In the private sector, budgets are managers’ short term targets for income, expenditure, profitability and growth 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 reported – but not quality and service levels expected – their focus is on input resources needed, not outcomes wanted by the public such as less fires and far less crime
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 little 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”
Whatever the sector, budgets are usually set using last year’s results ‘plus a little’, making them not too difficult to achieve – they’re rarely ‘stretching’
And, if and when managers achieve their budget, many don’t try to do any better or, if they do, they don’t let it show in their results – their 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
In addition, 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, then this will not only perpetuate such waste but add to it!
