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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 i

by 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.
    - abduhl 6y ago
      We’re arguing about different things it appears. This thread started with someone saying that a team coming in under budget should is “owed” that money in the future by management. I said this isn’t so and that it’s a self centered and myopic viewpoint. You are talking about punishment and reallocation, presumably by reducing the budget the next cycle. I’m not in favor of that unless it’s clear that the team is consistently over budgeting. For example, if a team says they need $100 a year and comes in at $90 then I don’t think next year’s budget should be $110 while some people in this thread think it should be. That makes no sense. Neither do I think the budget should be cut to $90. Unless something has changed, the budget should stay the same. Your point about average cost just means that you’re budgeting on the wrong timeframe. If you estimate your average dinner is $100 but you’re spending $75 most of the time except for one huge dinner every month then you should be budgeting $75 for dinner and then budget separately for one large dinner a month. Similarly, if a team says they need $10MM a year but half of that is them trying to amortize a $25MM cost over 5 years then they are budgeting incorrectly. Their budget should be $5MM with a $25MM side fund contributed to on a risk adjusted basis. The worst case scenario is the team budgeting $10MM when they only need $5MM and losing control of their budget so that when the real charge comes due they’re fucked because they’ve been spending $10MM for the past 5 years without realizing the fixed charge is coming or, worse, realizing the fixed charge is coming but just ignoring it so they can buy new office furniture and exhaust their budget this year selfishly.

by ike77 6y ago

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.
  - abduhl 6y ago
    We’re arguing about different things it appears. This thread started with someone saying that a team coming in under budget should is “owed” that money in the future by management. I said this isn’t so and that it’s a self centered and myopic viewpoint. You are talking about punishment and reallocation, presumably by reducing the budget the next cycle. I’m not in favor of that unless it’s clear that the team is consistently over budgeting. For example, if a team says they need $100 a year and comes in at $90 then I don’t think next year’s budget should be $110 while some people in this thread think it should be. That makes no sense. Neither do I think the budget should be cut to $90. Unless something has changed, the budget should stay the same. Your point about average cost just means that you’re budgeting on the wrong timeframe. If you estimate your average dinner is $100 but you’re spending $75 most of the time except for one huge dinner every month then you should be budgeting $75 for dinner and then budget separately for one large dinner a month. Similarly, if a team says they need $10MM a year but half of that is them trying to amortize a $25MM cost over 5 years then they are budgeting incorrectly. Their budget should be $5MM with a $25MM side fund contributed to on a risk adjusted basis. The worst case scenario is the team budgeting $10MM when they only need $5MM and losing control of their budget so that when the real charge comes due they’re fucked because they’ve been spending $10MM for the past 5 years without realizing the fixed charge is coming or, worse, realizing the fixed charge is coming but just ignoring it so they can buy new office furniture and exhaust their budget this year selfishly.