Unfortunately, many of us see budgeting as a fruitless exercise and a waste of time. But, budgeting is a very important tool for planning an organizations use of its most limited resource - cash. Managing the cash is critical for any business, or individual. (Please, no replies about governments!) Failure to plan for the incoming and outgoing cash has ruined many a business. And it can negatively impact your flight department.
A budget is just estimate of the future showing the peaks and valleys of cash flow. A budget can also serve as a benchmark for evaluating actual versus planned for expenses. Every organization must budget whether it goes through a formal or an informal process.
As an aviation manager, the budget is more than just filling a square for your upper management reporting. It is a very useful tool that can enable you to track the effectiveness of your aviation operation. It can also alert you to the future peaks in expenses, such as scheduled major maintenance or an aircraft upgrade.In fact, for an aviation operation, maintenance is one of the largest expenses, and one in which the aviation organization can have the most control.
As part of your budgeting process, I’d like to offer three tips to help you get started.
Tip 1. Ask for Information. This information flows two ways. Ask upper management about their intended aircraft usage for the next year, or ideally, several years. Will there be more or less flying, any new destinations, etc. If you are budgeting any optional maintenance items or upgrades, ask if next year or the year after works better for the financial goals of the company.
Tip 2. Document Your Assumptions. Things are different in January than they were the previous September and they will be changes as you go through the year. Your budget is a best-estimate of the future costs for your aviation operation. As flight activity occurs, are you ahead or behind in the hours flown? How will that change when major maintenance is due? Did you correctly anticipate the magnitude of parts price increases, fuel costs, training costs, etc?
By documenting your assumptions, it will refresh your memory when the actual costs do not equal what was predicted. If and when conditions change, these recorded assumptions will better guide you on revising the budget better than relying on your memory.
Tip 3. Explain the Nature of Maintenance Costs. These costs can occur in significant amounts (engine overhaul) and be unpredictable (unscheduled maintenance). These are often difficult for a financial manager or CFO to understand. These folks tend to favor stable, predictable cash flows - hence the popularity of a guaranteed maintenance program. You may not be bale to change the behavior of your maintenance costs, but you can explain how the engine overhaul expense took 2,500 hours over five years to accrue. Remember, most non-aviation people have automobile maintenance as their reference point.
As a bonus tip, try to visit with the person that you submit your budget to. Try to understand how your aviation budget fits in with the overall corporate budget. Help them to also understand the process that you went through to come up with the budget.
Budgeting is important to the health of your organization. However, to be truly useful, all parties involved need to understand the process. Best of luck to you!