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I've never understood this about budgeting. So you allocate. A budget. These are fund YOU ARE PLANNING TO SPEND! So, OK, you DON'T spend them this year. Why the

I've never understood this about budgeting. So you allocate. A budget. These are fund YOU ARE PLANNING TO SPEND! So, OK, you DON'T spend them this year. Why the fuck don't you get to SAVE THAT MONEY!? No, instead you are punished for now spending it all and you cannot create a realistic budget for next year - why the hell not!? Sorry, but this frustrates the hell out of me! What am I missing here? What arcane bit of finance lore leads us down this path? Am I just hopelessly naive? Is acing money such a bad thing!? I just don't get it...

hunter2_ 6y ago
Just brainstorming, but maybe the irony is that your scenario somehow has even worse incentives? For example, building up that rollover number would gamify thriftiness greatly exceeding the typical "oops didn't spend it all," and think about the consequences of when you DIY something you're not the best at instead of hiring the pros.
devnonymous 6y ago
It is about opportunity costs. The budget you did not spend could have been spent elsewhere in the meantime and since it didn't get invested elsewhere, it's not a savings, that's a net loss, because of course anything less than 100% utilisation of 100% of "resources", 100% of the time is a loss .. Or some such.
- littlestymaar 6y ago
  That's probably because of this kind of reasoning that people just throw away money threw windows, because “gotta get rid of it all”.
ianmcgowan 6y ago
If you don't reduce your budget next year, what does "save that money" mean to a department in a company? If this year I have 105% of last year's budget (because they always go up), what am I supposed to do with the 20% surplus from last year? Most companies wouldn't even have a place in your cost center to track a surplus, it's such a foreign concept. Zero based budgeting is one answer to the moral hazards of either over or under-estimating your budget on purpose. If each year you start with a blank spreadsheet and then add (with justification) expenses for the year, it avoids some of the pitfalls. Not a panacea however. https://en.wikipedia.org/wiki/Zero-based_budgeting#Advantages https://en.wikipedia.org/wiki/Zero-based_budgeting#Advantage...
- littlestymaar 6y ago
  > (because they always go up) Ahah, that would be nice. In most company I know, they are shrinking every years, because you know, “cost reduction plans”.
ike77 6y ago
For two reasons: 1) separation of duty: you might not be the best department to invest surplus 2) cost effectiveness: if you're operating with a deficit, as is generally the case with governments these days, this money is not free, so it could effectively be cheaper to give it back and re-borrow it when you actually need it
- littlestymaar 6y ago
  > 1) separation of duty: you might not be the best department to invest surplus But with this reasoning there is no surplus, because departments will spend their money at all cost. > 2) cost effectiveness: if you're operating with a deficit, as is generally the case with governments these days, this money is not free, so it could effectively be cheaper to give it back and re-borrow it when you actually need it That's totally fine, when GP said “Save the money” they didn't meant “on their own bank account”. It just means: the top management owe them this money when they'll need it later. Anecdote: I'm currently working on a project started in emergency earlier this month, which must be done before the end of the month (because it's the end of the accounting year at this company) for this exact reason. And this project is overprices by a factor close to two, because this money really had to be spent!
  - abduhl 6y ago
    Top management doesn’t “owe” them any money when they need it later. Say you budget $100 for dinner tonight and you go out and it costs $75. Do you owe the restaurant $25? While certainly some people might roll the $25 into the next day’s meals, some people might allocate that $25 to another cost center like buying a new car. Budgets are meant to estimate costs and manage cash flow. From a greedy team perspective it’s best (and self interested) to try to game the system as much as possible so you get the largest share of the pie. From the organizational perspective it’s best to reallocate capital efficiently, especially if a team consistently over budgets.
    - nybble41 6y ago
      > Say you budget $100 for dinner tonight and you go out and it costs $75. Do you owe the restaurant $25? No, but if you accurately forecast that dinner will cost $100 on average, and this time it only happened to cost $75, you should put most of the savings aside for the other times when it will cost $125 and not reallocate it to be spent on something else. Consistent over-budgeting is still an issue which would need to be addressed, of course, but a system where any annual cost underrun is treated as over-budgeting and punished by reallocating that part of the budget to other groups ignores the inevitable presence of risk in the budget forecast.
vagrantJin 6y ago
Your frustration may come from a good place, believing gov and big orgs want to be efficient. They don't and they don't have to. They are super efficient when it comes to taxes though. At least in my country, every department is trash except the revenue service which is so forward thinking and effective, they put private business to shame.
- jokethrowaway 6y ago
  This definitely rings true. But I'd say it's not a feature of governments only, any sufficiently big organisation which centralise power ends up being like this. That's why large corporates need nimble startups to innovate: startups either innovate or die. The government is just the largest example of this phenomenon - and they don't have any analogue for startups, they're just doomed to grow larger and larger over centuries until they collapse. Look at the USA, once the perfect minarchist experiment and now the largest employer in the world.
- bradknowles 6y ago
  Not here in the US. The IRS has been crippled by previous Republican administrations to the point of uselessness, as another method of giving free unlimited tax breaks to the millionaires and billionaires that bought them in office. But god help the poor people who file simple tax returns that can be easily audited, however.

hunter2_ 6y ago

Just brainstorming, but maybe the irony is that your scenario somehow has even worse incentives? For example, building up that rollover number would gamify thriftiness greatly exceeding the typical "oops didn't spend it all," and think about the consequences of when you DIY something you're not the best at instead of hiring the pros.

devnonymous 6y ago

It is about opportunity costs. The budget you did not spend could have been spent elsewhere in the meantime and since it didn't get invested elsewhere, it's not a savings, that's a net loss, because of course anything less than 100% utilisation of 100% of "resources", 100% of the time is a loss .. Or some such.

littlestymaar 6y ago
That's probably because of this kind of reasoning that people just throw away money threw windows, because “gotta get rid of it all”.

ianmcgowan 6y ago

If you don't reduce your budget next year, what does "save that money" mean to a department in a company? If this year I have 105% of last year's budget (because they always go up), what am I supposed to do with the 20% surplus from last year? Most companies wouldn't even have a place in your cost center to track a surplus, it's such a foreign concept. Zero based budgeting is one answer to the moral hazards of either over or under-estimating your budget on purpose. If each year you start with a blank spreadsheet and then add (with justification) expenses for the year, it avoids some of the pitfalls. Not a panacea however. https://en.wikipedia.org/wiki/Zero-based_budgeting#Advantages https://en.wikipedia.org/wiki/Zero-based_budgeting#Advantage...

littlestymaar 6y ago
> (because they always go up) Ahah, that would be nice. In most company I know, they are shrinking every years, because you know, “cost reduction plans”.

ike77 6y ago

For two reasons: 1) separation of duty: you might not be the best department to invest surplus 2) cost effectiveness: if you're operating with a deficit, as is generally the case with governments these days, this money is not free, so it could effectively be cheaper to give it back and re-borrow it when you actually need it

littlestymaar 6y ago
> 1) separation of duty: you might not be the best department to invest surplus But with this reasoning there is no surplus, because departments will spend their money at all cost. > 2) cost effectiveness: if you're operating with a deficit, as is generally the case with governments these days, this money is not free, so it could effectively be cheaper to give it back and re-borrow it when you actually need it That's totally fine, when GP said “Save the money” they didn't meant “on their own bank account”. It just means: the top management owe them this money when they'll need it later. Anecdote: I'm currently working on a project started in emergency earlier this month, which must be done before the end of the month (because it's the end of the accounting year at this company) for this exact reason. And this project is overprices by a factor close to two, because this money really had to be spent!
- abduhl 6y ago
  Top management doesn’t “owe” them any money when they need it later. Say you budget $100 for dinner tonight and you go out and it costs $75. Do you owe the restaurant $25? While certainly some people might roll the $25 into the next day’s meals, some people might allocate that $25 to another cost center like buying a new car. Budgets are meant to estimate costs and manage cash flow. From a greedy team perspective it’s best (and self interested) to try to game the system as much as possible so you get the largest share of the pie. From the organizational perspective it’s best to reallocate capital efficiently, especially if a team consistently over budgets.
  - nybble41 6y ago
    > Say you budget $100 for dinner tonight and you go out and it costs $75. Do you owe the restaurant $25? No, but if you accurately forecast that dinner will cost $100 on average, and this time it only happened to cost $75, you should put most of the savings aside for the other times when it will cost $125 and not reallocate it to be spent on something else. Consistent over-budgeting is still an issue which would need to be addressed, of course, but a system where any annual cost underrun is treated as over-budgeting and punished by reallocating that part of the budget to other groups ignores the inevitable presence of risk in the budget forecast.

vagrantJin 6y ago

Your frustration may come from a good place, believing gov and big orgs want to be efficient. They don't and they don't have to. They are super efficient when it comes to taxes though. At least in my country, every department is trash except the revenue service which is so forward thinking and effective, they put private business to shame.

jokethrowaway 6y ago
This definitely rings true. But I'd say it's not a feature of governments only, any sufficiently big organisation which centralise power ends up being like this. That's why large corporates need nimble startups to innovate: startups either innovate or die. The government is just the largest example of this phenomenon - and they don't have any analogue for startups, they're just doomed to grow larger and larger over centuries until they collapse. Look at the USA, once the perfect minarchist experiment and now the largest employer in the world.
bradknowles 6y ago
Not here in the US. The IRS has been crippled by previous Republican administrations to the point of uselessness, as another method of giving free unlimited tax breaks to the millionaires and billionaires that bought them in office. But god help the poor people who file simple tax returns that can be easily audited, however.