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Public vs Private Sector Budgets


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#1 ckn

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Posted 28 January 2014 - 07:50 PM

I think I've finally worked out why there's such a difference in attitudes towards budgets between the public and private sectors.

 

Imagine I need to ask for £1m for a project budget, here's how I now know the conversations would go:

 

Private sector:  To get a budget like this approved I'll need to get people at the very highest levels of the company to sign it off.  In many of the professional services companies I've worked for this will be people who are paid based on the profits the company makes.  This makes for some very subjective and emotive decisions.  For example, a company that makes £100m profit and has 100 Partners will share that profit at £1m each, if I then ask them for £1m, I'm asking them to give me £10,000 straight out of each and every one of their personal pay-packets.  It forces me to make a solid business case for it and sometimes show why it won't return money but will make their jobs easier or meet regulatory needs.  It also forces me to take the long-view on payback and justification.  I get overall project budgets that I've justified over the project and won't have to fight for that money again.

 

Public sector:  To get a budget like this approved, I'll either have to try to get a slice of a bigger budget that someone guessed might need to be spent and now needs to spend or lose, or I'll have to try to justify why the highheidyins should go ask the evenhigherheidyins for a slice of their guessed budget.  I get arbitrary spend dates based on when the higher-level budget has to be spent and pressured to make unnecessary spends to help meet that need, I also get arbitrary demands for re-justification and can have my budget whipped away at any time on the whim of someone who wants to spend it on something else.

 

The difference is that in the former, I need to ask the money's genuine owner to sacrifice their personal pay-packets, in the latter the budget holder has no consequences if he spends what he says he's going to spend regardless of how it's spent.  It's all about accountability for money and making it somehow real money for the public sector rather than figures on a spreadsheet.  I think I know how I'd fix it and have a few good ideas that I need to bottom out before I start proposing them.


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#2 clwydianrange

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Posted 28 January 2014 - 07:55 PM

How many millions are wasted by the councils way of working ie spend your budget or lose it.



#3 gingerjon

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Posted 28 January 2014 - 08:11 PM

A very simplistic view.


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#4 ckn

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Posted 28 January 2014 - 08:40 PM

A very simplistic view.

It is and it isn't.  I was in a meeting with one manager who was very happy about a big pot of money he got me, it was a capital pot and had to be spent by end March 2014 but I don't need any capital spend at all, never mind this financial year.  "But it has to be spent or we won't get it next year!"


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#5 gazza77

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Posted 28 January 2014 - 09:16 PM

It is and it isn't.  I was in a meeting with one manager who was very happy about a big pot of money he got me, it was a capital pot and had to be spent by end March 2014 but I don't need any capital spend at all, never mind this financial year.  "But it has to be spent or we won't get it next year!"

As an accountant in the public sector, with experience of both capital accounting and budget management and setting, it is quite a simplistic view. It does however vary somewhat from organisation to organisation, and of course how the individuals involved deal with controlling their budget. I'd suggest that in many cases that better training, accountability, reporting systems and partnerships between the finance department and their budget holders would generate efficiencies. I have to admit though, I'm not sure how much that would realise when compared reducing the unnecessary reporting, duplication, and other bureaucracy that feeds its way down from central government, who are unable to stop making what in many cases are simply changes for the sake of saying "we did it differently". I do see what you're getting at though. ;)


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#6 Saintslass

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Posted 28 January 2014 - 09:28 PM

How many millions are wasted by the councils way of working ie spend your budget or lose it.

I have worked for four councils and all four have taken this approach to their budgets because they knew from experience that if they underspent, the powers that be would conclude that they can manage on a lower budget and so will set a lower budget for the next year.  Having once been 'stung' in this way, they all ensured a feast of spending just prior to year end in an attempt to secure at least the same budget for the following year.



#7 Bigal02

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Posted 29 January 2014 - 07:51 AM

Many years ago, I saw a newspaper cartoon showing two men coming out of a door with, "Council Accounts" on it.

 

One man was saying to the other, "The next best thing to having a licence to print your own money, is to have a licence to spend somebody else's money".

 

It has always amused me.



#8 shrek

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Posted 29 January 2014 - 08:04 AM

I'm sure there's plenty of examples of poor spending in both sectors, I've recently done some work for a FTSE100 company where the opportunity arrose to equip 500 staff with new laptops (brand of there choice so many opted for the more expensive Apple range on offer).  But it didn't matter it was coming out of a corporate budget not departmental budget so "might as well use it or lose it" was the attitude.

 

The equiping of the same 500 with new smartphones is also underway along, bizarly with a restructure which will see the 500 reduced to between 170 and 300 and presumably a room or two full of "spare" kit no longer needed.



#9 Simmo

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Posted 29 January 2014 - 08:12 AM

I think I've finally worked out why there's such a difference in attitudes towards budgets between the public and private sectors.

 

Imagine I need to ask for £1m for a project budget, here's how I now know the conversations would go:

 

Private sector:  To get a budget like this approved I'll need to get people at the very highest levels of the company to sign it off.  In many of the professional services companies I've worked for this will be people who are paid based on the profits the company makes.  This makes for some very subjective and emotive decisions.  For example, a company that makes £100m profit and has 100 Partners will share that profit at £1m each, if I then ask them for £1m, I'm asking them to give me £10,000 straight out of each and every one of their personal pay-packets.  It forces me to make a solid business case for it and sometimes show why it won't return money but will make their jobs easier or meet regulatory needs.  It also forces me to take the long-view on payback and justification.  I get overall project budgets that I've justified over the project and won't have to fight for that money again.

 

Public sector:  To get a budget like this approved, I'll either have to try to get a slice of a bigger budget that someone guessed might need to be spent and now needs to spend or lose, or I'll have to try to justify why the highheidyins should go ask the evenhigherheidyins for a slice of their guessed budget.  I get arbitrary spend dates based on when the higher-level budget has to be spent and pressured to make unnecessary spends to help meet that need, I also get arbitrary demands for re-justification and can have my budget whipped away at any time on the whim of someone who wants to spend it on something else.

 

The difference is that in the former, I need to ask the money's genuine owner to sacrifice their personal pay-packets, in the latter the budget holder has no consequences if he spends what he says he's going to spend regardless of how it's spent.  It's all about accountability for money and making it somehow real money for the public sector rather than figures on a spreadsheet.  I think I know how I'd fix it and have a few good ideas that I need to bottom out before I start proposing them.

That kind of thinking is not limited to the Public sector. It happens everyday in all types of businesses.



#10 Steve May

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Posted 29 January 2014 - 09:51 AM

I think I've finally worked out why there's such a difference in attitudes towards budgets between the public and private sectors.

 

Imagine I need to ask for £1m for a project budget, here's how I now know the conversations would go:

 

Private sector:  To get a budget like this approved I'll need to get people at the very highest levels of the company to sign it off.  In many of the professional services companies I've worked for this will be people who are paid based on the profits the company makes.  This makes for some very subjective and emotive decisions.  For example, a company that makes £100m profit and has 100 Partners will share that profit at £1m each, if I then ask them for £1m, I'm asking them to give me £10,000 straight out of each and every one of their personal pay-packets.  It forces me to make a solid business case for it and sometimes show why it won't return money but will make their jobs easier or meet regulatory needs.  It also forces me to take the long-view on payback and justification.  I get overall project budgets that I've justified over the project and won't have to fight for that money again.

 

Public sector:  To get a budget like this approved, I'll either have to try to get a slice of a bigger budget that someone guessed might need to be spent and now needs to spend or lose, or I'll have to try to justify why the highheidyins should go ask the evenhigherheidyins for a slice of their guessed budget.  I get arbitrary spend dates based on when the higher-level budget has to be spent and pressured to make unnecessary spends to help meet that need, I also get arbitrary demands for re-justification and can have my budget whipped away at any time on the whim of someone who wants to spend it on something else.

 

The difference is that in the former, I need to ask the money's genuine owner to sacrifice their personal pay-packets, in the latter the budget holder has no consequences if he spends what he says he's going to spend regardless of how it's spent.  It's all about accountability for money and making it somehow real money for the public sector rather than figures on a spreadsheet.  I think I know how I'd fix it and have a few good ideas that I need to bottom out before I start proposing them.

 

Interesting, I think you're on the right lines but I think the key difference between the public and private sector is more subtle and more fundamental.  

 

In a large organisation, there are always two structures.  There's the org chart provided by HR, and there's the actual influence on the ground.  If you want to get anything done, you need to consider both.   You need both the guy with the job title and the person everyone listens to on side.  In the private sector the official and unofficial power structures tend to be fairly closely aligned, and the set up is pretty hierarchical so if it comes to it you can generally run up the chain of command to get a decision.   In the public sector, for lots of reasons, these two are often not aligned.   There's politics, for sure, but also the scope of activities undertaken by the public sector is absolutely vast.   I know you're working in the NHS, so take a wander around.  Private sector organisations generally just do one thing, although that thing might be complicated in itself of course.   But in just one hospital there's a huge array of, often unrelated, activity.  The nurse in the SCBU really hasn't got all that much in common with the medical photographer.    It's a massive, complex, ecosystem.  Balancing off all those priorities in the short, medium and long terms isn't trivial.  Doing it with the NHS's typically poorly paid, poorly qualified and overstretched backroom staff is something close to a miracle.

 

Think of it like this - big public sector organisation is like a small town, not like an army brigade.   Although there are nominally people in power, like the mayor of a town these people actually don't have much in the way of actual power to change things directly.  You can fight against this stuff, but you'll lose.   You have to learn to play it.

 

You did say you were looking for a challenge!


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#11 Simmo

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Posted 29 January 2014 - 01:52 PM

Private sector organisations generally just do one thing, although that thing might be complicated in itself of course.   

 

Do they?

 

The business I currently work in does hundreds of "things". Each of those "things" also has many different processes to support it as well.

 

The NHS may well be vast, but it also has vast resources with which to execute the "things" that it does. Most private businesses are managing many hundred or thousands of part numbers, with extremely complicated supply chains, and extremely demanding customers. In most cases those customers can also decide to go elsewhere if they don't appreciate the product, or the service. The NHS is a virtual monopoly anyway, so they can generally perform to any level they like, and customers will still come rushing, or sometimes falling, through the doors.

 

I've worked for both public, and private enterprise, and the public ones are, in my opinion heavy in resource, and light in motivation.



#12 Steve May

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Posted 29 January 2014 - 03:55 PM

Do they?

 

The business I currently work in does hundreds of "things". Each of those "things" also has many different processes to support it as well.

 

The NHS may well be vast, but it also has vast resources with which to execute the "things" that it does. Most private businesses are managing many hundred or thousands of part numbers, with extremely complicated supply chains, and extremely demanding customers. In most cases those customers can also decide to go elsewhere if they don't appreciate the product, or the service. The NHS is a virtual monopoly anyway, so they can generally perform to any level they like, and customers will still come rushing, or sometimes falling, through the doors.

 

I've worked for both public, and private enterprise, and the public ones are, in my opinion heavy in resource, and light in motivation.

 

 

I've worked for both, and in my opinion, an NHS hospital is an order of magnitude more complex than a business with a similar turnover.  Also, hospitals tend to be underesourced, both in terms of quantity of people doing things, and more importantly, quality - the pay is generally terrible for the job required.

 

I don't know what your business is, and I don't doubt it's complicated.  I'm sure it is.   Now, imagine running a parallel business as complicated as that which has some similarities and a lot of differences, out of the same premises, at the same time.   Now add another business, and another, and another, and another.   Your business is now getting to look like a hospital with an A&E, a neurological unit, a cancer unit, an ITU, a birthing centre, a maxillo-facial unit and so on.  Each one with little or no overlap with it's neighbour.  Now you're imagining all that, sack 2/3rds of your support staff and halve the salaries of the remainder.   Welcome to the NHS.

 

Oh, and as for demanding customers, most companies will turn away demanding customers if there's no money in serving them.  Either by simply refusing them, or by charging them through the nose so they become profitable or sod off.   The NHS doesn't really have that luxury.  If you're ill, you're in.


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#13 Steve May

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Posted 29 January 2014 - 03:57 PM


 

The NHS may well be vast, but it also has vast resources with which to execute the "things" that it does.

 

Oh, and this is wrong and demonstrates that you don't really understand the NHS.

 

The NHS is not vast.  That's not how is works at all.  It's a collection of separate, often competing, relatively small organisations operating under a single brand.   

 

If Tesco's was organised in the same way, you'd be paying a fiver for a banana.  And it's getting worse.


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#14 Simmo

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Posted 29 January 2014 - 04:11 PM

Oh, and this is wrong and demonstrates that you don't really understand the NHS.

 

The NHS is not vast.  That's not how is works at all.  It's a collection of separate, often competing, relatively small organisations operating under a single brand.   

 

If Tesco's was organised in the same way, you'd be paying a fiver for a banana.  And it's getting worse.

The NHS has, according to reports, approximately 1.4M employees. If that isn't vast, I don't know what is. Whose fault is it that those resources are not managed effectively enough to bring a level of service that is perceived as acceptable?

 

The company that I work for manufacturers jet engines, and turbochargers, and home heating control solutions, and automotive braking systems, and satellites, and football stadium control systems, and safety products, and, I could go on for a long time.

 

I'm sorry, but I just don't buy the "fact"that the NHS is any more under-resourced than any other sizeable business in the world. That to me sounds like the "woe is me" attitude is now just even worse than it was when I was there.



#15 Steve May

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Posted 29 January 2014 - 04:59 PM

The NHS has, according to reports, approximately 1.4M employees. If that isn't vast, I don't know what is. Whose fault is it that those resources are not managed effectively enough to bring a level of service that is perceived as acceptable?

 

The company that I work for manufacturers jet engines, and turbochargers, and home heating control solutions, and automotive braking systems, and satellites, and football stadium control systems, and safety products, and, I could go on for a long time.

 

I'm sorry, but I just don't buy the "fact"that the NHS is any more under-resourced than any other sizeable business in the world. That to me sounds like the "woe is me" attitude is now just even worse than it was when I was there.

 

 

Just confirming that you know bollock all about the NHS there.   There are 1.4 million people working in the NHS, but that's like claiming that all the employees of every shop in the land, from Tescos to your local paper shop, work for the same organisation because they all work in a building marked "shop".

 

You company sounds fun.    Does it manufacture completely bespoke jet engines that, halfway through the process of manufacture become heating control systems, before requiring an emergency transfer to the satellite division, before suddenly dying?  All in the space of a week, in the same building?   Thought not.


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#16 Simmo

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Posted 29 January 2014 - 05:23 PM

Just confirming that you know bollock all about the NHS there.   There are 1.4 million people working in the NHS, but that's like claiming that all the employees of every shop in the land, from Tescos to your local paper shop, work for the same organisation because they all work in a building marked "shop".

 

You company sounds fun.    Does it manufacture completely bespoke jet engines that, halfway through the process of manufacture become heating control systems, before requiring an emergency transfer to the satellite division, before suddenly dying?  All in the space of a week, in the same building?   Thought not.

As usual, you know everything.

 

I will retire from this gracefully, as there is no chance of you doing so. You sound although you have absolutely no idea of what it is actually like to work in a large, complex company

 

Goodnight.



#17 Bostik Bailey

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Posted 29 January 2014 - 05:35 PM

As usual, you know everything.

I will retire from this gracefully, as there is no chance of you doing so. You sound although you have absolutely no idea of what it is actually like to work in a large, complex company

Goodnight.

But wasn't his previous posts explaining that he has and does work in a very large complex 'company'. It's just that the NHS isnt private.

Oh and he's right about the pay scales my missus has just got a very good promotion (8a) but her responsibilities that go with the post are equivalent to a salary of at least double that if she was in the private sector

Edited by Bostik Bailey, 29 January 2014 - 05:35 PM.


#18 Wolford6

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Posted 29 January 2014 - 06:10 PM

The Local Authority organisations have two budgets ... capital expenditure and revenue expenditure.

 

Capital expenditure enables an authority to buy an item or items for hard cash.

Revenue expenditure means that authority must buy or lease those items by means of taking out a loan ... i.e. at a much more expensive price.

 

Central government has to agree the the relative proportions of revenue and capital budgets will be adopted per annum by the local authority. Even if a local authority can afford an outright purchase of an item, it is commonly obliged byn its central government agreement to obtain that item by lease or hire-purchase.

 

Needless to say, Conservative governments have always tried to make as much as possible be purchased via revenue budgets ... because it looks after their friends in the merchant banking sector.

 

Add to that:

 - the spend-it-or-lose-it principle where everything left in the budget must be spent before 6th April every year. If you don't spend it, next year's allocation will probably be set at a lower value than this year.

  - the fact that individual departments commonly don't work to individual sub-budgets

 - local authority budgets are not compiled and audited in the same format (Sage etc) as standard commercial organisations.

 

The system is a hen's breakfast and wide open to corruption. Consequently, the authorities employ  many more admin people to monitor the budgets than the number of people they employ in executive managerial roles that undertake proper tasks and responsibilities.

 

You are a manager where something goes wrong on Friday dinnertime. You have no orderbook; all orders must be processed by the admin section at the Town Hall. You ring desperately to request even an order number; no chance it's Friday and your dept's finance team all take Friday afternoon off on flexitime. The skeleton staff are only there to answer the phone and forward e-mails; they can't issue an order for your section.


Edited by Wolford6, 29 January 2014 - 06:16 PM.

Under Scrutiny by the Right-On Thought Police


#19 Simmo

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Posted 29 January 2014 - 07:47 PM

The Local Authority organisations have two budgets ... capital expenditure and revenue expenditure.

 

Capital expenditure enables an authority to buy an item or items for hard cash.

Revenue expenditure means that authority must buy or lease those items by means of taking out a loan ... i.e. at a much more expensive price.

 

Central government has to agree the the relative proportions of revenue and capital budgets will be adopted per annum by the local authority. Even if a local authority can afford an outright purchase of an item, it is commonly obliged byn its central government agreement to obtain that item by lease or hire-purchase.

 

Needless to say, Conservative governments have always tried to make as much as possible be purchased via revenue budgets ... because it looks after their friends in the merchant banking sector.

 

Add to that:

 - the spend-it-or-lose-it principle where everything left in the budget must be spent before 6th April every year. If you don't spend it, next year's allocation will probably be set at a lower value than this year.

  - the fact that individual departments commonly don't work to individual sub-budgets

 - local authority budgets are not compiled and audited in the same format (Sage etc) as standard commercial organisations.

 

The system is a hen's breakfast and wide open to corruption. Consequently, the authorities employ  many more admin people to monitor the budgets than the number of people they employ in executive managerial roles that undertake proper tasks and responsibilities.

 

You are a manager where something goes wrong on Friday dinnertime. You have no orderbook; all orders must be processed by the admin section at the Town Hall. You ring desperately to request even an order number; no chance it's Friday and your dept's finance team all take Friday afternoon off on flexitime. The skeleton staff are only there to answer the phone and forward e-mails; they can't issue an order for your section.

Why do people think that it is only Government, or Local Authority organisations that are run like that.

 

I see that kind of behaviour every day in our businesses.

 

The "Use it or lose it" culture with regards to capital expenditure has been prevalent in almost every business I have worked in.



#20 GeordieSaint

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Posted 29 January 2014 - 07:52 PM

"But it has to be spent or we won't get it next year!"

 

The most annoying phrase in the public sector in my opinion... so much money is wasted on buying things people don't need...!


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