Stop the Budgeting Madness

Steven Hill
Steven Hill

Summary Bullets:

  • It’s almost a universal tradition that at the end of every year, there’s a scramble to spend departmental budgets to ensure that the funds will be available for the following year.
  • Returning thoughtfully planned, but eventually unspent funds shouldn’t be punished by reducing budget requests for the following year.

One of the most wasteful practices that I recall from my corporate years was the rush spending that always occurred at the end of the year to ‘ensure’ our budget requests for the next year weren’t cut. It was the biggest and silliest non-secret that I had ever run into at the time, but the truth was always there: if you don’t use it, you lose it AND next year’s budget will be reduced. Everybody knew that this practice went on, year after year, because (for whatever reason) there was this basic presumption that if you could return money at the end of the year, then you just wouldn’t need it the following year. This was true of capital budgets, supply budgets, and perhaps most difficult of all, maintenance budgets. As a manager, I always worked towards a truthful representation of the financial needs of my department at budget time, but I was amazed to learn that it was just a given that you HAD to pad it out to cover unforeseen problems as well as ensure that there was room for some discretionary spending throughout the year.

One of the challenges of running a production environment is the fact that you just never really know how things will end up from year to year. It may become easier as you develop a track record, but the best you can do at budget time is nothing more than an educated guess. This is a perfectly reasonable expectation, but one would think that – at the end of the year – if you were able to return unspent funds, it would be a positive thing. But, this is not so; there remains this presumption that if you give back money at the end of the year, then you have been guilty of over-budgeting, and what should have been recognized as fiscal responsibility or good fortune is somehow turned into a form of malfeasance that should be punished by scratching those funds from your budget for the following year. It’s insanity at its finest.

This may not be true in some cases, but time and time again, I still hear stories of rush spending at the end of the year to ensure that budgets remain available for the following year. And so the game continues. But wouldn’t it be much better if, instead of punishing fiscal efficiency, companies adopted a more flexible budgeting process that accepts the ebb and flow of funding throughout the year and eliminates the rushed (and somewhat wasteful) spending at the end of the year? Perhaps I’m missing something important that the money people just aren’t telling us about the budgeting process, but it seems far more likely to me that corporate budgeting is a flawed process that doesn’t have a simple resolution. Regardless, have a happy and prosperous New Year.

What do you think?

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