Middle-Out Budgeting As you know, there are two primary approaches to the budgeting process. In the top-down approach, budgets are established by senior management, for example, the executive committee or board of directors (or trustees). In essence, senior management is dictating the financial resources to be allocated to the department level. In the bottom-up approach, department heads are responsible for creating their own budgets, which are then submitted up the chain for approval. Although the bottom-up approach has many virtues, in large organizations it often is impractical to have that many people involved in the budget process. Some organizations are now experimenting with a hybrid budgeting approach called middle-out budgeting. Here, budgets are prepared at the divisional (services) level, for example, a hospitals inpatient, outpatient, clinical support, and administrative support divisions. Then the budgets are sent to both senior and junior (department) managers for review and ultimate approval. In essence, middle managers who presumably are in the best position to understand both sides and can create a budget that is adequate yet not excessive act as go-betweens.

What do you think? Is there any merit to middle-out budgeting? Which approach do you think is best for a small organization, such as a three-doctor medical practice? What about a 600-bed hospital?