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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I can only speak for when I worked for Volkswagen. We would be under budget every quarter and then start buying a bunch of expensive plants for the office and similar to fill up the budget. We absolutely did not want to remain under budget as that would mean a budget cut for the future. So we literally wasted it all on buying useless shit.
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I have been with multiple billion dollar companies as a financial analyst. Even a fotune 100. None of them hit their budget. In a more controlled business like manufacturing, it is typically easier to stay on track and forecast cost. Construction, on the other hand, is much more difficult to predict. Weather conditions, ordering parts, rework, etc. can drastically throw you off track. Regardless, most companies will be anywhere from 5% to 200% off their initial forecast.
If you want a more accurate budget it is good to do one on a monthly basis. I am at a smaller company now which forecasts 12 months but once a year. So when we look at our budget for June that we forecasted in December of the prior year, it’s never close. I am working on a way to forecast easily monthly but I have only been there for a few months.
I work in a analytical chemistry lab, our lab manager (who manages 2-4 other labs in our building not including mine) has a list of all the tools and equipment everyone needs/wants and some makes the budget and some does not.
If the budget comes in short then we get some of the stuff we wanted to make our jobs easier/more efficient.
If sudden emergencies happen or equipment fails and it has to be fixed the money for the new water purification machine you wanted goes away and it moves to next years list.
Stuff thats needed (can’t do the job without it) comes in higher in priority than stuff that’s wanted (stuff that’s nice to have and makes things easier but you can do without)
if we get everything (budget was generous for that year, prices were lower, costs were saved etc) we just have a large order of extra supplies that won’t go bad quickly (stuff made of glass, gloves, safety glasses etc.) so that we keep a healthy amount of extra supplies.
If you’re familiar enough with your needs, you can guess accurately enough that sticking to a budget is “simple” aside from unforeseen circumstances.
Think about your own food budget. If you looked at the last year of grocery bills and determine that you spend about $200 a week – how hard would it be to stick to a $10k food budget annually? Not too hard, you’d incidentally end up around there anyway even if you weren’t paying attention. Then, at the end of one month you see you were a hundred over – you try to spent $100 less the next month to stay on track.
At the end of the year, if you have a few hundred left over – maybe you splurge on expensive items you don’t really need but may want.
A company can do something similar, and tracks specific spend through a combination of purchase order, invoice, and receipt documents. PO says “I want to, and am approved to, buy x,” invoice says “a supplier is giving me x,” and receipts say “I received x.”
Depending on how an org budgets – if a team has more money left, they burn it. I’m a consultant, and from October to eoy, I get clients just because they have cash and would lose it if they didn’t use it.
lot of good answers in here, i ‘d like to add budgets get very granular. every department, every salary, every type of expense, they all have “accounts” and thus can be monitored easily on a monthly or quarterly basis (some places even weekly).
so if you can see it, due to granularity, you can act accordingly to be within budget.
They tell all of the people who do the actual work in the company to stop what they’re doing and help the bean counters fudge the books so that the arbitrary numbers match on the arbitrary day that marks the end of the fiscal year.
Not even joking. Just one of the many dysfunctions of a large corporate enterprise. Though it’s actually worse in government because spending is dictated by Congress, so spending $500,000 instead of $500,005 is a matter of law.
At the end of the budget year, we are either prohibited from buying even a single box of paper clips, or are asked to buy computer monitors that are stashed in the closet because otherwise we’ll lose the money next year. “Buy in bulk” means saving up orders until there are enough to get a volume discount… unfortunately, we can’t anticipate that we were going to run out of disk space due to unprecedented disk use, and needed to wait 18 months for upgraded disk discounts (no pun intended), so we were vulnerable to loss for that long.
IMHO, this type of financial management is a waste of time & energy. Replace “spend it or lose it” with needs-based budgeting that can borrow against next year’s budget. Returning money to the pool should be viewed as a good thing.
Others have detailed the actual reliable methods and strategies for budget management, but from my observations they usually spend as little as possible all year to save for an emergency and then desperately spend everything right at the end to use up the remainder. This also happens in some LLCs where they may get taxed on unspent money.
the short version is financial planning.
going over is a problem (although sometimes not if you’re like “well i know our budget was $500,000 but our building got hit by a tornado and we needed to replace a bunch of stuff so we went over by $100,000” a parent company realizes that some shit you just can’t control)
if you’re significantly under you can do things like buy office upgrades (maybe the fridge is super old) or the like or give out bonuses. some orgs i imagine also let you roll over a small amount of extras into like a rainy day fund or just to use it the next year
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