Every organization, whether a business enterprise or not, has a theory of the business. Indeed, a valid theory that is clear, consistent, and focused is extraordinarily powerful.
All budgets, no matter how constructed, still serve these original purposes. They enable management—whether of a business, of a hospital, or of a government agency—to pull together its commitments, its plans and projects, and all its costs in one
Budgets, in other words, should always be used as a tool to think through the relationship between desired results and available means.
This is the tendency to regard last year’s expenditures as being “about right” and to project them into the new budget.