Posted: October 13th, 2022

What do you think is an alternative strategy to the “use it or lose it” budgeting problem?

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The budget process and budgets themselves can impact management actions, both positively adn negatively. For instance, a common practice among businesses 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. REQUIREMENT: What do you think is an alternative strategy to the “use it or lose it” budgeting problem?

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