Case Study

The budgeting process and budgets themselves have significant impacts on management actions and performance, in both positive and negative ways. It is common at many local, state, or national governmental agencies, and nonprofit organizations, and even in some for-profit enterprises for managers to increase spending at the end of the budget cycle. This process, usually referred to as “use it or lose it" can be harmful to objectives of any organization. Managers do this, as they often feel that if they don't spend the amount that was budgeted this year, next year their supervisors will reduce their budget by the amount not spent in the current year. So, to avoid having their budget dollars reduced, managers often increase spending at the end of the year to ensure all budgeted amounts are spent even if items are not necessarily needed. This is more common in government and nonprofit organizations, but can be found in for-profit enterprises as well.

Requirement: Write a memo to the budget managers in an organization, assuming you are the CEO. Your memo should direct budget managers not to utilize this approach, but also offer a logical rationale, and perhaps an alternative solution.