It's Budget Season Again

Time once again for the annual budget process. We try to keep things simple at our firm. We ask our business partners to provide two priority lists. One list that includes strategic projects; defined as those that help them meet annual plan goals. The second list a includes projects that are important but could wait if time and money were constraints.

This approach works. It typically means that only ballpark estimate the strategic projects. The initial proforma fiscal year project portfolio includes only these projects. This is the list that gets vetted with business partners and management. Projects that survive the cut are the ones that need to be executed well. We typically don't ballpark estimate the second priority list because there are generally more projects in the strategic list than we can afford or handle.

This year we have added another category of project activity. Since there are always projects that aren't anticipated during the year, we are adding a contingency of dollars to handle ad hoc projects. This category of projects comes under the heading of "reactive capacity". The amount of resources reserved for reactive capacity can be elevated to a management discussion. The key points are how much can we afford and how do we reduce the need for reactive projects. In other words, how do the businesses do a better job anticipating market demand, and operation improvements.

This is a challenging and thought provoking time of year. It makes you ask the right and most basic questions. The key questions are; What projects help position us in the marketplace, which give us a competitive advantage, and which give us sustainable cost advantage.

This year will be more challenging given the economic pressures we and our customers face. All the more reason to get the projects right. Good luck with your planning!