Battle of the Budgets

Budgets have a purpose, but it's not the traditional purpose, nor how they're typically used (misused).

Budgets usually define what a business unit or department can spend, based often on how they plan to spend it. During the year, business conditions change and plans get modified, but the budgets do not. Thus, towards the end of the year, you have a department that's restricted in what it can do because it's already spent its budgeted amount. Alternatively, you'll have a department that hasn't needed it's full complement of financial resources. Fearing future budget cuts, particularly during the time that the next year's budgets are being proposed, this under-spent department will spend money (frivolously?) to prove that they need all of the money. They didn't really need the equipment, training or whatever, but they might need some other equipment or training next year, so the money is spent on whatever makes "some" sense. They can then ask for similar dollars in the new budget.

Meanwhile, the area that might be of strategic importance or a growing market is limited in how it can set up the company for positive results going into the new year. It's not allowed to spend any more, and has to wait till the next year. Momentum is lost, a market opportunity may close and the results won't show up till mid-year anyway (see a previous post).

Budgets are good for forecasting cash flow requirements. After that initial purpose, any budget should be a "living document" subject to change as competitors take action, regulations come into force, new technologies are created, economic cycles change demand or supply conditions, and a myriad of other potential factors appear or disappear. As fluid as your goals and project plans need to be, so should the budgets.

Don't let it turn into one department or business unit waging turf war over the field of available finances.

Wisconsin Legislature, A Bunch of Cheeseheads

Suppose you're a supplier to a conglomerate, with a contract for product or services. In many contracts, there's a clause regarding termination for cause. The cause is usually a failure to perform. You negotiated your contract with the ABC subsidiary in good faith. You may have given up some pricing or payment terms in lieu of a multi-year agreement. A new CEO is appointed in the conglomerate. He voids all supplier contracts because the conglomerate is losing money. He's decided that his corporation will no longer enter into any long-term agreements. Everything will be on PO-by-PO, or spot buy, basis. He has just voided any pricing, or protections you have that would allow you to sue/arbitrate for payments. Wouldn't you take action, at least to voice your concerns?

I would at least suggest that the current contract is in force until it expires and then it can be renegotiated.

I'm not necessarily pro-union. I'm pro-justice, pro-integrity and pro-adulthood. If a contract or agreement is negotiated between adults without coercion, then it should be honored even if it's silly or contains an inherent aspect that will create the demise of one party or the other. (For example, penion benefits and healthcare for retirees have created an enormous, but foreseeable, burden on US-based auto makers. I've seen similar, smaller scale contracts that people have made and after a few years, they have figured out that they're now in a contractual "corner" they never intended--like awarding commissions to people who didn't do anything to get the business for the company but it's in their territory. However, it's there, in writing, and no expiration on the agreement or timetable for renegotiation.) Losing money is not a cause for changing the contract unless the other party is willing to re-negotiate in the interest of maintaining some long-term business.

In Wisconsin, I've heard that the teachers' union and other public employee unions knew that, at some point, they would be contributing more towards their pension plan and their health care. That's not the issue from their perspective that's created their protests. What is the problem is that the state legislature is nullifying their collective bargaining agreements earlier this week.

That seems to be a cheesehead move by the legislature. I like Wisconsin, and I like the people (I have relatives there too). However, this group of Wisconsinites seem to be doing the wrong thing, even if it appears to be for the right reasons from their perspective.

Ok, that's my curmudgeonly opinion. I don't like what the Wisconsin legislature did because I wouldn't like it if the conglomerate's CEO would cancel my long-term agreement with his subsidiary without his paying some sort of penalty.