Bannatyne, Budgets and Public Sector Bodies

Duncan Bannatyne (@DuncanBannatyne) started a bit of a Twitter trend today when he asked, in a sense of outrage, if Sir Andrew Cahn should repay £1million pounds to the tax payer. But I would say this Duncan, whilst I have sympathy with the sentiment the revelation that Cahn instructed staff to spend £1million because of a budget underspend at UK Trade and Investment comes as no surprise to anyone who has ever held budgetary responsibility in the public sector or has worked with the public sector. Its common practice.

I remember my astonishment at encountering this type of mind set when working with and for public sector bodies. The argument advanced is generally termed – use it or lose it – and you are generally regarded as completely bonkers for not spending every penny of an annual budget

Having private sector experience of budget building and management I had become accustomed to being given a pat on the back for underspending, smart procurement, driving down costs through innovation. Being informed that such things were not only unnecessary but actually unwelcome was a bit of a shock

It does make one wonder why this is the case.

Well I offer two fundamental problems that I believe underpin it. One is the typical budget building approach in many public sector bodies. In essence the starting point for your budget is essentially determined by what has gone before as a starting point. Hence the “use it or lose it” idea. There is almost an assumption that these costs are somehow fixed costs. A major failure of knowledge management in my view. Such rigid formulaic or unquestioning of assumptions demonstrate a lack of Knowledge Aware Management.

This can in part be addressed by introducing different budget strategies in an environment where trying different approaches is encouraged, where no numbers are sacrosanct and assumptions underpinning figures are reexamined. Zero Based Budgeting as some of my counting friends might have it. Of course Social Knowledge principles have a role to play here as drawing on the collective insight and wisdom of the organization and its partners can surface opportunities to innovate and reduce costs.

Another contributory factor is the culture that suggests size of budget is one of the most important benchmarks and confers status in an environment where status is of greatest import rather than effectiveness.

Of course this is challenging issue to overcome, but again Social Knowledge approaches have a role in helping to reveal the true metrics of success of the client group, and for exposing them to the organization as part of an effort to break that inwardly focused and rigid mindset.

However in the meantime should he repay it – of course – but he wont.