The process of budgeting is never precise because the amounts budgeted either fall short or exceed the needed amount. This happens when the budgeting team overestimates or underestimates the expected expenditure. Some organizations, especially government agencies and non-profit organizations, tend to increase their spending budgets. It is termed as ‘use it or lose it’ and can adversely hurt the organization. The process diverts the organization’s objectives because the extra spending is not to add value but to avoid a reduction in the amount of the next budget. The ‘use it or lose it’ budget practice encourages unethical and unproductive spending, which affects an organization negatively.
Spending that has no objectives questions the ethical stand and integrity of an organization, therefore, portraying a negative image of the organization. It also shows no professionalism in the undertakings and dealings towards the achievement of its objectives. All this puts the organization at the risk of losing relevance because the image is portrayed through unplanned spending. ‘Use it or lose it’ encourages wasteful culture within the organization. It will create a tendency where finances will not be utilized appropriately, therefore, hindering the productivity of the agency or organization.
The negative impacts ‘use it or lose it’ has on the organization create the need to address the issues and develop a solution. Therefore, policymakers should develop ways that budgets have no deficits to reduce the chances of extra spending. The management should critically analyze costs to avoid miscalculations and provide value for every money spent. Monitoring of the process ensures that every expenditure is provided by the budget and should be put in place to guarantee accountability. And finally, a competent and reliable budget team that can come up with a budget that is not overvalued should be put in place. The team solves the main problem because, with such a team, overspending to level up the budget is mitigated.