Budget Spending: How Not to Fail at the End-of-Year Spending Spree
Effective budget spending can involve a fine balance. If you spend too much of your budget at the beginning of the year, you may not be able to fund vital needs later on and miss out on chances to improve departmental productivity. If you save everything until the end of the year, though, it may be difficult to prioritize spend, and money could be wasted.
Every organization needs to budget effectively to ensure it has sufficient funding for required projects. Most companies budget annually, corresponding to their fiscal year rather than a calendar-year basis. But some — publicly traded organizations, in particular — define budget spending priorities on a quarterly basis.
Use It or Lose It
Many organizations have “use it or lose it” rules, whereby any allocated budget remaining unspent at the end of the budget cycle is forfeited. Some — even federal CIO Tony Scott, according to Nextgov — question the wisdom of defining budgets entirely by time periods, rather than by real priorities. If decisions are rushed in an effort to ensure no budget remains unspent (which can lead to the often reasonable fear that budgets will be cut for the coming year), poor results ensue.
This is a charge that can take place at many organizations. Governments around the world have been accused of wasting money on technology projects, some of that waste caused by last-minute spending sprees. And many commercial organizations face the same problem.
The Federal Government
Case in point is the U.S. federal government, where attempts have been made to quantify the problem. One study done, and recently updated by the Mercatus Center at George Mason University, has found evidence of a significant uptick on spending on technology in the last month of the fiscal year among government agencies. Having studied budget spending from 2003 to 2015, it found that an average of 16.3 percent of expenditure occurs during September, just prior to the end of the fiscal year. Had spending been split evenly over the year, that is almost twice of what would be the monthly average.
Studies like these have shown that many of the technology expenditures made by government agencies tend to be wasteful, with the Federal Times citing issues aligning spend with the size of a given workforce. More specifically, the Mercatus Center highlights that end-of-year purchases often go to lower-value projects and more risky, non-competitive or one-bid contracts.
Tackling the Problem
Government spending is frequently put under the microscope, so it’s not surprising that these sort of details have emerged. But many organizations face the same problem worldwide. One option is to rethink budget spending. Instead of the use-it-or-lose-it approach, an alternative is to allow a rollover of part of the budget to the following time period. This method is upheld for the purposes of unused vacation days in many countries and organizations.
Another approach is to not spend all of the budget if there are no clear spending priorities for the remainder of the year’s available funds. This can then free up assets for other projects, or those that could contribute to the overall profit of the business.
Even if it is felt that the remaining budget allocation must be spent, it’s a good idea to solicit input from colleagues for areas in which spending the money would be most wise. For example, many organizations are increasing their use of the cloud, and an option could be to sign up to new services that would be beneficial, or invest in additional storage in the cloud. Another option that could be especially relevant now — owing to the increase in ransomware attacks — is to take a good look at the backup solutions the organization uses to ensure that they provide adequate protection.
Whichever option your organization takes should depend on the particular circumstances of the business. There is no one-size-fits-all solution. It’s also wise to ensure that spending plans are regularly reviewed throughout the year so the budget is guaranteed to be used smartly and only when it is needed.