Since the inception of the target budgeting, it has been a priority of the chief executive officer to make sure that the budget is managed at its full efficiency and any wasteful or unnecessary expenditure is entirely eliminated. To meet the objectives of our organization, we must insure that the money is spent in line with the company’s goals and the mission statement. I use this memo to warn against uneconomical spending and encourage the targeted and efficient use of funds.

The particular issue I would like to emphasize in this memo is the so called “use it or lose it” behaviour, frequently detected as a part of managerial decision making within public organizations. “Use it or lose it” habit implies that once a fiscal year or a presidency term is close to expiration, it is not unusual to observe a budget manager undertaking excessive expenditures. The academic studies have found that the US federal agencies spend 8.7 per cent of their budget in the last week of the fiscal year, whereas the equivalent expenditures during other weeks of the year correspond only to the modest 1.9 per cent of the budget (Leibman and Mahoney 2013). To ensure that these results are the outcome of wasteful spending and not the delayed target expenditures, the authors have built the expenditure quality index incorporating project costs, performance, and timeliness as three dimensions of the expenditure appropriateness and urgency. They have found that the probability of the last week expenditures being of poor quality is 2.2 to 5.6 times higher than the corresponding expenditures in other weeks.

To eliminate the possibility of irrational spending at the end of the fiscal year, we are negotiating with our budget setters on few important policy implications. First, we discuss the possibility of establishing a roll-over policy. Provided that the negotiation is successful, this initiative will allow us using the funds that were unconsumed during the present budget cycle during the next one. In this way, the accumulated savings during the fiscal year will not be expropriated (i.e. lost) but addressed onto financing of the projects during the upcoming fiscal year. In particular, Leibman and Mahoney (2013) have found that such roll-over allowances lead to the sizeable increase in the volume of federal agency budgets by 13 per cent on average through the reduction of inefficient spending.

In case of the failure of the above negotiations, our organization discusses the possibility of implementation of a “plan B”, namely the adoption of a shift in the way fiscal periods are calculated. As you all probably know, we operate the budget according to the annual fiscal period. Thanks to the collaboration with our budget setters, we may transit to the biannual fiscal period. In such a way the probability of unnecessary expenditures is expected to go down as we anticipate the increased longevity in the discretion how the budget funds are exploited.

Lastly, I would like to remind to all budget managers in consideration that the problem can be tackled by the budget managers themselves, provided that they are guided and disciplined by reasonability and prudence. As Thomas (2013) defined in his article, there are several rationales for improving the budget process. Without going into a deep detail of each of them, these are 1) distribution of responsibility among budget managers for each budget item; 2) centralized reporting to a real time dashboard; 3) assignment of confidence factors based on the accuracy of projections to each budget item; 4) usage of historic costs for predicting future expenditures, and 5) adoption and usage of business collaboration platforms.