In my earlier post, I touches on Top Down budget preparation on headcounts. In this post, I will discuss the bottom up budget preparation method.

I been doing budgeting and forecasting jobs many times in the past. I prefer top down budget personally as I feel it is a faster method and the top management can have better controls over the financial numbers and it really pin the various cost centre heads to think and plan carefully.

The bottom up budget is a very time consuming process. It usually start with the cost centre heads preparing their budgets on their own with reference to the historical financial data provided by the Finance Unit. The bottom up headcount budgeting process can be very tedious and the following is how I used to prepare it.

Let take the New Accounts department in a credit card company for this discussion sake.

The management wants the New Accounts Department to process a minimum 5,000 new credit cards for the next 12 months. The head of the department is asked to prepare a budget or forecast of how many headcount is needed in order to ensure the target is achieved.

Here are some simple workings that are taken into consideration during the preparation process:

1.  Card application approval rate = 50%.  Therefore to achieve 5,000 new approved credit cards, the expected number of card application received is 10,000 pieces.

2.  Average of 5 minutes is required to data capture the card application into the system. The required number of data entry staff is (10,000 applications x 5 minutes) / (60 minutes per hour x 8 hours per day x 22 working days per month) = 4.73 or rounded up to 5 data entry staff.

3.  Investigation officer takes an average of 20 minutes to complete 1 card application. Total required number of investigation officer is (10,000 applications x 20 minutes) / (60 minutes per hour x 8 hours per day x 22 working days per month) = 18.9 or rounded up to 19 investigation officers.

4.  Credit Analyst takes an average of 10 minutes to review and approve a card application. Total required number of credit analyst is (10,000 application x 10 minutes) / (60 minutes per hour x 8 hours per day x 22 working days per month) = 9.46 or rounded down to 9 credit analysts.

To summarize all, the head of the New Accounts Department would requires the following number of headcounts in order to process 5,000 new approved credit card monthly:

5 data entry clerks

19 investigation officers

9 credit analysts

Total Number of Headcount = 34 staff (excluding Manager and secretary, if any).

Other departments can use similar method to calculate their headcount requirements.

During the final phase, the Head of Finance will compile all the statistics and review in the management meeting to make final amendment, if any, and approve the budget.