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The filing out your buget so it doesn't get cut part is understandable. What makes less sense is cutting the max budget based on use wihout leaving any overhead to account for unexpected expenses. Why does that seem so common when it makes the incentives so obviously misaligned?

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Because there are always more profitable projects than money. If you can liberate some money by cutting budgets elsewhere, you can run more of them.

Having money left over at the end of the budget year is a failure, as that money could have been used in a profitable projects.

Except you are completely disregarding the obvious outcome: others wasting money to not have their buget cut. And the alternative could be even worse: departments running out of money and imploding because of unexpected costs without any budget headroom.

The point is not that investing the company's money wisely doesn't make sense but that looking hat how much each department used and then basing the next budget on that alone is the opposite of wise because those departments are run by humans that will be looking out for themselves first.

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