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The Budget Life Cycle for a Program: Change Due to Uncontrollable Externalities
 | 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 are 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. |
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| 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: 
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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. |
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| All this presents a challenge for the analyst. He 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. |
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