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.
In: 196
People are bad at estimating things, and its much harder to get more budget at most companies. So if you underspend and lose the budget, you have instant FOMO for the next year, and if you actually need more, it’s a pain to get.
You might think but its so easy to lookup that you gave up a million dollars last year, why would it be hard to get 20k? And that’s just one of the great mysteries of corporate finance.
You also have a general lack of real responsibility for checking this stuff. Proper accounting and estimation for budgets and efficiency is hard and time consuming. Very few companies truly try to do it. So you’ve got department managers blowing remaining budget last second, and no one challenging it, and things just keep on chugging along.
So long as the total budget for the company fits at the end of the year, there’s not a lot of time spent looking into the details of that.
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