The important question about the budget

Budgeting includes the process of business-management planning. The result is a short-range plan that shows the company’s future business. This is also done in logistics. Three basic approaches may be taken: top-down, bottom-up and middle-out budgeting. Each form has its own strengths depending on the use. Middle-out budgeting is most commonly used in logistics.

The process of logistics budgeting

A budget is a plan using quantitative factors that is given to an area of responsibility or a decision-making unit in the context of fixed year-based planning - usually for a one-year period. Among companies, monetary factors are generally used. By breaking down the overall budget into subbudgets for individual areas of responsibility at a company, available resources are distributed. As a result, resource allocation is provided through budgeting [1].

Input- and output-focused budgeting

A distinction can be drawn between input- and output-focused budgeting. The input-focused budgeting includes only the resources that will be used. It has no connection to the company’s objectives. As a result, it is an unsuitable instrument for allocation of resources. In output-based budgeting, on the other hand, resources are allocated on the basis of the company’s goals and programs [1].

Top-down, bottom-up, middle-out budgeting

A distinction is made between top-down, bottom-up and middle-out budgeting. In top-down budgeting, subbudgets are created from the top company goals in accordance to the company hierarchy. In bottom-up budgeting, on the other hand, the entire budget is created by successively compiling the subbudgets. Middle-out budgeting is a mixture of both forms. The plans generated by bottom-up and top-down budgeting are set off against each other and then compared in a multi-step process.
In logistics, middle-out budgeting is used most frequently. It facilitates an optimal comparison of the interests in the entire company and their decentralized levels of authority [1].