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>The more they spend, the greater the kudos they’ll get from upstairs, and the bigger their budget will be next year. After all, the division with the most expe

by andai 2y ago

>The more they spend, the greater the kudos they’ll get from upstairs, and the bigger their budget will be next year. After all, the division with the most expensive problems must be the most important one in the company. I heard this is true in government, and it was presented as an example of why government has the wrong incentives, and private companies are much better: in a private company you get a bonus for being efficient and saving the company money, whereas in a government you get punished and they shrink your department. So I was surprised to see it presented here as a thing that happens in big companies too (but I've only worked with very small companies).

sebzim4500 2y ago
A lot of the stereotypical mistakes that governments made are also made by large businesses, but it's definitely to a lesser extent.
- chomskyole 2y ago
  Having only worked at large businesses, I'd be keen to see some data on this. I would think that the incentives in large organisations are similar?
  - lazide 2y ago
    Large organizations have to at least pretend to try to make money - the gov’t has no such restriction. Also, the gov’t has a large scale, legally enforced monopoly.
    - stvltvs 2y ago
      Government orgs have public financial transparency that businesses don't. For example, when I worked for a public university, my salary was available on a publicly accessible website. Government budgets get a lot more outside scrutiny and pressure to avoid waste. It's not perfect. There's plenty of wasteful spending, but I wouldn't be surprised if research showed government and large businesses are similarly wasteful.
      - lazide 2y ago
        Yup, but that is to mitigate the large scale incentive issues - it doesn’t remove them correct? You generally don’t see corporations doing - or having to do - those things because their incentive structures are different. For gov’t, Society (as an outside party) has to explicitly apply pressure to stop it from getting out of control. For a big corp, when they waste money, that is money that the organization itself has incentives to not waste - their problem is more at that scale, it’s hard to ‘know’ what is a waste and what isn’t, and to untangle owner/agent issues. Especially when the owner is ‘the public’ via public markets. But there is still pressure, in the form of stock price, etc. so a company which hasn’t managed to get and hold onto a monopoly is going to be applying pressure to itself regardless. Hence, for example, the large scale layoffs going on in the US. Even if the company can’t tell what is critical and what isn’t, they still need to satisfy shareholders and cut.
Hasu 2y ago
> So I was surprised to see it presented here as a thing that happens in big companies too It happens at small companies and medium sized companies too. I've seen it as both a contractor and an employee. Like much common wisdom, the idea that companies are efficient (and specifically more efficient than government) is a myth.
- derektank 2y ago
  Companies can be just as inefficient as the government, sure. But unless they have a monopoly, either natural or government-enforced, inefficient companies will go out of business while inefficient government agencies can linger on for a long, long time
  - spicyusername 2y ago
    Only inefficient small companies go out of business. Inefficient large companies can also linger on for a long, long time.
    - moffkalast 2y ago
      One might argue there is no such thing as an efficient large company. They're just somewhat structured chaos, the larger, the more chaotic.
      - snapplebobapple 2y ago
        I would argue the pruning function becomes way more important (and way less used) the bigger a company gets and so there are very few large companies that are efficient, not none. Twitter comes to mind since they just had 70% plus of their workforce pruned as a likely efficient company (at least at serving social media pages, not at making money so far). I also think this is why government is the most dangerous power structure (they almost never prune anything and they have theoretical claim to 100% of the country's GDP through taxation. It would be better for us all if they were heavily restricted or just figured out how to prune effectively instead of just raising taxes all the time to support inefficient program spending)
Dalewyn 2y ago
The logic here is: If a budget wasn't spent in its entirety (or they didn't go overbudget), they didn't need the money and thus less money can be allocated next time around. If they keep requesting more money than they ultimately spend, less weight (if any) should be placed upon their beancounters in subsequent allocations. It certainly makes sense, but the behaviour that logic incentivizes leaves much to be desired.
- bena 2y ago
  It does not make sense. It never made sense. It is patently stupid and it should only take five minutes to realize why. If I go to the store today and buy groceries, it’ll cost X. If I go tomorrow as well, it’ll cost Y. The two numbers are barely related to each other. And only because I don’t need the things I bought yesterday. And yes, that’s day to day. What about year to year? Last year, I did not need any repairs to my house. This year I do. A few years ago, I needed a new roof. Three different year, three radically different home repair budgets. The entire exercise is a refusal to due diligence of any sort. If you say $X/yr, then you don’t have to ask why. You don’t have to scrutinize reasons. Then everything becomes about adjusting this number without ever asking what it is being used for.
  - Dalewyn 2y ago
    That's fine for most budgeting. This isn't one of them. Why? Because the monies being spent are taxes. There is a moral imperative to not waste a single cent of taxpayer monies, which means you as the guy writing the budget must ask what every single cent is being spent towards and must claw back (and subsequently refuse to budget) any pennies that are either unaccounted for or are unwarranted. (Yes, tax dollars are wasted and deliberately so in reality. That is another subject of debate.) Hence why the incentives are the way they are.
  - dooglius 2y ago
    I don't have a background in accounting, but my understanding is that assets, and the depreciation of assets, should be included in the budget. So, the way to frame you examples would be that your costs are the food you consume from your fridge and pantry, not the transition of money to groceries; and the cost for your roof was its depreciation due to age over time, not the transfer of money to a new roof. (I'm not making a claim as to whether this is actually how budgeting is done, in practice).
Kuinox 2y ago
> in a private company you get a bonus for being efficient and saving the company money Ah ah ah, good joke. A manager in a company get promoted because more peoples work under them, not because they managed to keep the numbers low.
inetknght 2y ago
> in a private company you get a bonus for being efficient and saving the company money In a company, the bonus you get for being efficient is "thank you" (if you're lucky) and the CEO buying a new lamborghini.
brudgers 2y ago
In the US, governments frequently use the lowest bidder. For professional work there is often a rate table.
- deburo 2y ago
  Government contracts are a snake pit. It's the first thing that disillusioned completely from government efficiency. It has an insane degree of collusion and overbilling.
shortrounddev2 2y ago
My dad worked for at&t and he got a budget for treating clients to lunch and such during meetings. He only got as much as he spent, so if he had $1000 left over, he would get $1000 less the next year. Each year, he would send someone out on his team to just buy a ton of gift certificates for the most common restaurants they take clients to and blow their budget in one day
api 2y ago
I heard this once from a finance guy: If you want to convert someone into a cut-all-government right winger or libertarian, send them to work in government for a few years. If you want to convert someone into a communist, send them to Wall Street for a few years. Any sane person exposed to any human institution will typically walk away thinking "burn it all to the f'ing ground." All human institutions tend to be loaded with self dealing, perverse incentives, and incompetence. We are not good at this. The only thing that checks it is companies going out of business or the government analog, which is struggle between agencies for funding and accolades. But as others have said large companies can muddle on for a long time and large anything can amass a lot of political and cultural cache and become too big to fail.
ecshafer 2y ago
For management in companies, the key resume drivers are team sizes and budgets to show how “experienced” they are. There are definitely adverse incentives. A lot of empire building goes on as managers try and grow how much they oversee to move up.
matwood 2y ago
Large companies start to become indistinguishable from government. At a certain size it’s bureaucracy all the way down.
miohtama 2y ago
Worst is defense industry Cost Plus contracts with guaranteed profit https://www.smalltofeds.com/2014/09/fixed-price-versus-cost-plus-in-federal.html?m=1 https://www.smalltofeds.com/2014/09/fixed-price-versus-cost-... No matter how bad you are, you end up making profit. Combines worst of socialism and capitalism.
- rm_-rf_slash 2y ago
  At least with cost plus the producers have an incentive to dedicate enormous assets to build the thing. Government contracting is murderously complex, and factorially moreso when it involves the military. Being off a few percentage points of the initial cost estimate can mean the difference between a profit or an 8 figure loss or more. If the profit insurance wasn’t in place, fewer contractors would take the risk.
- stackskipton 2y ago
  As someone who used to work in the industry, whole reason for Cost Plus is with more traditional contracts, there was a ton of paperwork showing the government wasn't getting ripped off which is obviously crazy expensive as well. So whole point of this fix rate system is government puts out "We are going to pay X for Y with profit of Z, take it or leave it"
throwaway106382 2y ago
> in a private company you get a bonus for being efficient and saving the company money haha, good joke every time I've saved company money and made them more efficient my reward was: more work for the same salary.
badpun 2y ago
Democratic government has an incentive to serve its constituents, while a company has an incentive to make profits for its owners. Even if companies are more efficient than government, they are more efficient at the things that only benefit a few people (the owners), and sometimes at the harm of everybody else. At best, a company is indifferent about public good.
wouldbecouldbe 2y ago
At some size a corporate and government have a lot of similarities. Much more then small vs big companies. Only difference I've seen is that companies do a big clean up every now and then, which helps although doesn't solve everything. Governments just keep pestering on.
nojvek 2y ago
The government is usually the largest company in a country that has a monopoly.
einpoklum 2y ago
> in a private company you get a bonus for being efficient and saving the company money You're more likely to get not much more than a pat on the back, and then be expected to work with the lower budget for eternity, even if your savings were a one-time overhead hack.
dahart 2y ago
This is human behavior. It doesn’t matter if it’s private or public, when people get together in groups to do business there tends to be similar behavioral patterns and outcomes. This is why almost none of the stories of differences between governments and corporations are true; people are people. Also there are plenty of government cases of being rewarded for efficiency, and cases of corporate employees being punished for saving money. I’ve heard bunches of stories here on HN of programmers complaining about being demoted or fired or flatly ignored when economizing business processes.
BeFlatXIII 2y ago
> So I was surprised to see it presented here as a thing that happens in big companies too (but I've only worked with very small companies). Many companies are internally every bit as centralized and dysfunctional as the Soviet Union.
7thpower 2y ago
One of the reasons expensive consulting agreements, especially those backed by strong brands, are so prized in large companies is because they offer career insurance paid for by the employer that covers the employee. If you are an employee who has decision rights you have far less to gain from 20% less cost than you do 10% more certainty and a strong name to hide behind. In most large companies, they often talk about entrepreneurial spirit, efficiency, ruthlessness innovation, and all of the other behaviors that made the company great, but the reality is that the incentives are much different once the founders have left and career managers have moved in. What’s left is a lot of people who make enough to not be hungry but are not rich enough that they will be okay if things blow up. If you want to grow in middle management your best bet is lots of headcount, a large operating budget, and lots of promises that will take years to be validated.
n_ary 2y ago
> In a private company you get a bonus for being efficient and saving the company money Private companies get bonuses for wasting money and besides the money wasters don't care because it is not their money. The unspeakable money burning that goes on in my workplace is insane. Infact, I have seen first hand that, people who wasted most money(despite no useful outcome) get promoted quickly by several ranks, which means anyone wishing for a promotion now finds elaborate ways to waste more money.

by andai 2y ago

sebzim4500 2y ago

A lot of the stereotypical mistakes that governments made are also made by large businesses, but it's definitely to a lesser extent.

chomskyole 2y ago
Having only worked at large businesses, I'd be keen to see some data on this. I would think that the incentives in large organisations are similar?
- lazide 2y ago
  Large organizations have to at least pretend to try to make money - the gov’t has no such restriction. Also, the gov’t has a large scale, legally enforced monopoly.
  - stvltvs 2y ago
    Government orgs have public financial transparency that businesses don't. For example, when I worked for a public university, my salary was available on a publicly accessible website. Government budgets get a lot more outside scrutiny and pressure to avoid waste. It's not perfect. There's plenty of wasteful spending, but I wouldn't be surprised if research showed government and large businesses are similarly wasteful.
    - lazide 2y ago
      Yup, but that is to mitigate the large scale incentive issues - it doesn’t remove them correct? You generally don’t see corporations doing - or having to do - those things because their incentive structures are different. For gov’t, Society (as an outside party) has to explicitly apply pressure to stop it from getting out of control. For a big corp, when they waste money, that is money that the organization itself has incentives to not waste - their problem is more at that scale, it’s hard to ‘know’ what is a waste and what isn’t, and to untangle owner/agent issues. Especially when the owner is ‘the public’ via public markets. But there is still pressure, in the form of stock price, etc. so a company which hasn’t managed to get and hold onto a monopoly is going to be applying pressure to itself regardless. Hence, for example, the large scale layoffs going on in the US. Even if the company can’t tell what is critical and what isn’t, they still need to satisfy shareholders and cut.

Hasu 2y ago

> So I was surprised to see it presented here as a thing that happens in big companies too It happens at small companies and medium sized companies too. I've seen it as both a contractor and an employee. Like much common wisdom, the idea that companies are efficient (and specifically more efficient than government) is a myth.

derektank 2y ago
Companies can be just as inefficient as the government, sure. But unless they have a monopoly, either natural or government-enforced, inefficient companies will go out of business while inefficient government agencies can linger on for a long, long time
- spicyusername 2y ago
  Only inefficient small companies go out of business. Inefficient large companies can also linger on for a long, long time.
  - moffkalast 2y ago
    One might argue there is no such thing as an efficient large company. They're just somewhat structured chaos, the larger, the more chaotic.
    - snapplebobapple 2y ago
      I would argue the pruning function becomes way more important (and way less used) the bigger a company gets and so there are very few large companies that are efficient, not none. Twitter comes to mind since they just had 70% plus of their workforce pruned as a likely efficient company (at least at serving social media pages, not at making money so far). I also think this is why government is the most dangerous power structure (they almost never prune anything and they have theoretical claim to 100% of the country's GDP through taxation. It would be better for us all if they were heavily restricted or just figured out how to prune effectively instead of just raising taxes all the time to support inefficient program spending)

Dalewyn 2y ago

The logic here is: If a budget wasn't spent in its entirety (or they didn't go overbudget), they didn't need the money and thus less money can be allocated next time around. If they keep requesting more money than they ultimately spend, less weight (if any) should be placed upon their beancounters in subsequent allocations. It certainly makes sense, but the behaviour that logic incentivizes leaves much to be desired.

bena 2y ago
It does not make sense. It never made sense. It is patently stupid and it should only take five minutes to realize why. If I go to the store today and buy groceries, it’ll cost X. If I go tomorrow as well, it’ll cost Y. The two numbers are barely related to each other. And only because I don’t need the things I bought yesterday. And yes, that’s day to day. What about year to year? Last year, I did not need any repairs to my house. This year I do. A few years ago, I needed a new roof. Three different year, three radically different home repair budgets. The entire exercise is a refusal to due diligence of any sort. If you say $X/yr, then you don’t have to ask why. You don’t have to scrutinize reasons. Then everything becomes about adjusting this number without ever asking what it is being used for.
- Dalewyn 2y ago
  That's fine for most budgeting. This isn't one of them. Why? Because the monies being spent are taxes. There is a moral imperative to not waste a single cent of taxpayer monies, which means you as the guy writing the budget must ask what every single cent is being spent towards and must claw back (and subsequently refuse to budget) any pennies that are either unaccounted for or are unwarranted. (Yes, tax dollars are wasted and deliberately so in reality. That is another subject of debate.) Hence why the incentives are the way they are.
- dooglius 2y ago
  I don't have a background in accounting, but my understanding is that assets, and the depreciation of assets, should be included in the budget. So, the way to frame you examples would be that your costs are the food you consume from your fridge and pantry, not the transition of money to groceries; and the cost for your roof was its depreciation due to age over time, not the transfer of money to a new roof. (I'm not making a claim as to whether this is actually how budgeting is done, in practice).

Kuinox 2y ago

> in a private company you get a bonus for being efficient and saving the company money Ah ah ah, good joke. A manager in a company get promoted because more peoples work under them, not because they managed to keep the numbers low.

inetknght 2y ago

> in a private company you get a bonus for being efficient and saving the company money In a company, the bonus you get for being efficient is "thank you" (if you're lucky) and the CEO buying a new lamborghini.

brudgers 2y ago

In the US, governments frequently use the lowest bidder. For professional work there is often a rate table.

deburo 2y ago
Government contracts are a snake pit. It's the first thing that disillusioned completely from government efficiency. It has an insane degree of collusion and overbilling.

shortrounddev2 2y ago

My dad worked for at&t and he got a budget for treating clients to lunch and such during meetings. He only got as much as he spent, so if he had $1000 left over, he would get $1000 less the next year. Each year, he would send someone out on his team to just buy a ton of gift certificates for the most common restaurants they take clients to and blow their budget in one day

api 2y ago

I heard this once from a finance guy: If you want to convert someone into a cut-all-government right winger or libertarian, send them to work in government for a few years. If you want to convert someone into a communist, send them to Wall Street for a few years. Any sane person exposed to any human institution will typically walk away thinking "burn it all to the f'ing ground." All human institutions tend to be loaded with self dealing, perverse incentives, and incompetence. We are not good at this. The only thing that checks it is companies going out of business or the government analog, which is struggle between agencies for funding and accolades. But as others have said large companies can muddle on for a long time and large anything can amass a lot of political and cultural cache and become too big to fail.

ecshafer 2y ago

For management in companies, the key resume drivers are team sizes and budgets to show how “experienced” they are. There are definitely adverse incentives. A lot of empire building goes on as managers try and grow how much they oversee to move up.

matwood 2y ago

Large companies start to become indistinguishable from government. At a certain size it’s bureaucracy all the way down.

miohtama 2y ago

Worst is defense industry Cost Plus contracts with guaranteed profit https://www.smalltofeds.com/2014/09/fixed-price-versus-cost-plus-in-federal.html?m=1 https://www.smalltofeds.com/2014/09/fixed-price-versus-cost-... No matter how bad you are, you end up making profit. Combines worst of socialism and capitalism.

rm_-rf_slash 2y ago
At least with cost plus the producers have an incentive to dedicate enormous assets to build the thing. Government contracting is murderously complex, and factorially moreso when it involves the military. Being off a few percentage points of the initial cost estimate can mean the difference between a profit or an 8 figure loss or more. If the profit insurance wasn’t in place, fewer contractors would take the risk.
stackskipton 2y ago
As someone who used to work in the industry, whole reason for Cost Plus is with more traditional contracts, there was a ton of paperwork showing the government wasn't getting ripped off which is obviously crazy expensive as well. So whole point of this fix rate system is government puts out "We are going to pay X for Y with profit of Z, take it or leave it"

throwaway106382 2y ago

> in a private company you get a bonus for being efficient and saving the company money haha, good joke every time I've saved company money and made them more efficient my reward was: more work for the same salary.

badpun 2y ago

Democratic government has an incentive to serve its constituents, while a company has an incentive to make profits for its owners. Even if companies are more efficient than government, they are more efficient at the things that only benefit a few people (the owners), and sometimes at the harm of everybody else. At best, a company is indifferent about public good.

wouldbecouldbe 2y ago

At some size a corporate and government have a lot of similarities. Much more then small vs big companies. Only difference I've seen is that companies do a big clean up every now and then, which helps although doesn't solve everything. Governments just keep pestering on.

nojvek 2y ago

The government is usually the largest company in a country that has a monopoly.

einpoklum 2y ago

> in a private company you get a bonus for being efficient and saving the company money You're more likely to get not much more than a pat on the back, and then be expected to work with the lower budget for eternity, even if your savings were a one-time overhead hack.

dahart 2y ago

This is human behavior. It doesn’t matter if it’s private or public, when people get together in groups to do business there tends to be similar behavioral patterns and outcomes. This is why almost none of the stories of differences between governments and corporations are true; people are people. Also there are plenty of government cases of being rewarded for efficiency, and cases of corporate employees being punished for saving money. I’ve heard bunches of stories here on HN of programmers complaining about being demoted or fired or flatly ignored when economizing business processes.

BeFlatXIII 2y ago

> So I was surprised to see it presented here as a thing that happens in big companies too (but I've only worked with very small companies). Many companies are internally every bit as centralized and dysfunctional as the Soviet Union.

7thpower 2y ago

One of the reasons expensive consulting agreements, especially those backed by strong brands, are so prized in large companies is because they offer career insurance paid for by the employer that covers the employee. If you are an employee who has decision rights you have far less to gain from 20% less cost than you do 10% more certainty and a strong name to hide behind. In most large companies, they often talk about entrepreneurial spirit, efficiency, ruthlessness innovation, and all of the other behaviors that made the company great, but the reality is that the incentives are much different once the founders have left and career managers have moved in. What’s left is a lot of people who make enough to not be hungry but are not rich enough that they will be okay if things blow up. If you want to grow in middle management your best bet is lots of headcount, a large operating budget, and lots of promises that will take years to be validated.

n_ary 2y ago

> In a private company you get a bonus for being efficient and saving the company money Private companies get bonuses for wasting money and besides the money wasters don't care because it is not their money. The unspeakable money burning that goes on in my workplace is insane. Infact, I have seen first hand that, people who wasted most money(despite no useful outcome) get promoted quickly by several ranks, which means anyone wishing for a promotion now finds elaborate ways to waste more money.