Return to Target setting


  • In the private sector, budgets are managers’ short term targets, at business unit level usually for income, expenditure, profitability and output volumes in the coming year
  • Most budgets cover expected costly resource needs and contingencies for extra capacity – they rarely mention customer satisfaction, employee motivation or corporate knowledge levels
  • In the public sector, most budgets cover output volumes (e.g. healthcare episodes, fire incidents or crimes) and costs but not quality and service levels expected – their focus is on input resources needed, not outcomes expected by the public
  • And there’s little pressure for public sector managers to reduce costs – this has bred a widespread culture of ‘use it or lose it’ – any manager who spends less than his budget in one year can expect to have it reduced for the next year – hence, there’s no incentive for them to try and do more for the public with less
  • Professor C N Parkinson expanded on this: “Government bureaucracies usually find ways to spend pretty much whatever money comes in – they don’t build their budgets from the ground up – they discover the level of expenditure they can finance without breaking too much sweat and then work backwards to justify that level as essential to meet needs”
  • Budgets are usually set using last year’s results ‘plus a little’, making them not too difficult to achieve – they’re rarely ‘stretching’
  • However, if and when managers achieve their budget, most don’t try to do any better or, if they do, they don’t let it show in their results – the budget becomes an upper limit on their efforts – they ‘hide’ any surplus to give them a flying start for the following year
  • Managers know they’ll be congratulated for ‘meeting budget’, thus helping their promotion prospects, so there’s little incentive for them to do better – another reason why they try to keep budgets as easy as possible
  • Budgets can also lock in waste
  • If last year’s performance included a 30% waste of resources say, and this year’s budget is calculated simply by adding a percentage, this will not only perpetuate the waste but add to it


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