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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The interests of the company and the manager are not always perfectly aligned.
Overspending is bad and so most budget owners will aim to underspend for the year especially in the early months, so for example after 6 months of the year they’ve spent only 5/12 of their budget.
Having reached the final few months of the year, the manager now knows the risk of overspending has passed.
They now have a different risk – if they underspend this year then the base expectation would be the next fiscal budget would based on this underspend. (Budgettjng rarely starts from scratch and is an adjustment of them prior fiscal).
Therefore spending often increases in the later months so that over the full year the actual spending is within a few % of the planned spend, ideally on the underspend side.
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