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Budgeting


Budgeting

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Steve Jones
Steve Jones
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Comments posted to this topic are about the item Budgeting

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Tim Mitchell
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Definitely a problem with big companies and multiple layers of budgeting. It's all about profit, so if a unit/department/division proves that they can get by on 75% of what was budgeted, then next year they'll get the 75% rather than what they had last year. No supervisor/director wants to be the person responsible for slashing their own budget.

It's also unfortunate that this kind of "use it or lose it" senseless spending is less obvious (easier to hide?) in a big company, because the numbers can be staggering if this is done at every level. Chances are you won't see that kind of thing in a small company, unless someone decides to stock up on Kleenex and Bic pens with the surplus.



Tim Mitchell, Microsoft Data Platform MVP
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Open Minded
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I made a lower CapEx budget for next year because of discount from being under a Global license.

But on some OpEx, I had to project what was last year with this year's inflation rate. I can't guarantee whether suppliers will lower or raise prices, though I am sure the first half may have lower prices. I will be able to tune this down by 2010.

Overall, I am not that generation which 'use it or lose it'. That's a darn waste of money. IT has achieved greater value with lesser costs, it should reflect in the budget, somehow.

Maybe it was the big IT budgets which made internal IT the focus of outsourcing by the bean counters. On that issue, I have mixed-strategies due to constraints on head count, but its another topic.
Tom Fischer
Tom Fischer
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Budgeting is all about predictability and risk aversion; it just happens to involve money. If this premise is correct, the "lose or use it" makes a lot of sense. For example, a savvy manager will want to have money available for emergencies available in the budget (risk aversion). And one gets money by using it. If that money is not utilized within the budget year, then the manager risks looking disorganized (unpredictable).

I think whether or not the above is financially responsible is different good point. ;-)
bwild
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There are Managers that put themselves ahead of the company they work for. There are many managers like that. Perhaps if the result of the savings was more visible, or communicated, or at least an incentive not to spend the money was in place, it would make sense to those managers?

The problem wherever I have worked, is that each department gets a slice of the "pie", and there is always a battle for a bigger slice, rather than collectively growing a larger pie.



Jack Corbett
  Jack Corbett
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This has always been one of my pet peeves especially when it comes to government and grant funded agencies. Then the last month of the fiscal year they all go spending crazy because they were careful all year and had "extra" money and buy stuff they don't really need.

You do need to budget for emergencies, extra spending, but why penalize people for being responsible financially. Sure if you don't spend all your budget, don't expect to get a bigger budget next year without some very good reasons, but don't cut the responsible person's budget. Remember, regardless of what Congress wants us to think staying at the same level is NOT a cut.



Jack Corbett

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blandry
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In my relatively short life, we have gone from a nation of savers to a nation of "gotta have it now, and if I have it, spend it, and if I don't have it, borrow and spend it cause I am worth it". Its just greed, lack of vision, and a horrible self-centeredness. For the last two decades everyone (it seems) has taken this so casually and now its come home to roost and I see editorials like Steve's this morning, pondering the basic ill-logic in that kind of thinking either on a business level, or a personal level.

And yet as we blame the CEOs of the three big American car makers for flying to Washington in corporate jets to beg for money, are they any different than the individual who bought too much house, a huge SUV, and every gizmo and gadget they thought they 'deserved' - most if not all on credit, thinking that the 'party' would never end?

The problem, very simply put, is us. Its the way we think and behave. Like a bunch of drunk college freshman unaware that tomorrow morning's hangover is going to be a whopper! If this stuff seems stunning now, I sure hope people change the way think later. But if American recent history is any indicator, we wont learn a thing and we will be back in this place soon enough.

We learned nothing from the gas crisis of the 70's - and we allowed Detroit to build massive gas guzzlers, and we bought them up. We learned nothing from Reagan's "trickle down", the dumbest idea since "How to speak French" was translated into French - and we let Bush hawk the same failed baloney. We learned nothing from the DotCom burst - and we allowed Wall Street to play the same game all over again, this time with real estate...

Until we learn, its not really fair to editorialize when the horrible hangover hits, because the problem, is us.

There's no such thing as dumb questions, only poorly thought-out answers...
James Goodwin
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I think another aspect of this is that if my department comes in 10% under budget this year, we don't get rewarded for this, the manager, or more likely, the Director might see a little something, but not the people on the front lines. So, perhaps what the manager is saying is, hey we have a little marketing money left over, I can either save it and get my boss a pat on the back, or use it to reward a couple of my people with a busman's holiday.
--
JimFive
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Nice post blandry. I agree with pretty much everything you said. I've been thinking a lot myself the country seems to be going through a hangover right now. The credit party is over and now it's time to pay the piper.
Andy Lennon
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I've never been in a position where i was making budget decisions or even recommendations, so i may be way off (sorry if i am), but it seems to me that the most sensible means of constructing a budget would be a formalization of what Steve mentioned. Be careful with the money, and if it's possible to be under budget let management know. If it's not, let management know and explain why (actually it would probably be best to explain either way...)
It seems to me that basing a budget largely, though certainly not exclusively, on past budget vs. expenditure numbers is a fine idea. What is necessary is realizing that costs are not going to be the same year after year for innumerable reasons (changing prices, special projects, changing office locations, etc.). I would think that a company should set up a reasonable budget for each department, then make sure to set up an overdraw budget: money held in reserve in case the other budgets are exceeded. Anyone needing to tap that reserve should have to document how and why their given budget was exceeded. Any money left over could be carried over into the next year's overdraw or distributed as bonuses (perhaps weighted so those who are most financially responsible get the biggest). As Steve mentioned, most comapanies have vast amounts of information in digital form. I should think that it would be simple enough to continue refining budgets year after year, so the overdraw budget would only ever be needed for emergencies or unplanned expenses.
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