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Explain the 'use it or lose it' budget problem for not for profit or government entities

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19. Both the budget process and the budgets themselves can impact management actions-both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period. This practice is often call "use it or lose it". The view is that if a department manager does not spend the budgeted amount, top management reduces next year's budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services.

All of us pay for the costs associated with this budget system.


Write a report to a local not-for-profit organization or government agency offering a solution to the "use it or lose it" budgeting problem.

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Solution Preview

The solution to the problem of "Use it or lose it" budgeting is encouraging the building good budgets using following four steps:

1. Determine government's / non-profit organization's core mission.
2. Institute performance-based budgeting.
3. Use competitive-bidding techniques.
4. Conduct performance audits

Step I: Determine Government's / non-profit organization's Core Mission

The first step is to reform the outlook of the Government or the management to look at the core mission of the organization for which the organization ahs been working and the core principles of the funding agency on the basis of which the funding will be extended. Only after core principles have been defined and forwarded does managerial and organizational excellence matter much. Laboring to develop systems to deliver the goods more efficiently is hardly significant unless what is being delivered and why are understood.

For example, why reorganize the Department of Social and Health Services to more ...

Solution Summary

The solution explains the four step process to properly administer budgets in the not for profit or governmental sectors.

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Budget Assignment

A. Identify the stages of the budgeting process and evaluate their effectiveness.

b. Evaluate the level and validity of detailed assumptions used to create budget estimates.

c. Discuss the role of the budget as an analytic tool that can be used to evaluate organizational performance.

d. Explain how the budget can be used to find and eliminate inefficiencies in an organization's performance.

e. Explain the role of the budget in the business control cycle.

f. Analyze internal and external control mechanisms that can be put in place to monitor and evaluate the budget.

g. Describe how the budget can be used in the performance accountability and reward process.

h. Identify a major business initiative in any organization that was approved last year as a result of the budget process, and explain how the budget was used in the approval process.

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