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I don't have a budget. The previous manager used to gripe about not having a budget, i.e. no way to know how much was ok to spend, no department having accountability (he used to try to keep costs down, but many said, "The client will pay for it!").

The only guideline I have is a limit to how much I can spend on any given P.O. Above that, I have to go to a Director or V.P. and get them to sign the requisition. For instance, I have a req for $33,000 on one V.P.'s desk. (maintenance task cards for about 8 different aircraft) I've probably spent enough money with Boeing since I became manager to pay my dad's salary for the entire year--he's a Boeing engineer.

Anyway, so far no one has pushed back. One reason the previous manager quit was because of the pushing back when he tried to get signatures to purchase needed documents. ("You have to justify this!!!" when the dang thing is required by Federal regulation) I like to think somebody learned a lesson? :roll:

Maybe a departmental budgeting process is coming down the pike. We're still transitioning from the old mom-and-pop style to modern business practices.

Meanwhile, is there anything I should be doing besides documenting the necessity of each purchase?

attmonk's picture

Someone has a budget for you, your boss maybe? Ask them what it is

Mark's picture

WOW!

The thing to start tracking is EVERY expenditure, including salary and rent and staples and paper and services and parking and EVERYTHING. Compare month to month, quarter to quarter, year to year. Increase more slowly than revenues, to start, when you can't drive them to zero.

Mark

jhack's picture

Also, Consider creating a plan: what you expect to spend, in detail, for the next 12 months. You could include a scenario or two (if project X is approved, if we have to shrink the group, etc). By regularly comparing your plan to actuals over time, and updating your plan, you'll be ready when you actually need to create that budget.

terrih's picture

Fortunately the previous mgr built a purchase database and I've continued to use it, at least for P.O.s I write.

Revenues? You mean the whole company's? My department doesn't generate revenue, we're support. I'm just a lowly line manager. Probably in a larger company my title would be supervisor. But we have such a flat org structure that I report to a VP.

But I will do like Aristotle said: start small, and build.

The scenario idea is great. "If we put on a new 737, it'll cost X for manuals from Boeing, it'll cost Y to increase our subscriptions for approach plates, etc."

Thanks.

thaGUma's picture

terrih

Revenues tracking is important. This is information in the company accounts and in public domain. Your boss will give you the info on revenues. The big thing is to make sure your costs don't rise as a % more than your revenues rise.

Be aware of how much you have spent whenever you make recommendations.
1. If your costs are generally in line with past performance, you have greater chance of approval.
2. If your costs are generally steady, year-on-year, finance will love you.
3. When you make a recommendation using the information you have then you will be seen as good material. e.g. we need X but we are already topping out on costs and given that company income is looking particularty tight, Y is better short term.

Your bosses will be imressed if you are actively considering your section within the overall company picture.
Tracking the costs gets you a clear picture of where expenditure is. This makes cost managment easier.

You may think you are small part of a small company. The structure you describe makes it easier to be seen.

Have fun

Chtis

tomas's picture

terrih,

Somebody, somewhere in your organisation should be keeping track of how documentation expenses relate to the types of aircraft you operate. Some airlines have tried to reduce the numer of different types of aircraft they fly for this very reason. It is much more expensive to maintain lots of different types of aircraft.

[list][*]Record expenses. (Which you are already doing)
[*]Classify expenses into related groupings. eg IT, office administration, documentation costs.
[*] Compare expenses over time.
[*]Identify the key drivers of cost.[/list:u]

Some expenses such as documentation might not be discretionary once the initial decision is made to operate a certain type of aircraft, but you should be able to feed this data into future decision making processes. Sounds like there isa big element of risk management involved - if you don't have all the documentation you are required to have, and something bad happens, what is the potential cost to the company?

tlhausmann's picture

[quote="terrih"]Fortunately the previous mgr built a purchase database and I've continued to use it, at least for P.O.s I write.[/quote]

That's good. Terrih, You are sitting on a gold mine! If you can carve out time to review a year or two's worth of purchases then you have information you can tie to partition expenditures into two piles: (1) spikes of activity - say new aircraft or other one-time incident and (2) fixed operational/routine expenditures.

A step-wise refinement of pile (2) yields your typical annual budget. Pile (1) is your "projects" budget with irregular spikes of activity and documented ancillary costs.

Done right, you have information for which your VP will thank you!

-----
My budget is typically between 5% and 7% of the organization "gross." I have a 5 year budget model organized around operational, project, and capital expenditures. The model tracks the past 4 years and estimates 5 years forward based on anticipated capital projects, inflation, and organizational growth. It is also a great tool for allocating personnel (and prevents over-subscribing the division.)

PM me if there is anyway I can assist you.

tlhausmann

terrih's picture

[quote="tomas"]Some airlines have tried to reduce the numer of different types of aircraft they fly for this very reason. It is much more expensive to maintain lots of different types of aircraft.[/quote]

I've been with this airline for 12 years and one of our inside jokes is that the owners must have a goal of flying every kind of jetliner there is. :?

But seriously, thanks for the suggestions... It turns out that the Access purchase database I inherited isn't set up to break out categories of expenditures. I have a new DR who might have the skills to tweak it, though.

skwanch's picture

[quote]But seriously, thanks for the suggestions... It turns out that the Access purchase database I inherited isn't set up to break out categories of expenditures. I have a new DR who might have the skills to tweak it, though.[/quote]

Hey Terri - this kind of thing is right down my alley (I'm a Controller, and we use Access constantly) - I can help you out if you like - shoot me a pm.

(as long as it's not going to violate some privileged info, natch)

terrih's picture

The news in the ops meeting today... We're going to have budgets! :D

Now I feel like I wanna take a class at the community college... They have one called "Finance for Non-Accounting Managers" or something like that...

WillDuke's picture

I once read a great book you'd probably love. "Managing by the Numbers" - Kremer and Rizzuto with Case.

Great book about how to read a P&L, a balance sheet, how to generate some ratios and what the heck they mean. Ever wonder what ROE was? How 'bout ROA? ROS?

This book does a good job for those of us who are not, nor want to become, accountants.

terrih's picture

[quote]Ever wonder what ROE was? How 'bout ROA? ROS? [/quote]
No, 'cause I never heard of them before. :shock:

Thanks for the tip!

stephenbooth_uk's picture

[quote="terrih"][quote]Ever wonder what ROE was? How 'bout ROA? ROS? [/quote]
No, 'cause I never heard of them before. :shock:

Thanks for the tip![/quote]

ROE = [url=http://www.google.co.uk/search?hl=en&q=ROE+%22Return+on+Equity%22&btnG=G... on Equity[/url], ratio between net income and average shareholder equity (or Rules of Engagement, when, where and who you're allowed to shoot).
ROA = [url=http://www.google.co.uk/search?hl=en&q=ROA+%22Return+on+Assets%22&btnG=S... on Assets[/url], ratio between net income and total assets.
ROS = [url=http://www.google.co.uk/search?hl=en&q=ROS+%22Return+on+Sales%22&btnG=Se... on Sales[/url], ratio between operating income and sales revenue.

Stephen

WillDuke's picture

[quote]No, 'cause I never heard of them before.[/quote]
I'd heard of some of them (there are many many many) but didn't know what a lot of them stood for and definitely was clueless about what they "meant" until I read the book. It really helped me out a lot.

I created a custom spreadsheet based on it. Each month has a P&L, Balance Sheet, and calculate cash flow section. The ratios they recommend tracking sit off to the side. There's also a budget page so I can see each month how I compare to the budget. Add a little conditional formatting so under budget is blue and over budget is red, and I get visual clues. Then I summarize everything up for the year.

But then I'm a geek. :)

jhack's picture

That's not geeky, Will. That's just plain good management.

John

danielon's picture

iam very interested in this matter, can anyone tell me where can i get a book or a web page with some instructions for this?

how much better is than using excell ?

best regards