What characterizes top-down budgeting?

Top-down budgeting is characterized by the method in which the overall budget is developed by upper management and then allocated to various departments or units within the organization. This approach emphasizes that upper management sets financial goals and constraints based on strategic objectives, often taking a broader view of the company’s direction and priorities.

When upper management determines the appropriations, they rely on their vision for the organization, external economic factors, and overall company performance. This top-down approach can ensure alignment with the company's strategic goals since decisions made at the top are typically reflective of a comprehensive understanding of where the organization needs to go.

This method contrasts with the bottom-up approach, where budgets are created starting from department-level inputs and then aggregated into the overall budget. In top-down budgeting, departmental managers typically have less influence over budget creation, as their allocations are based on the higher-level budget set by upper management.

The emphasis on operational expenses alone does not capture the full scope of top-down budgeting since it often involves broader financial planning, including capital expenditures and strategic investments, rather than focusing solely on day-to-day operational costs.