I find the difference between setting a household budget and setting a corporate budget to be quite interesting. I can’t imagine someone at home saying, “Hey, we didn’t spend as much as we thought this year. Let’s buy a bunch of stuff we might not need.” Yet, this seems to happen in corporate America each year. Let’s look at this phenomenon and try to understand it.
“I don’t want our budget cut next year”
It seems to me that instead of being punished for not spending everything in the budget, a manager should be rewarded for saving the company money. If you don’t spend everything you’re budgeted for a year, you should be able to carry over the savings to the next year. Otherwise, I imagine people will buy things that, while possibly useful, might not be optimal solutions for a situation. If you have to scramble and find something to buy in order to finish spending your budget funds, you don’t have the time to do the necessary research and find the best solution.
Maybe the $20,000 left in the department budget this year can get you a few little things, or one marginally useful tool. But, if you could add that extra $20,000 to your following year’s budget, that might get you the upgrade from the middle unit to a top of the line unit that will accomplish much more. Another option might be to collect the budget surpluses from each department and add them into the corporate budget for the following year. This, however, might not get the money back to the departments that saved it, and thus not create the same strong incentive to save money.
“How soon can I get one?”
I bring this topic up today because we’re getting into the part of the year where our sales department is getting asked this question more often. Whenever someone calls and starts asking about lead times when we haven’t been working with them for a while, I figure it’s budget-spending time. Don’t get me wrong, I’m happy to make sales at the end of the year. I just wonder how often someone is buying one of our machines because it’s the best tool for the job, and how often it’s good enough but it costs enough to fill out the last of the budget for the year.