Budgeting - how not to do it

The topic of budgets came up in the office today (the team I work in wants to spend more than we have - of course - but SUN thumpers are so shiny…) and I was reminded of a tactic used by one of my previous bosses in a VC backed company.

The systems team were assigned an amount for the year that was too low for the planned upgrades (which had been signed off) and was a suspiciously round number. We took it and spent the lot in about three weeks. We bought as much of what we needed as the money allowed and then had a meeting where it was explained that we wouldn’t be allocated anymore cash. Under any circumstances

Over the next six months we had the usual amount of hardware failures. Which we couldn’t afford to fix. The service started to get slow and we needed to horizontally scale. But we couldn’t afford any new machines. Then the email server died. My boss had meetings with the VCs and board where he explained how to fix it but that we had no money. After nearly a month of them fuming and things gradually getting worse (we were quite a popular site at the time) we got the same amount of money again (bringing us back up to what had originally been asked for out of some magic corner no one dared ask about.