Over the years, I have spoken to many new managers after their first budgeting experience. Many encountered the same problems. For one, they inflated their estimates. Often, this wasn’t deliberate. Some managers did it out of fear, worried that there might be contingencies they hadn’t anticipated.
Sometimes, overestimating costs, and even revenue, was due to lack of information about past expenditures or income streams. These new managers just didn’t have the information they needed to make more accurate estimates of either costs or revenue. They seemed to think that they would look unprepared for their new responsibilities if they sought advice from others—members of their group, their manager, or other first-time managers with similar responsibilities. After the fact, one manager told me, “It was dumb not to use the resources available to me—and that included my own boss.”
On a few occasions, new managers’ estimates were too low, often for the same reasons. The manager just didn’t know what the job would really cost. Some overestimates of revenue were due to overoptimism.
Some new managers admitted that they were so anxious to impress their manager, they came up with numbers that, in hindsight, they had to admit were unrealistic—and caused problems in achieving unit plans. For example, one new manager underestimated the cost of training his staff on a new software package. Consequently, he had to rethink his plan. Instead of an on-site training program, which had been planned, he sent only three staff members to a public seminar. These three then were responsible for helping the rest of the unit, slowing the transfer to the new software. Another manager made the mistake of projectingmore sales than his sales force could realistically bring in. Because he couldn’t hire a new salesperson, his department had to report a shortfall.