...not budgets

As mentioned in my last post, perhaps organisations can address their current budget problems by not having a budget in the first place. You're thinking, "That's nonsense." But let me explain this counter-intuitive proposal.

Neely, Bourne & Adams (2003) proposed this idea, arguing that having no budgets results in organizations spending less than they otherwise would. This paradox is based on the assertion than when a manager (whether in the public or private sector) is given a budget they are being set an expectation to spend a certain amount of money to produce goods or services and, therefore, they will aim to spend that much. If on the other hand the manager is not set such an expectation then Neely et al claim that the manager will only spend what they need to spend to produce the goods or services.

 Given that one of the uses of a budget is to control spending how would an organization that has adopted these ideas avoid spending more than it receives and, potentially, insolvency? They suggest that the finance director at the centre of the organization would be able to monitor income and expenditure at the aggregate level to ensure that the organization is solvent but there does not need to be any of the standard monthly budget monitoring reports produced for each manager, saving an hell of a lot of time for everyone. Presumably if the finance director identifies a potential problem they would instigate whatever remedial action they felt was required without needing to issue a budget report to a manager.

 It's an interesting idea and there are examples of private sector organizations adopting it. I know this idea runs counter to the whole doctrine of New Public Management where responsibility should be devolved and decentralised to the front-line but, to be honest, for a lot of front-line managers the constraints on what they can and can’t control makes their budget responsibility to be more theoretical than practical. There’s some attraction from the suggestion that it would reduce spending and increase efficiency without having to go through a painful exercise of making budget cuts but it would be difficult to adopt in the public sector because it is so far away from the culture of producing detailed, line-by-line budgets. I think the legal requirement to have a balanced budget only needs to done at the aggregate level. Having done that a public organisation does not have to allocate budgets to managers but, one suspects, there would be considerable reluctance from the finance director and other managers because of the risk to them if things go wrong. Imagine the inquiry into why an organization has run up a considerable deficit discovering that the organisation had been operating without a budget!

So, it's a radical idea but there are hundreds of public organisations struggling to solve the problem of where to cutback. This method would allow savings to emerge without making having to announce any cuts. Perhaps it's worth a try.


Neely, A., Bourne, M., & Adams, C. (2003). Better Budgeting or Beyond Budgeting? Measuring Business Excellence , 7 (3), 22-28.)