Why budgets are tyrannical madness

EDITOR'S BLOG: When it comes to spending taxpayer's cash or earning profit, budgets can be a constraining pain in the neck, says Matthew Gwyther.

by Matthew Gwyther
Last Updated: 28 Jul 2015

Not for the first time DFiD is in the doo doo. The old Overseas Development Agency (ODA) is in the doghouse. After the government accountants have had a good look through the books it’s been revealed that at least £1bn of spending on overseas aid was rushed through inside two months at the end of 2013, to meet the UK's spending target.

The National Audit Office (NAO) said the outlay may not have been spent ‘as effectively as possible’ as a result. Images are thus summoned up of billions being flung willy nilly into Africa as civil servants rush to protect their behinds, while at home the trolley queues outside A&E grow longer.

The truth, though, is more subtle and nuanced than this. Some longer term aid needs are predictable, others - such as famine and natural disasters - are not. Nevertheless, the order from on high is ‘thou shalt not underspend.’ HMG is committed to spending 0.7% of the UK's national income on overseas aid and this spend must be delivered otherwise we are deliverers of empty promises to the world’s poor. Cameron has described the overseas aid budget as ‘his proudest achievement.’ How, if we welch on such promises, is George Osborne going to look Bill Gates in the eye at Davos?

Apparently needless profligacy is frowned upon at the best of times. (Especially when our own taxpayer cash is involved.) But this is, of course, is all made far worse in an era of austerity where cost control and the strict adherence to substantially reduced budgets is deemed vital. It could be that nobody is helped by the ostensibly worthy but rigid mantra that we have to spend this figure annually to earn the right to feel virtuous. What if it were 0.8% one year when needs must and 0.6% when the need wasn't so great?  What if our aid expenditure were more thoughtfully demand rather than management accountant-led?

But it cannot work like that, especially in an era when the likes of Nigel Farage and a number of right wing Tories are saying that we should not be spending anything helping the poor in the developing world.

A few years back MT produced a terrific piece by former Observer managment editor Simon Caulkin about why budgets can be a hindrance to good management and commercial success rather than an aid. For me, ‘Escape the budget straitjacket’  was a real eye opener. He argued that toughly enforced budgets do very little for creativity, innovation and are the enemies of commercial promise. It made complete sense.

Budgets may run our lives, but they are basically there to give those in charge of organisations the illusion that they are in control of things. As much as anything else, they are the product of a command and control style management anxiety. At the higher end of the chain of command budgets are about making sure there are as few unpleasant surprises coming down the line as possible. But at ground level at their worst they can appear as mindless as a First World War battle plan when it’s calculated by donkeys far removed miles behind the lines, who decree that 750 lion-like troops will perish to gain 50 yards during trench warfare.

This is one of Caulkin’s best bits:

‘Today's budget is the opposite of a rational calculation: a political poker game of bluff and counterbluff at all levels. Every operating manager knows the unspoken rules:

- To make the target easier, underestimate potential sales and overestimate spend (anything over can be hidden away for a rainy day).
- 'Use it or lose it' - never underspend your budget, otherwise it will be reduced next year.
- Never give the real picture if you can help it - at some stage you'll need to find excuses for variances, so the less transparency the better.
- That applies to other teams, too: you're competing for the same resources, so never give away your best tricks.
- Do whatever it takes to make the bonus ... But never exceed it; otherwise, managers will conclude you were bluffing, mark you down and raise the target. Instead, move extra sales to the next period to give it a flying start.’

Any of these perverse behaviours ringing bells with you? One feels sure that an extreme form this kind of budget gamery was what drove Tesco into the arms of the Serious Fraud Office.

There must be a better way and Simon’s piece considered other options. But in the current climate tyrannical and arbitrary budgets are definitely here to stay, both for government departments and those of us in the private sector. In the meantime I hope you’ve all made your targets this week, whether you’re giving money out or trying to rake it in.

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