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Fmatosqg t1_j2etg8u wrote

Reply to comment by cleanscotch in ELI5: Why do companies require annual budget be spent 100%? by angrybird7677

I hope you can see how stupid this sound.

If you're in a situation where you know you can't reach target EVEN if all the budget is spent, the reasonable thing is NOT dump the extra money into anything so you can save face.

Big companies are a place where logic is not required, and not optional, it's actually undesirable.

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illachrymable t1_j2fi1rf wrote

You don't have enough info and are sounding like an idiot yourself.

Generally there will be an ROI target, so for every $1 invested, the company expects say $1.10. If you have been averaging a ROI of 9% during the year (so a $1.09 return for every $1 invested), you definitely still want to invest the extra money.

No business has a target of breakeven. There is a hurdle rate they are trying to hit that is a positive return.

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On top of this, because how fixed costs work, spending the last $100 in your budget will usually give you a better return than spending the first $100.

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newbrood t1_j2fck28 wrote

But what about getting closer to target? Would you prefer to be $100k short or $10k short?

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cartoonist498 t1_j2fomop wrote

You're thinking with the mindset of a company that needs to save $50 so that it can make rent at the end of the month, and wasting valuable time and effort scrambling to scrounge up money.

Large companies looking to increase revenue can't operate like that. If they're going to penny pinch then that oversight alone to micromanage the expenses of the company with thousands of employees would probably cost more than the money it saves.

And not only that, lower the productivity of the entire company as everyone puts in weekly effort to justify every cent, instead of doing their actual work.

Management commits money for the budget it invests into the company and as far as they're concerned, it's spent.

They don't care about penny pinching to get back $500k of their $500 million budget. They're more concerned on whether spending that $500k could have raised their revenue by another $100 million and the only way to know is to spend it. A healthy company drives forward to maximize revenue, not look backwards to save a few cents.

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