Top Down vs Bottom Up Anaylsis

Starting with the big picture or starting with small details are both valid approaches that help you start asking questions. The more questions you ask the more questions will arise.

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In an earlier article I explained how to start small and get organized when trying to understand your spend. But what does “starting” actually look like? And what steps do you take once you finally decide to dig into the numbers?

Two Main Approaches

When analyzing your spend, there are two classic ways to begin: top down analysis and bottom up analysis. Top down analysis starts with the big picture and gradually narrows your view. Bottom up analysis starts with small details and builds toward a complete understanding of your spend1.

Both approaches are valid, and at different times you will want to use each one.

The Top Down Approach

The top down approach helps you understand how smaller parts of your organization contribute to the whole. You begin with something broad, such as your total spend for the current fiscal year, and then divide it into meaningful pieces.

Here is an example of a simple top down sequence:

  1. Calculate total spend for the current fiscal year.
  2. Break that spend down by month.
  3. For each month, break it down again by department.

This lets you see how spend fluctuates over time and which departments follow predictable patterns versus irregular ones.

Another powerful top down exercise is sorting your spend by supplier. I have found that many businesses do not know who their top ten suppliers are. Once you identify them, you can:

The Bottom Up Approach

The bottom up approach works in the opposite direction. Instead of beginning with the entire organization, you start with very specific details. You might review:

You then expand outward until you have a complete picture of your spend. This approach is especially helpful when something looks suspicious, unusual, or simply worth exploring.

For example, you might notice that one buyer has far more transactions than everyone else. Instead of analyzing the entire department, you begin with that one person. You look at what they are purchasing, which suppliers they work with, and whether their spending patterns are consistent or irregular. Once you understand that individual set of purchases, you zoom out to the department, then the category, and eventually to the organization as a whole.

Bottom up analysis is powerful because it uncovers realities that broad numbers can hide. A top down view may tell you that a department spent a large amount last quarter, but a bottom up view reveals the very reasons why. It shines a light on hidden assumptions, outdated habits, quiet inefficiencies, and small decisions that add up over time.

In short, top down analysis shows the shape of the mountain. Bottom up analysis shows the rocks it is made of. You need both perspectives to fully understand your spend.

Where Should You Start?

At the beginning, the honest answer is that it may not matter where you begin. Sometimes the best approach is simply to jump in. This is where the experience of poor Alice in Alice’s Adventures in Wonderland becomes useful. When she asked the Cheshire cat which way she ought to go, the cat replied that “it doesn’t matter which way you go … if you only walk long enough”2.

The same idea applies here. You do not need the perfect starting point. Begin anywhere. Over time your questions will guide you toward clarity.

Questions Will Create More Questions

Once you start analyzing your spend, the process becomes self guiding. Each question generates more questions, and each answer reveals the next thing worth exploring. Here are a few questions that often lead to valuable insights:

There is no single correct starting point. Choose a direction, begin asking questions, and you will uncover something meaningful.