Question

Both the budget process and the budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies (and The Office) is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it”. The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system.

Answer 1

I dont know whats the question really intended over here. But if it is a discussion on the above given topic, below it is.

This whole system of "use it or lose it" is something that should actually be gotten rid of or stopped in practice. Its a total loss system for employees as well as the company when you look at it. We should think of better ways to solve this issue as the current method being used is not at all an appropriate one.

Spending it just because if it remains, the budget would be cut down next year is an absurd method to be honest. This leads to loss of revenue that is hard earned with the efforts of many different individuals in the firm.

A real discussion has to be done regarding this and new ideas must be brought up on how this fund can instead of simply being used for no reason at all, be carried forward to the next year as excess to the existing budget. If such a system comes into place, we would always be having some amount in excess of what was planned for that year and that would always be good for the company. This excess doesnt really need to be used up unless necessary. So, if the cycle keeps going, it will always mean that there is some excess amount in hand than budgeted.

Excess cash can never be of harm to any company but will only do them good.

So, this is really a topic that has to be talked amongst the top management and the lower levels and reached on a good final conclusion on whats the best step to take.

Hope this answers the question. If you liked the answer, please give an up-vote. It would be highly encouraging for me. Thank You.