Fixing The Problem In One (Tough But Do-able) Step

Managing a private sector enterprise I got rid of bottom up budgeting and replaced it with a process that started with what we could actually afford to spend basedbon our projected sales, our capital employed and our required return on capital. The job of senior managers was then to decide how the 'cake' should be shared out and then how they would operate within their portion.

I would strongly recommend a version of this for the government budget. 

Start from what money is going to be raised and work back from that income to how much will be available for each department to spend. Each department then decides its priorities and if necessary what it won't do in the year ahead. If s department wants or needs more it has to negotiate with other departments to release some of their money - but the total pot size cannot be changed.




Why the contribution is important

I found this process cut out budgetary 'games' and brought us all into the real world.

In IOMG terms it would turn Ministers and their senior PSs into business managers who operate within the real financial constraints of what can be afforded not what we would like to do or what extra we can get out of the Reserves.

Requires commercial skill and the ability to negotiate and make tough choices - but in one step you resolve the shortfall.

I would add that you need to also communicate what you are doing and why to bring people along with you. People prefer to know things are being managed sensibly than to feel they are on a runaway train!

by dpfellows on April 05, 2017 at 10:05PM

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Based on : 7 votes


  • Posted by Flybynight April 05, 2017 at 22:14

    Isn't that what Treasury does? I thought they're not allowed to get into debt.
  • Posted by dpfellows April 05, 2017 at 22:26

    But they allow living beyond our means - as seen by the continuing diminution of the Reserves.

    The current budget has a massive deficit. This exercise is part of trying to claw back overspending.

    I am suggesting if you raise £500 million in tax then that is the maximum you can spend not £500 plus £140 million of reserves and £100 million of general revenue diverted into pension payments.

  • Posted by Litigant April 05, 2017 at 22:53

    I can see obvious advantages for this approach in a single organisation. However Isle of Man public sector is too diverse and FRAGMENTED for everyone to pull together in the way needed.
  • Posted by dpfellows April 06, 2017 at 09:24

    That's the challenge Litigant. It is harder than in one organisation with a clear focus and clear priorities - but shouldn't the IOMG have those anyway?

    Two things I would say:

    Firstly Ministers and their Senior PS need to behave much more managerially not fractiously - and spending priorities need to be set by them collectively, as said elsewere -"no more Slocs!"

    Secondly never forget that senior managers are not paid high wages for dealing with the normal - they are paid for being effective in dealing with big challenges. They need to earn their remuneration by working collaboratively.
  • Posted by ManxVoter April 06, 2017 at 16:08

    Zero Based Budgeting ought to be compulsory in all depts
  • Posted by dpfellows April 06, 2017 at 21:53

    MV zero based budgeting is a good idea - combined with 'living within our means' budgeting it would be a powerful tool to reign in spending to match projected revenues. Together they require Ministers and Dept Managers to be proper business financial managers.
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