October 12, 2018

Use It Or Lose It! How to Make the Most of End-of-Year Surpluses

The end of the fiscal year is approaching for many companies. As a budget owner, you may be in the enviable position of having more budget than you need. It sounds like a result to celebrate—but it comes with a risk.

In many organizations, carrying unspent budget to the end of the year will result in your budget being cut next year. You met your goals at lower cost than expected. You hired effective team members and ran a tight ship, so why should you be penalized?

Better would be to use the budget you have left. Doing this will protect your budget for next year, but the easiest temptations for how to spend this money come with risks.

Don’t do more of the same—and create a “sugar high”. One option would be simply to spend more on your existing programs. Suppose for example that you spend a monthly amount on talent advertising. You could raise spending by the amount of your remaining budget, which would also raise the results of these programs. But the improvement would not be as much as expected, because of the law of diminishing returns—and anyway, since you’ve hit your targets with your existing spending, these results wouldn’t create a great impact. When this “sugar high” fades, your successful baseline won’t feel as good as it used to.

Don’t pull ahead payments—and put yourself at risk. You could seek to pay providers out of this year’s budget for services that you’ll use next year. Seems like an easy solution… but it could carry great personal risk, especially in a regulated or a public company. Keeping your books this way could be considered fraudulent depending on the details—and at the very least, would be viewed as irregular.

Don’t start programs early—and reduce their impact. If pulling ahead payments isn’t a good idea, how about pulling ahead the programs themselves? This would remove the accounting risk, and replace it with a business risk. Starting programs early will disconnect them from the purpose for which they were originally planned, and could pull them out of alignment with related efforts from other departments, making them less effective. You’ll likely end up with a program that doesn’t meet its targets, and so you’ll end up needing to spend more overall on the program than you would have otherwise. (And if the program is effective, you’ve just shifted your budget surplus to next year, repeating the same problem!)

Don’t hand it out—and create bad incentives. Rewarding your employees with extra bonuses is a very tempting way to use excess budget. To be sure, providing a token of thanks is appropriate. However, if your team learns that they will be able to keep any surplus, you will probably give them the wrong idea. Next year they may cut corners to save money, hurting your results to give themselves more pay. This reality is a key reason why headcount budgets and expense budgets are tracked separately to begin with.

What you should do: Make a strategic investment

The best way to use your leftover budget is to invest in something that will pay dividends later. Make a strategic purchase that improves your results next year, without disrupting existing initiatives and plans. You want an investment that targets C-level initiatives. You want to make a decision that says: “Not only did I take care of company resources, I am thinking about the long-term and the needs of everyone here.”

Consider the Talent Intelligence Platform from Eightfold. Our AI-powered technology accelerates hiring, increases internal mobility, and improves diversity & inclusion results. If you are holding excess budget, now is the perfect time to see what Eightfold can do for you both immediately and going into next year. With Eightfold, you can align to boardroom initiatives around talent diversity, accelerate hiring to meet aggressive targets, and improve cost effectiveness of all talent activities.

Talk to us about how you can end your year with Eightfold.