So most companies have a big corporate office and a bunch of regional offices that they allocate money to, I get that. Let’s say a given office gets a $500,000/yr operating budget (just throwing out a random number). How do they spend exactly $500,000? Because they obviously don’t want to go over budget but they don’t want to have a surplus and lose $ next year. So is there wiggle room? Would they spend $499,995 or something?
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Budgeting is very interesting actually.
The biggest problem with budgeting is that the people/departments/regions that revive the budged will always try to ask for as much as possible to make sure they complete their targets/plans.
The Soviet Union was a budget/plan economy and it failed eventually because of the problem I described above. If you are a factory director that is receiving government budget there is no point for you to try and be efficient. Maybe your plan is to make 100 cars in a month. Maybe you know you could do that with 50 workers. But if you fail for some reason you might get fired. So you ask for 70 workers and more money and then when you see that you can do more than 100 cars you slow down and do 101 eventually. This way the government doesn’t just raise the plan next month making your life harder.
In big corporations there are Auditors looking for this kind of inefficiencies. But still most budgets are spent because they are over planned in the first place. It’s then the job of the company to make sure their workers aren’t slacking and are doing the most they could with the investments.
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