In our Income/Outcome business acumen workshops we teach the difference between budgeting and forecasting from a top-down as opposed to a bottom-up process.
In our view, top-down relates to forecasting results when the future sales are already known, and you can start by filling in the “top line” of the Income Statement. Bottom-up relates to not knowing your sales, and working from a “bottom line” of zero (to determine break-even pricing) or of some more positive number to see if a particular bottom-line profit looks achievable.
In the current Wired edition there is another take on those words: basing perception on fresh sensory information is a “bottom-up” process, while allowing preconceptions and previous experiences to override fresh perception is a “top-down” process.
The issue under discussion is the “hollow mask illusion”. Most of us, when presented with a visual of the back of an appropriately-lit mask, will see it as the convex face, even if we know it is the concave back. That’s what experience (and maybe genetics) tells us it has to be.
Over 99% of people fall victim to the illusion: we know what it has to be, regardless of what our senses and commonsense are telling us.
In business a sense of certainty can be dangerous! Business acumen requires a rapid and accurate flow of information, a team of differently-backgrounded people to discuss ideas with… and the ability to suspend preconceptions. Don’t fall victim to illusions!