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Budgeting

By Steve Jones,

It is 2008 or 1970? How can companies still ask you to "use it or lose it" when it comes to a budget? In this day and age I am actually stunned that this "logic" still exists.

The other day I was talking with a friend who works for a fairly large company and deals with clients all around the country. This person often flies to visit clients for both technical discussions about projects, but has taken trips that a designed as "feel good" visits to ensure that customers are happy. You would think those latter visits would be curtailed as the economy seems uncertain, but my friend's boss asked if they would like to go on a couple more trips this year to wine-and-dine the clients because they had budget left they needed to use.

I'm actually sitting here slightly stunned as I write this.

I can understand in the past that those that approved budgets didn't necessarily have lots of details about what went into budgets, they didn't want to go through reams of paper to find out or have the time to question expenditures and so basing the next year's budget on last year's made sense. Not a lot of sense, but some sense. However these days we have so much of this information in digital form, we can call it up quickly and dig into details, so why do we need to base the next budget on the last one?

The world changes, so much so that I'm not even sure that you can do a complete budget for a year anymore. Likely there are some expenditures and plans that you can count on and get some 20-60% of your budget, but lots of projects, training, and other things are likely up in the air. Whether they get funded probably depends on revenues and how things go. I'm sure all of us are used to budgets being cut in the middle of the year.

And they should be. If times are hard, things need to suffer. I'm seeing my development cut back here at SQLServerCentral and, I wish it wasn't happening, but I understand that given the economy, some projects won't get done.

I always prided myself on sticking to a budget. I put effort into it and worked within the approvals I had. If there were new projects, I tackled them by submitting new proposals to my management. If I came in under budget, I wasn't looking for ways to spend money, I let my boss know I was under budget and never let that be an argument for the next year. I build the budget based on what I need for the next period, not based on last year plus some percentage increase.

Budgeting strictly based on last year is an antiquated idea. You might need historical data to project forward, but you look at future needs and build a budget based on those, not some arbitrary guess of increased costs. And trying to waste money just to show that you can spend a budget is a poor way to run a business. At least it's a poor way to run a successful business.

Steve Jones


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Steve Jones