Another thing to note about this kind of system, at least IME of universities, is that the managers of the sub-units that are the budget holders usually lack the the capacity to construct the budget and have very little flexibility to move things around in it. In practice, the budget is made for them by central administrators (or the professionals working for them) and you need permission to move stuff around. But if you go over-budget then it is your fault and there is very little tolerance for "excuses". As universities funding gets more precarious, as a result of the erosion of the value of fees and the government's hostile measures against overseas students, I expect blaming downnwards to continue and intensify. The internal politics are also that even when subject areas are generating a lot of cash they'll be told they can't have nice things because of the other blameworthy sub-units that are running a deficit. So it goes.
As PS said on twitter, "when there's a lack of autonomy and accountability, the people who suffer from the loss of autonomy tend not to be the same people who take advantage of the lack of accountability"
proximately yes, but as they say "if it hadn't been that it would have been something else". And of course, a private sector company wouldn't necessarily be put into "bankruptcy" by a big one-off liability like this; it would record a loss (deficit) for the current year and then continue as a going concern. (I'm surprised that the cost hits this year's budget rather than having been mostly provided for in previous years, but this is probably just a matter of ignorance about local authority finance on my part).
Thanks for illuminating one of the many management challenges in the NHS. i suspect you know that many commercial organisations work like this as well. Budgets have long since been weaponised as tool for encouraging "stretch" and ambition. They rarely represent realistic or achievable goals in revenue or cost. Often the actual budgets add up to 20%+ more than the overall target for an organisation. So failing by 10% allows the senior management to look good in the markets and gives them a tool to beat up junior managers for failing to hit their targets. This means budgets have ceased to be a useful tool for either control or prediction even in well run organisations.
In the NHS this is coupled with a public sector obsessions with line by line control. So budgets are set down to an infinitesimal level eg for the cost of every single drug or piece of medical equipment. The overall result is a culture in which everyone inside the NHS is colluding to beat the system by fudging numbers and squirrelling away efficiencies to set against unavoidable cost issues elsewhere. Again, behaviour often seen in the commercial sector as well.
this was definitely a feature of the civil service in the 1990s and something my dad used to rail against daily. it's an extremely bad organizational habit for most of the reasons you give, but it persists primarily because it's kind of Schmittian; it concentrates power to whoever has the right to make exceptions/concessions to reality.
another point: one function of budgets, targets etc is horizontal co-ordination. sub-units who aren't in the same hierarchical vertical can look at budgeting goals in other verticals to make sure their plans are consistent with them. If the plan is all lies and will only get revised anyway, they will either be deceived, and find out mid-year that they can't discharge patients to social care or whatever, or will have to second-guess what will really happen and explain to their hierarchy why they are planning for the local authority to do something different to its own plan, which is awkward.
Furthermore NHS budgets often have no useful input data to construct them, and in practice they take last years budget and "take 10% off for cost-savings", which shows a startling amount of imagination for such a boring exercise.
One other reason to adopt this structure is because you want to centralize decision making, but for other reasons you're required to decentralize accountability. This is pretty common in the US, where various public functions are highly decentralized (eg, schools, road construction, election administration) but this decentralization is just obviously terrible public policy. Unfortunately, it's somewhere between hard and impossible to remove the decentralization and so people who want to impose more sensible management end up with schemes like what you've described.
Another thing to note about this kind of system, at least IME of universities, is that the managers of the sub-units that are the budget holders usually lack the the capacity to construct the budget and have very little flexibility to move things around in it. In practice, the budget is made for them by central administrators (or the professionals working for them) and you need permission to move stuff around. But if you go over-budget then it is your fault and there is very little tolerance for "excuses". As universities funding gets more precarious, as a result of the erosion of the value of fees and the government's hostile measures against overseas students, I expect blaming downnwards to continue and intensify. The internal politics are also that even when subject areas are generating a lot of cash they'll be told they can't have nice things because of the other blameworthy sub-units that are running a deficit. So it goes.
As PS said on twitter, "when there's a lack of autonomy and accountability, the people who suffer from the loss of autonomy tend not to be the same people who take advantage of the lack of accountability"
Isn't the Birmingham situation also the result of their historic liability for unlawful pay discrimination?
proximately yes, but as they say "if it hadn't been that it would have been something else". And of course, a private sector company wouldn't necessarily be put into "bankruptcy" by a big one-off liability like this; it would record a loss (deficit) for the current year and then continue as a going concern. (I'm surprised that the cost hits this year's budget rather than having been mostly provided for in previous years, but this is probably just a matter of ignorance about local authority finance on my part).
Thanks for illuminating one of the many management challenges in the NHS. i suspect you know that many commercial organisations work like this as well. Budgets have long since been weaponised as tool for encouraging "stretch" and ambition. They rarely represent realistic or achievable goals in revenue or cost. Often the actual budgets add up to 20%+ more than the overall target for an organisation. So failing by 10% allows the senior management to look good in the markets and gives them a tool to beat up junior managers for failing to hit their targets. This means budgets have ceased to be a useful tool for either control or prediction even in well run organisations.
In the NHS this is coupled with a public sector obsessions with line by line control. So budgets are set down to an infinitesimal level eg for the cost of every single drug or piece of medical equipment. The overall result is a culture in which everyone inside the NHS is colluding to beat the system by fudging numbers and squirrelling away efficiencies to set against unavoidable cost issues elsewhere. Again, behaviour often seen in the commercial sector as well.
this was definitely a feature of the civil service in the 1990s and something my dad used to rail against daily. it's an extremely bad organizational habit for most of the reasons you give, but it persists primarily because it's kind of Schmittian; it concentrates power to whoever has the right to make exceptions/concessions to reality.
another point: one function of budgets, targets etc is horizontal co-ordination. sub-units who aren't in the same hierarchical vertical can look at budgeting goals in other verticals to make sure their plans are consistent with them. If the plan is all lies and will only get revised anyway, they will either be deceived, and find out mid-year that they can't discharge patients to social care or whatever, or will have to second-guess what will really happen and explain to their hierarchy why they are planning for the local authority to do something different to its own plan, which is awkward.
Furthermore NHS budgets often have no useful input data to construct them, and in practice they take last years budget and "take 10% off for cost-savings", which shows a startling amount of imagination for such a boring exercise.
if I'm right, there's no point in having useful input data, because they're fundamentally not there to provide information
One other reason to adopt this structure is because you want to centralize decision making, but for other reasons you're required to decentralize accountability. This is pretty common in the US, where various public functions are highly decentralized (eg, schools, road construction, election administration) but this decentralization is just obviously terrible public policy. Unfortunately, it's somewhere between hard and impossible to remove the decentralization and so people who want to impose more sensible management end up with schemes like what you've described.