Friday, October 17, 2008

Unintended Consequences of Use-It-or-Lose-It Budgeting

A caller to a radio talk show shared a story from when he was in the U.S. Air Force. The unit had a fuel budget that they had underspent for the year. They had a use-it-or-lose-it budgeting system. It's a reasonable idea that the budget for next year should be related to the actual spending from the current year.

As frequently happens, fear of scarcity overrides common sense. Instead of losing their fuel budget for the next year, the caller shared, the jets fueled up, flew over the ocean and returned fifteen minutes later to refuel for additional trips.

Although I hope this is an apocryphal story, its plausibility reminds us that even decent ideas can have unintended consequences. We need to keep normal human reactions in mind as an important part of the evaluation of otherwise good ideas.

5 comments:

Larry said...

This practice was very common when I was in. I was a workload controller in the USAF/ANG for several years. We would always have to spend, spend, spend at the end of the fiscal year for fear of losing that amount out of the new budget. I believe this practice is rampant through all of government and many corporations.

mark said...

as above, when I was in the AF, all year we wouldn't be able to buy anything at all, to conserve our budget for emergencies, then EOY would roll around and we'd go on a spending spree trying to identify, fill out paperwork and purchase equipment in about a week, solely on the "use it or lose it" basis.

not surprisingly, this resulted in under-performance of our mission throughout the year, followed by unwise bulk purchases of luxury items at the end of the year.

have seen the same problem at public companies since I got out, including one you and I have both worked for ;-)

Ken Flowers said...

Hi Mark - What a shame that this is so common.

DNBII said...

I know a guy that was a boom operator on a KC-135 that would dump full loads under this condition to keep their fuel budget from getting cut. If this is the way the budget is still set up, I don't know the first thing we could do about it. Budget oversight seems to be useless.

Ken Flowers said...

Too much confirmation. That's disappointing. Thanks DNBII.