In many companies, there’s this policy which requires awarded budget that must be spent completely once it’s approved. If the annual spend is below the allocated annual amount, there’s a chance next FY you won’t get the requested budget you asked for.
– why do such policy exist?
Isn’t it better to carry over unused expenses to the next FY? Saving expenses expenditure is a bad thing? Such a policy encourages employees to spend extravagantly the remainder amount nearer to FY-end.
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It’s not so much a set in stone requirement, as much as a practical reality of budgeting. If the business owner sees one department consistently not spending their full budget, they think that department doesn’t *need* that budget.
Now in large corporations the ones making those decisions are disconnected from actual operations, so they don’t know the broader context of why that budget wasn’t used
Tl;Dr: assholes with business degrees
If I give you 100 dollars to repair the sink, and you only spend 50 of it, next time I need the sink fixed I’m going to give you 50 dollars. The other 50 goes to other expenses or into savings.
Companies use the same philosophy. Budgets which aren’t spent go straight to the bottom line of that years accounting, leading to more profits.
You answered your own question, so you don’t get less next year. It will make more sense if you understand it’s not done at the company level, but at an individual department level. If you’re the head of the IT department and you have $100k left over at the end of the fiscal year, the CFO might say “IT saved us $100k, maybe next year they can save us $200k!” and cut your budget accordingly. Now next year you have to replace a server, but you don’t have the money. You go ask for more money and some of your bosses say “well, the head of IT doesn’t manage her money very well, who else we got?”
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Because, if one department isn’t spending all of their allocated budget, they means they don’t need the amount allocated to them. And if they don’t need it, some other department surely can use it because they didn’t have enough allocated to them.
So department’s try to spend their entire allocation so that when they actually do need it, it’ll be there.
You don’t need the money, right up until you do. And when you do need it, if you don’t have that allocation to your department, you’re SOL, you’ll have to **try** to get it for next year’s/quarterly budget.
Spending it just tells the people who make the budget that you do in fact need the amount allocated to you and to not give some of it to someone else.
All comments forget the most important aspect: Any unspent dollar at the end of the year is profit, and profits are taxed
My company i worked for (large isp) bought all field service technicians new computers because we had to much money over
If we didnt, next year they might give us a lower budget… So they spent money like crasy while looking for ways to save on other things. Like some money saving tactics were ridiculously backwards and making the job harder to do, but hey free laptops is ok. Companies are absolutely stupid
I work in a certain sector with both medical and marketing budgets. The curtain was parted a few years back that if they didn’t spend the budget, they lost it that year and it was dropped by 20% the following year also. Some crazy shit happens come year end.
GREAT FOR ME
Budgets can be pretty big, and buying a few things extra to fill out the budget isn’t a big deal.
Budgets get changed all the time. If you don’t use it this year it may be gone the next. Getting authorization to exceed budget can be difficult, while spending what’s already authorized is easy.
Take the converse.. if everyone is hyper incentivized to come in below budget you get scrooges that pay poorly, understaff and remove free coffee from the office. You get a bad place to work.
I’ve never heard of this policy ever existing, anywhere. I doubt it does. What does happen is that companies are always trying to cut costs from the top down.
In a hypothetical well run company, everyone tries to save unnecessary costs.
In most companies, it’s a constant battle of higher management trying to cut costs and those lower down the rung wanting to get the job done and go home with the minimum of stress.
Lower management want to hit budget to not get bollocked / to get their bonuses, but they don’t actually give a shit about the company’s bottom line. If they can spend the money on stuff that will make their employees happier and make the work go smoother without those above them getting pissy, they usually will.
Why not give bonuses for reducing costs? That’s really hard to do well. Likelihood is you’ll just have managers completely fuck the business long term to hit short term targets. Better for them to not cut costs all the way they can than to gut the company in a year.
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