At root, a budget is a guideline, a set of goals, a financial framework within which an org commits to operate. But it’s easy for the guideline to become viewed as “permission”, and that’s not always a good idea.

In an oversimplified example, lets say an organization has one revenue source, and plans to raise $10,000 this year. As a result, it sets a project expense budget for Project ‘A’ at $1,500.

Four weeks before the end of the fiscal year, Project ‘A’ discovers that only $1,200 has been spent on their project so far. Hey! That means there’s $300 left to spend! If we don’t use it, we’re going to lose it, right?

But what if revenue is falling 20% short, and the org is only going to be able to bring in $8,000 by the end of the fiscal year? Should Project ‘A’ still go out and blow that last $300 that’s (at least in their opinion) theirs to “use or lose”?

This is a deceptively oversimplistic scenario. The fact is, it plays out constantly in organizations with annual budget sizes all the way from $30K to $30M. Those responsible for maintaining expense budgets need to keep in mind, although budgets are critical tools as guidelines, they are only guidelines. To view them as entitlements can be counterproductive.

The best rule of thumb continues to dictate that revenue people need to raise as much as they can, regardless of what the budget suggests, and expense people need to be perpetually thrifty, regardless of what the budget allows.

And as always, I encourage you to contact me with questions or feedback.