Reference no: EM131432778

Excellent discussion breakdown on top/bottom budgeting concepts and crashing a project. Clearly there are management decisions in deterring which method to use and for which project.

As with crashing a project, how much of an impact/change to the critical path would occur to crash a project? Explain.

Top-down and Bottom-up are the approaches used in budgeting of business and finance. The key difference in this approaches is that the Top-down approach goes from a general to the specific whereas the Bottom-up approach goes from a specific to general. These approaches can be either used independently or as each serving as a check over the other.

In the Top-down approach, a corporate level aggregate budget is decided for the cost or expenses which are then broken down into different heads and allocated. The adherence has to be done for these costs. In the case of Bottom-up approach, the individual departments prepare their budgets by looking into every line item of costs and presenting same to management. All such individual budgets are then totaled up to create the corporate level budget.

Often it is observed that the Bottom-up budgeting ends up to be significantly higher than the Top-down budgets and this is due to the individual buffers getting totaled up. The buffers are on account of underestimation of revenues and overestimation of expenses. Employees and managers get rewarded for the achievements of targets so it is obvious that they will set the revenue and cost projections as per their convenience and confidence to achieve.

On the other hand, the Top-down carries the focus of the top management but is bereft of the ground level realities which results in variances month on month. The budget loses its relevance if it is not in line with the actual conditions on the ground.

Each of the approaches has its own pros and cons if used in isolation. So it is a good idea to use them in tandem so as to take the advantages of each while mitigating the weaknesses and the associated risks.

A project has a particular duration of completion which is based on the various sub-parts that must be completed individually. Certain activities are not dependent on any other activity and can be done anytime while certain activity can be performed only after a particular predecessor activity is completed. So also, an activity once completed does not trigger any further process whereas the output of certain activities acts as an input to some other activities. Further, from a dimension of time, certain activities can only be performed sequentially and so require more time whereas some activities can be performed parallel if these are mutually exclusive. Such combinations make the overall project management a very complex process.

The complexity also includes the process of certain buffers added which can be eliminated as much as possible so as to reduce the overall project execution time. This process is called as crashing. With reduction in overall time, the associated costs also can come down. The costs are not only for the process but also for the required manpower and other resources. For example, certain activities can be performed by existing manpower in their spare time and does not require additional dedicated manpower. Existing staff can multitask so as to improve the productivity and also reduce the overall cost.

While the financial benefits are evident, excessive crashing may also bring issues of quality being compromised or shortcuts being taken which may be risky. Any attempt to crash the project with a short term perspective cannot be sustainable in the long run. A scientific approach of finding the critical path and then dealing with the elements of this path can result in tremendous saving. The activities not on a critical path may have floats or buffers but crashing such activities does not bring in any savings.

Thus, crashing is a fast tracking approach of identifying the critical path, reducing the overall project time by moving more activities parallel without creating additional strain on the system leading to higher risk or rework due to quality issues.

Excellent discussion breakdown on top/bottom budgeting concepts and crashing a project. Clearly there are management decisions in deterring which method to use and for which project.

As with crashing a project, how much of an impact/change to the critical path would occur to crash a project? Explain.