Thursday, 13 May 2010

What value Budgets?

What is your experience of budgets?  Are they useful or not?

During my life I have experienced, or heard about a number of different approaches to budgeting - though I have no experience of government budgeting where counter intuitive Keynesian approach works.  So what are the pros and cons?

I have experienced one approach and heard of another.  My experience is of budgets being targets which were not to be missed.  If the forecast outcome was off budget then action was taken to correct it.  Most often this involved cutting expenditure - to the extent that maintenance was often delayed until later in the financial year to see how the overall budget looked.  There were two sides to this - one was a genuine cutting back on expenditure, the other simply a manipulation of the timing of expenditure to fit into arbitrarily defined buckets (financial years and quarters).  The other approach that I heard of was where there was no budget - but expenditure was expected to be on an ever decreasing decline with this months target being below last months.  The difference between the two companies was that one was a PLC having to satisfy "the market" whereas the other was a privately owned company.

Charity Sector
My experience now in the church/diocese is that the budget is treated more as guidance - the idea of moving costs into a new year because they weren't budgeted in the old one has gone - and I think this is good - it avoids the manipulation of expenditure to meet arbitrary targets - after all if the money needs to be spent does it really make sense to wait a couple of months?  However, I wonder whether the culture of explaining differences to budget rather than managing them out means that the cost cutting is harder to implement.  It is very easy to explain differences - but if your boss doesn't accept that then you have to find a way - if you have a more understanding boss who lets you explain things away that is always easier than taking action.

I run a very simple personal budgeting system - what, budget? J Though I know others who run more or less complicated systems.  I figure out what rate of expenditure I can sustain and monitor it by looking at my balance at the end of the month.  Nearly all my expenditure is monthly bar TV and phone so it works well enough for me.  Plus if I put money into savings I might even get some goodies - assuming that I don't have to take it out again to live!

Funny thing is - soon after I wrote most of this post Thinking Anglicans posted the following about the budget problems in the church, with links to other sources as well!

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