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By Scott Lazenby
Decades of research have confirmed the importance of delegating both authority and responsibility, of empowering employees, and of ensuring that staff members have the resources they need to get the job done. To use Douglas McGregor’s Theory X and Theory Y labels, budget systems typically used by governments are built on a Theory X philosophy, in which operating managers are assumed to be lazy and stupid (or conniving), they avoid responsibility, and prefer to be directed (preferably by OMB directors or central budget analysts).
A handful of governments, however, have experimented with budget management systems that are based on Theory Y principles, which assume that employees can in fact exercise self-direction and self-control, and they willingly accept responsibility. Osborne and Gaebler, in Reinventing Government, introduced some of the elements of these systems (a bottom-line focus, and carryover savings), described as “expenditure control budgeting.”
Based on my experience of over three decades managing cities, and managing and studying budget systems, I would propose the following elements of a full “Theory Y” budget management system:
Decentralizing management of both revenues and expenditures allows the organization to respond quickly and (almost) automatically to changes in the financial environment (revenue gains or shortfalls, unexpected expenses). It therefore becomes possible to extend the budget period to twenty-four months or longer. A side benefit is a significant savings in time spent on the budget by staff and the governing body.
If this sounds good in principle (and I hope it does), the reader who has experienced traditional governmental (or large corporate) budget systems may wonder, “What does a budget prepared under this system actually look like?” Stay tuned…