My wife and I just made some changes in our investments for retirement. As part of the review was looking at all our expenses and estimated what we'll need to budget in our later years. Good news - I don't own a boat/airplane/antique car. Bad news, I do like my personal technology products and high-speed internet. My new iPad is cheaper than a Waco UPF-7, even if less fun!
So with my recent financial planning exercise fresh in my mind, I'm visiting budgeting again.
As a reminder: A budget is a best estimate looking forward at what you think expenses will be. At the corporate level, the aviation department budget may be buried deep within the Corporate HQ budget, or if attached to a group like Human Resources or Legal (I've seen both), then it is further down the visibility chain. One Fortune 100 company flight department reports their budget in three categories: Transportation, Facilities, Personnel. While that my be sufficient for a CFO to manage, you can't manage your flight operations on such broad data. You need to have more detail.
The key thing to having a usable budget from the point of view of the aviation manager is to track and report your costs in detail. You need sufficient details in your costing and budgeting so that small variances in the budget versus actuals get your attentions before they become major financial issues. Tracking, reporting and understanding your costs are necessary to avoid financial surprises.
Many costs in your budget are outside your direct control. While you can join fuel discount programs and negotiate a discount at home base, neither you nor the FBO can accurately state that the price per barrel of oil will remain at current levels for the next year. You can query your users to estimate how much flying there will be next year, but you can't control the Board's decision to aggressively pursue a merger opportunity that pops up. You need to make a number of assumptions regarding things like utilization, fuel costs, etc that factor into those costs. While guaranteed hourly maintenance programs make maintenance budgeting easier, the annual cost of those programs varies with utilization.
Document these assumptions so that if fuel goes up $1 per gallon during the next year, our your utilization goes up 10%, that you can revise the budget accordingly. Your budget should be reviewed and updated as the year progresses. Planned versus actual should be a standard metric. A Revising the budget with clear explanations should be allowed. If not, do it internally so that at least you maintain some sense of control.
As an example, take fuel. Just tracking a single fuel amount for costs and budgeting leave you with little insight as to what is going on. At a minimum, what is fuel at home verse fuel purchased on the road? Usage and cost per gallon, and gallons per hour per aircraft type versus trip length are much more helpful. If a fuel farm is involved, does the cost of the facility fall under fuel or another account, such as facilities or hangar?
Budgets should be a financial tool that you use to manage the fiscal resources of your operation. It should not be a once and done exercise. Used appropriately, a budget should provide you with operating cost metrics that you can use to measure and manage your aircraft throughout the year.
Start the budgeting process early, or better yet, keep track and keep a running budget that gets updated periodically. While the formal budget presented to management may be fixed for 12-months, your management budget for running the aviation department needs to change with your operational changes.