Question

Both the budget and the budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies (and The Office) is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it”. The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system.

Write a report to management at Dunder Mifflin offering a solution to the “use it or lose it” budgeting problem.

Answer 1

For "use it or lose it" problem, following solutions shall be considered by the management:

• Maintenance of expenditure record for every week also providing particulars of every expenses, in that way top management will have in it's hands at the year end justification report for every expenditure, where recurring flow of irrelevant expenses can be tracked.
• Employees should be rewarded & appraised for even small achievements, recognition for efforts & such rewards also help achieving targets smoothly & effectively.
• Performance audit, is to be done where it can be assessed whether the organisation's performance in utilizing available resources is resonable, efficient & effective.
• Funding for a particular department shouldn't be based on expenditure basis, but the criteria & basis on which fund is remitted shall be clearly defined.
• Any cash amount not spent shall be carried forward to the next period/month, which doesn't clearly provide employees idea on yearly expenses, & will help to stop misuse of cash.