In many large companies, especially the largest corporations, the chief financial officers (CFOs) and controllers usually have corporate budgeting departments and processes designed to manage the setting of the budget and the making of midyear adjustments (as in a budget exercise), as well as the close monitoring of progress toward budgetary goals during the course of the fiscal year. Companies’ expense budgets, revenue budgets, and capital budgets all tend to be under the purview of these departments, where they exist.
In most cases, the corporate budgeting process, moderated by corporate budgeting departments (where they exist), has three distinct elements and phases to it. These are the bottom-up phase, the top-down element, and the reconciliation phase.
Those working in corporate budgeting departments might be categorized as financial analysts or financial managers. The term budget analyst is more commonly associated with similar jobs in the public or nonprofit sectors.
Bottom-Up Phase
Normally, the corporate budgeting process begins with a call for all business groups within the company to submit their spending wish lists for the upcoming fiscal year, with detail by expense or capital category. Such wish lists also include requests for added headcount during the year. Additionally, for those business units that recognize revenue, at this time they will be asked to make revenue collection and recognition commitments for the year as well.
This is usually referred to as a bottom-up process or phase.
The corporate budgeting department will aggregate these submissions, and submit them to the corporate chief financial officer (CFO) and/or the corporate controller for evaluation and discussion with executive management. For more detail on bottom-up forecasting and budgeting methods and processes, follow this link.
Top-Down Element
Executive management, in consultation with the corporate chief financial officer and/or the corporate controller, will set overall budgets for the company as a whole, and probably also for its major divisions or business groups. These budgets may represent adjustments to the results compiled from the bottom-up budgeting phase (inevitably reflected reductions to spending and hiring authority, and increased demands for revenue commitments), or they may be established entirely independently of the bottom-up process. See our more expansive discussion of top-down forecasting and budgeting methods and processes.
Reconciliation Phase
In the vast majority of companies, the top-down budgets established by members of executive management get pushed down to lower and lower levels of the company hierarchy, such that the final budgets set at the lowest levels will roll up into the overall figures agreed upon for the company as a whole. In this process, line managers normally are handed their budgetary targets from their immediate superiors, then turn around and set the budgetary parameters for the line managers immediately under them, in consultation with their business unit and departmental controllers and budget analysts.
Ongoing Adjustments
Companies regularly adjust budgets during the course of a fiscal year, perhaps multiple times, in response to changing business conditions. For example, if revenues are trending lower than budgeted, expenses probably will be cut (in a so-called budget exercise) in order to mitigate or eliminate the resulting drop in profits. If revenues are exceeding targets, by contrast, spending and hiring authority may be increased.
Working in Corporate Budgeting
Spending some time on the staff of a corporate budgeting department has several things to recommend it. Understanding the budgeting process imparts detailed, broad-based knowledge of the company’s operations. It also involves regular ongoing contact with the staff from the various divisions, business groups, business units, and individual departments in the company. This level of exposure and the associated networking opportunities inevitably help a budget analyst find and be considered for career opportunities within these units.
A case study in this dynamic was the corporate budgeting department at Merrill Lynch in the late 1980s and early 1990s, most of whose members shortly moved on to more significant roles in both staff and line positions as a direct consequence of their experience with this group.
About the author: Nicholas H. Parker is a content editor at the service where you can buy essay. He used to manage the content team at the company he worked for. Currently, Nicholas writes articles to share his knowledge with others and obtain new skills. Besides, he is highly interested in the web design sphere.