Rational budgeting is the process of using reason and experience to anticipate needs. This means that programs in a public or corporate budget have no right to exist merely because they existed before. They only may exist if they serve a specific purpose that can be comprehended before they are funded. If they do not, then they are eliminated. Incremental budgeting, the opposite of rational budgeting, claims that budgets should never change too radically from year to year.
The disadvantages of rational budgeting revolve around the instability that such a process introduces into a bureaucracy. Whether private or public, rational budgeting demands that each department, office or program justify itself for each new budget cycle. If they cannot do this, the program is either defunded or radically cut.
Programs or offices in a bureaucracy do not know what their future will be. In the private sector, hard economic times — or the desire for higher profits — can eliminate departments without notice. If their work can be done by other groups, or even be outsourced overseas, they are often eliminated. Under such circumstances, employees are alienated and fearful, having no idea when their programs will be eliminated. If this is the case, then no rational employee will want to invest too much in their work.
Rational budgeting has as much to do with power as with reason. The big question is who decides what is justified and what is not. In the private sector, this is usually the domain of management, and less commonly in the hands of the board. Either way, when those in power remake the budget anew each cycle, they typically promote their own interests, using their authority to eliminate anything they consider inefficient. Rational budgeting might be tolerable if it were democratically created, but, most commonly, it is dictated from above.
In the public sector, rational budgeting might radically increase or decrease the offices or programs funded. Reason in this formulation does not take history into account. It only tries to analyze the society, compartmentalize its specific needs, and write a budget that reflects that analysis. Taxpayers and those receiving services might not know what their city will look like in the near future. Under the incremental system, program cuts or raises are introduced gradually, acclimating both the government and the taxpayer to new budget priorities. Rational budgeting can introduce instability into its constituencies through constant and radical changes.
- Jupiterimages/Brand X Pictures/Getty Images