Page 39 - Budgeting for Managers

Budgeting for Managers
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What to Do with a Difference
When we find that the amount of money we actually spent
is different from our estimates, this doesn’t mean that any-
thing is wrong.Things may, indeed, be very right. If our copy shop
bought more paper this month, it may be that we made more copies.
Since customers paid for them, that means our business is growing!
When actual and estimated figures differ, the experienced manager
asks,“Why?” If the actual business results are good, then the only
question is “Can we do a better job estimating next time?” On the
other hand, the comparison may show us problems. Perhaps someone
placed a double order by mistake. Or perhaps another department is
borrowing paper and not returning it. Once we know why the discrep-
ancy is there, then we can decide what, if anything, we should do.
not for control. Our best guess for our income and expenses the
year after next or three or five years from now is not likely to be
as good as the one we’ll make just before the beginning of that
year. We prepare the long-term budget so that we can plan
ahead and prepare for what we think will happen. And we refine
and revise it as we get closer.
The short-term and long-term plans and budgets are relat-
ed. Today’s decision can make a difference for a long time to
come. The total cost (or total benefit) of a decision has to be
considered, not only the results for the current budget year.

Saving Money Isn’t Always a Good Thing
A food processing plant had a huge grain elevator that
was designed to work around the clock all year, with
one week off each year for maintenance.The company decided to save
money and increase production by skipping annual maintenance. It did
this for five years, until the elevator quit working altogether.
When the repairman came, he found that the main drive shaft was
cracked.This never would have happened if annual maintenance had
been performed.The damage was so bad that someone could have
been killed. Fortunately, no one was injured. But the repair costs and
lost production time cost far more than the money saved by skipping
scheduled downtime over the last five years.