Oh that’s easy. They don’t do it because it would require the number crunchers up top to actually understand what is happening down below. Or care, for that matter.

The formula is to drive profits. That is all. A certain level manager might get a reward for coming in under budget, but their budget is going to get reconfigured.

The reasoning is different for different types of companies. But for a for profit company, every dollar spent requires a significant amount of effort to earn it. I worked in distribution for almost ten years, so this is my experience. Target gross margin on sales was 20 percent. So for every 100 dollars sold, 20 is profit. But that doesn’t take into account the cost to produce it. You’ve got to pay someone to source material, pay someone to take orders, pay someone to ship it, pay supervisors, warehouses, pay rent, cleaners, energy…etc. at the end of the year, we contributed like 2-3 cents on the dollar in NET profit. So for 1000000 in sales, 20-30,000 in net profit.

If you’re able to reduce 4 different departments budgets by 5000 each, you can double your net profit with the same sales. That’s a SIGNIFICANT motivation for the branches management to cut budgets. Because they DO get management incentives on that net contribution.

Hopefully you’re able to at least justify the wishlist.

“This fancy computer will run CAD more efficiently, saving time, and allowing the engineer to process more projects throughout the year.” - especially when the unit was due for replacement next year anyways.

Right.

I’m a volunteer fire fighter. Our captain is responsible for making a budget. It needs to be justified to the village. They base it on last years expenditures plus expected increased costs based on inflation. (Keeping it simple here because it’s ELI5, and I’m not directly involved in their budgetary planning).

They play it cautious throughout the year, in case there is something that comes up unexpectedly…if a hose blows out, or a truck breaks down…those expenses come first. But towards the end of the year, when we still have a surplus, they start buying things off the “nice to have” list, like upgraded nozzles to replace a functional but worn one. Or new PPE for the firefighters that is still within date, but a little rough. The nice thing about that, is replacing them would eventually be a need. This allows them to stay ahead of the curve year over year.

From an outsider, this may look like we spend more in the last month on frivolous things, when in fact they aren’t truly frivolous.

What you’re not taking into account is that you also helped with creating the budget, you need to justify the projected expenses. It’s not a punishment to reduce the budget. It’s in everyone’s best interest to run the company more efficiently and profitably. So rather than having frivolous spending at the end of the year, they reduce the budget.

If I give you 100 dollars to repair the sink, and you only spend 50 of it, next time I need the sink fixed I’m going to give you 50 dollars. The other 50 goes to other expenses or into savings.

Companies use the same philosophy. Budgets which aren’t spent go straight to the bottom line of that years accounting, leading to more profits.