Three Levels Of Budgets

As 2014 is in its last month, many of you are looking toward the holidays. One item for those in management positions may be standing in the way of a happy holiday - your budget for the flight department. Too many organizations look at budgeting as a pain filled process. It need not be that way.

Budgeting is a very important tool for planning an organization's use of its most limited resource - cash. Managing  cash is critical for any business or individual. The budget is supposed to be an estimate of the future financial state of your organization. Used correctly, the budget can be an asset in managing your aviation cash rather than a once-and-done exercise.

Within your aviation organization, you probably need three levels of budgeting. Think of them as tactical, operational, and strategic. A tactical budget is the lowest level of budgeting. It may be your training budget for the flight department. You build up the training budget from the tactical level of who goes to train, the cost of the course, and cost of travel to attend the course. It may even include the cost of a temporary pilot to fill in a busy flying schedule. 

The operational level of budgeting is the one as an aviation manager, you need to be the most concerned with on a day to day basis. It covers the main areas of functional responsibility that you have. 

For an aviation operation, maintenance is one of the largest expenses, and one in which the aviation organization can have the most control. However, in order to effectively manage those expenses, you need to know what is expected and be able to measure and track them during the year. Planning for your maintenance may take the most time in your budget preparation. Rather than a single budget item of maintenance, you should have more levels of detail so that you can better manage those maintenance costs. This may include categories like unscheduled, scheduled, parts, external labor, refurbishment, overhaul, etc. 

The budget that you submit to the CFO is used to meet the strategic level of budgeting. The senior leadership and Board of Directors need to know how well the company is meeting its strategic, long-term goals and objectives. The fact that your temp pilot costs $1,000 per day is not important to them. The fact that you are acquiring a $20 million business jet is. One organization that I've worked with has three line items in the flight department budget that is  submitted to the CFO: personnel, facilities, and equipment. 

As the flight department manager, you need to build up to the strategic level of the CFO from the level of the tactical.  Things like training, maintenance, etc can be done with the help of your team. Assign the Training Captain and an admin to research costs for training. Work with your Director of Maintenance to make sure you cover the all bases for upcoming maintenance in 2015. 

Make sure you have a good estimate on your planned-for flight hours in 2015.   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. 

Document Your Assumptions. Things will be different next June than they were the previous December.  The biggest changes may be in the variable costs as you fly more or fewer hours than estimated. How will changes in hours flown affect when major maintenance is due? When conditions change, these recorded assumptions will better guide you on revising the budget better than relying on your memory.

As an aviation manager, the budget should be 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.  

Think of a budget as your fiscal flight plan. After take-off you check the winds, your fuel status, and the level of coffee in the urn. Monitor the fiscal flight plan the same way with the same goal: to arrive at your (year end) destination safely and comfortably.