Setting Expense Budgets
Carroll has written that many expense budgets are determined from past performance and are based on past performance. Very few budgets carry with them any real incentives to improve performances. But Japanese have corrected this shortcoming. Kaizen costing and budgeting are incorporating improvement in budgets.
Carroll said "I do not agree that best guide to future costs is past costs." Budgets have to be set up to produce cost reductions. Budgets worked out from historical costs are only a good beginning. If you meet such budgets, you are maintaining your past performance. if you want to make progress, you have to get under your budgets.
Budget have to reflect current and expected future conditions. They have to be under the control of specified persons. Somebody has to be accountable for them. There has to be expectation of cost reduction built into the budget. Weaknesses of people in adhereing to budgets is to be detected and corrected. In a similar way, judgments regarding expenses need to be improved.