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Categories: Knowledge5.6 min read

Top-down and Bottom-up planning

Planning is one of the most important aspects of a successful, enterprise-wide performance management process. Two of the most common planning approaches are top-down planning and bottom-up planning methods. Although these two models represent two opposing strategies, they share similarities in the way a company identifies its key objectives. At a very basic level, the top-down approach attempts to move from the general to the specific, while the bottom-up approach finds its way from the specific to the general. In companies, both approaches are often combined to form a countercurrent process.

What is top-down and bottom-up planning?

Top-down and bottom-up planning is bidirectional planning. It is a combination of top-down and bottom-up approaches. Planning takes place from top to bottom as well as from bottom to top. Differences between the two directions are continuously coordinated and coordinated. In detail, these are methods for integrated business planning as well as for the definition of goals and possibilities for their achievement.

Top-down

In top-down planning, the first global (framework) objectives are defined and ways of achieving them are determined. They are gradually moved to the lower levels of the organizational hierarchy to be developed and specified. This is a divergent approach.

Bottom-Up

With the bottom-up planning method, relatively narrow goals are initially set at the lower levels of the organizational hierarchy. They are then gradually integrated into the framework of the global goals and strategy at higher levels. It is therefore a convergent approach.

Top-down vs. Bottom-up?

Top-down planning traditionally involves the definition of corporate goals and their subdivision into specific goals, which are then dealt with in phases.

  • Top-down planning or retrograde planning is an approach that aims to gradually move from the top to the bottom level of a particular hierarchy. The organization’s management provides a framework plan with company goals, for example, based on the expected market development and growth targets, which is broken down into subplans and specified in detail in the subordinate levels of planning. These subplans in turn serve as outline plans and goals for the subsequent planning levels.
  • The aim of bottom-up planning, or progressive planning, is to create a plan at a lower, meaningful classification level and then develop it to the higher level. For example, bottom-up planning focuses on specific products or services of a company in a particular region and is based on sales forecast data and other information such as production capacity, department specific costs, and a subjective assessment of market trends by the planner.

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Which model is the best fit for my company?

Determining the best model ultimately depends on the nature of the specific business and the resources available. As an entrepreneur, you need to decide how much control you want over the implementation of the strategies you need to achieve the key objectives. Top-down and bottom-up planning techniques each have their own advantages and disadvantages.

Advantages and disadvantages of top-down planning

  • The advantage of top-down planning is that the objectives of the subplans across all hierarchical levels largely correspond to the objectives of the entire company. In addition, complex and time-consuming coordination tasks are eliminated so that the plan can be created more quickly.
  • The biggest disadvantage of the top-down planning approach results from the fact that management is only familiar with the opportunities and problems of individual departments in unique cases. Unrealistic and therefore unattainable targets can be the result.

Advantages and disadvantages of bottom-up planning

  • The advantage of bottom-up planning, on the other hand, is that due to the decentralized approach, planning starts directly from the employees involved. A higher motivation and identification with the created plan is the result. Employees are directly involved in the planning process. The plans are generally more realistic.
  • A decisive disadvantage of the bottom-up planning approach is the high expenditure of time and coordination. It can also happen that subplans contradict each other in terms of content and the bar is set low for organizational goals.

Countercurrent procedure: Linking strategies and activities with each other

In order to make optimum use of both approaches, both planning procedures are often used in combination with each other as required. If top-down and bottom-up planning are applied simultaneously, this is referred to as countercurrent planning or a countercurrent method. A combination of both planning methods enables an efficient and target-oriented implementation of the company goals as well as the inclusion of all affected departments and processes. This can considerably increase the quality of the planning results.

How does the countercurrent procedure work?

  • Top-down preparation: The company management sets targets (preliminary, overriding targets and framework plans, often based on previous bottom-up forecasts).
  • The following hierarchy levels use the defined guidelines as orientation and create sub-goals and subplans for their respective departments from the higher-level goals.
  • Bottom-up response: The lowest hierarchical level coordinates the subplans step by step and summarizes them.
  • Corporate management approves corporate goals and plans.

Advantages of the countercurrent process:

  • The strategic goals and measures are coordinated in terms of content.
  • More feasible objectives are the result of this combined process.
  • Employees are able to make a better connection with goals.

Take time into account

The need for communication and coordination between the central and decentral planning units is paramount. Experience has shown that the planning process must be run through several times before a final corporate plan can be drawn up. With a modern solution for planning, for example in the area of financial planning and analysis, which offers functionality for collaboration and approval workflows, the additional effort in terms of personnel and time can be significantly reduced.

Learn how to harmonize top-down and bottom-up planning processes in our on-demand webinar.

Jedox

Jedox is the world’s most adaptable planning and performance management platform that empowers organizations to deliver plans that outperform expectations. Over 2,800 organizations in 140 countries trust Jedox to model any scenario, integrate data from any source and simplify cross-organizational plans across all business systems. Jedox enables a culture of decisiveness and confidence so teams can plan for opportunities, react quickly to changes, and uncover what they didn’t know was possible.

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