Thursday, November 6, 2014

Bottom-Up Budgeting?

This is an interesting concept. So we recently had an election in the United States and one of the perpetual issues in an election is the budget. How much do we take in in taxes and what programs do we pay for? The trend is toward more taxes and more government services in developed economies. Read Capital in the 21st Century for some nice graphs on the subject. The unique thing about government election is that it is one chance every year or two years to vote for the people that will make financial decisions most closely aligned with your percieved pocketbook. That being said, the Kansas Experiment is interesting to say the least. Makes you want to move to Kansas right?

Budgets, on the whole, are something proposed from near the top, decided on by the top, and then carried out at the bottom. Program managers propose a budget, senior managers decide the budget, and the workers carry it out. The president proposes a budget, Congress decides on the budget, and a bunch of lower level government employees carry it out.

What if there was a different way?

Instead of the vast majority of funding decisions made by a small cadre of old people, what if each person, had discretion to allocate a number of dollars, based on his or her responsibility?

What if you could dictate where your tax dollars went? Would you keep the local school open? Would you repave the roads? Would you plow snow? Would you allow your grandparents to get social security? I realize that in the world of government we basically get a vote now and then otherwise don't get to decide the details. It's a complicated structure.

On the other hand, what about a theoretical engineering company? Instead of a manager getting approval for a $20 million dollar development program over three years and then going and directing 20 people for three years, who in turn have to petition for every cost to the program, each developer or engineer would have a $50,000 to $400,000 budget per year. They would have to band together and align on the goal to accomplish anything big. Yet the decision making would then be in the hands of the people in the trenches working the details. If he or she determined that some expense was worth it, he or she could pay for it.

In other words, if three people decide they have too much work and need to hire another person, they could each chip in some of their budget to make it happen. Of course, every year or so the budgets for everyone would be recalibrated based on various factors beyond the scope of this article like productivity, responsibility, leadership, etc. The idea is that a pet project of any size will only work if multiple people buy into it. Also, bad decisions are often recognized by people who report to the person that made the bad decision, yet due to the nature of heirachy no one says anything.

I don't know how exactly this would work. This is an idea in progress. Plus, I do really like the current system for forcing people to have their ideas reviewed by other stake holders. However, I think we can learn lessons from the $6 billion dollar JP Morgan London Whale. How does one person lose $6.2 billion dollars? How does one person lose a company $10 million? There must be a better way, a sort of superalignment in a team. A team where people trust each other so much you give that person your budget.


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