Programs and the operating components that carry them out do not have fixed budget levels. There are distinct peaks and valleys, and periods of growth and decline. By and large, the larger the organization, the more constant its budget is from year to year. But the relatively constant level of resources at high levels of aggregation is the result of the averaging out of fluctuating levels at the lower organizational levels. Analysts need to keep in mind that:
- Most of the time, a program and/or an operating component will face a shrinkage in resources. This shrinkage is predictable, and is related to the life cycle of programs.
- The higher the base level of resources from which the shrinkage occurs, the better for the program and operating component.
- Resources will increase sporadically, in response to compelling externalities. The base will only be increased in response to these external events.
- Therefore, predicting the compelling externalities and taking full advantage of them is an essential skill for program and budget analysts.
For a program or operating component, the general rule is that compelling externalities drive a large budget increase. These externalities are most likely also responsible for the establishment of the program and organization itself. A "compelling externality" is an event or development that forces decision makers outside the operating component to grant budget increases. Such events can be a change in policies due to a change in Administration, the enactment of legislation that must be supported by a show in the budget process, a scandal or other weakness that shows that there is need for more money to solve the problem, or other events.This is intrinsic to the budget process in government, where the demands for resources always exceed the available resources, and where there are scant data for making informed decisions on the merits of programs when compared.
As the compelling external factors fade from memory and are overtaken by other externalities, the program and the organization's resources start to shrink. The shrinkage goes on until an external event drives the resources up again. (Of course, a "compelling externality" can also work towards the elimination of the program and organization, but this is a rare event. Slow attrition is more common.) The graph illustrates the budget life cycle. It shows how the levels of FTE have changed over an extended period of time for an operating component. (Similar data could be compiled for funding, with funding adjusted for inflation.) Note a significant increase in a short time, at point A:
Source: Data modified from that of an actual organization for which Laszlo Bockh has personal knowledge.
The increase at A was due to the enactment of significant legislation that had been a matter of controversy for 13 years. The Administration as well as Congress had to show that they supported their new creation by providing resources necessary for implementation. But this initial support did not mean permanent support - shrinkage set in, and continues.
This characteristic of the budget process for operating components gives a clear signal to managers responsible for organizations and programs: When the "compelling externality" comes into play to provide the basis for a budget increase, the increase needs to be maximized to assure that the future attrition of resources leaves a level of resources to maintain the program at a viable level until the next opportunity for an increase comes along.
In terms of the example, it is in the best interest of the program manager to have as much of an increase at point A as possible since the decline is predictable, and the rate of decline is fairly predictable as well - slow, but steady. Under these circumstances, the higher the value achieved at A the better off the program and the organization will be.
All this presents a challenge for the analyst. She must be ready to act when the "compelling externality" appears. Indeed, he needs to identify such opportunities and know how to take advantage of them.