilla said (Business Mirror, 2016).

In reading this article, I am under the impression that the LGUs design a program and then work out the specific costs associated to run and implement the program within the LGU and then apply to the Department of Budget and Management for release of the funds to begin implementation of the program.  I found myself wondering if a particular program worked in one LGU if the program was shared with other LGUs to see if the program was feasible in their area and if their community members were open to programs from other LGUs.

References

(2016). P35 billion proposed for 2017 bottom-up budgeting projects. Business Mirror (Makati

City, Philippines).                                                                                                                   

Arthur, L. (2017). “Top-down method”. Chron.com [Electronic file]. Retrieved from

            http://smallbusiness.chron.com/topdown-method-23876.html

Dinsmore, P. C. & Cabanis-Brewin, J. (2014). The AMA handbook of project

management, fourth edition. [Books24x7 version] Available from http://common.books24x7.com.ezproxy.snhu.edu/toc.aspx?bookid=64586.

MindEdge. (2017). Project Management Institute, Inc. [Electronic book].