Sage Advice: Sandbags are for floods
By Wayne Bourne -- Logistics Management, 10/1/2009
Recently I read a blog in an industry publication that I found troubling. The author is discussing how logistics managers should avoid shortfalls in their budgets when confronted with General Rate Increases (GRI). In short, the author recommended that during the budget prep phase the manager should “sandbag” the budget to accommodate increases that are otherwise unforeseen.
I sincerely hope that the young professionals just entering the logistics field—or any field with budget responsibility for that matter—do not subscribe to that technique of forecasting.
You must remember that budgets are not sacrosanct rules that can't be altered or otherwise tampered with—they are not cut in stone. They are designed to offer guidelines, a roadmap that companies and departments can use to assist them in navigating the current financial condition or plot a course to growth improvement.
When you ask for more than you actually need to perform your duties then you are flat out lying. If a manager took the blogger's advice then how does that manager explain significant GRI's while currently beating his budget. Well, he'll have lie again because he'll have to cover up his first lie.
When you “sandbag” your budget you deprive other departments from funding potential projects. You may be responsible for curtailing hiring, and you're putting your reputation and your department's reputation at risk. And you then become suspect when being awarded bonuses for performances that you really didn't attain.
Once uncovered, you and your department will never be believed again. Your numbers, your projections, and your successes will be scrutinized under the microscope each time. You will never be taken seriously again, and for what? Because you wanted to avoid inherent risk? Because you were lax in your preparation?
Look, there are no crystal balls to help logistics professionals forecast budget needs, especially at a time in our history so fraught with economic uncertainty. But remember what you have learned about ethics and partnerships: Mistakes are forgiven, lies are not.
Budgets are supposed to be built on what each department accurately feels it needs to produce its deliverables as defined by the volumes and requirements provided by the company. There are a host of reasons why a manager's “actual” spend may be greater than the budgeted money.
If you are the trusted manager who was given the responsibility of building your department's budget, then you should be trusted to explain each month's variances. And if they truly were as a result of unforeseen GRIs then you'll be absolved. You will consequently be asked either quarterly or monthly to reforecast the balance of the year with your fresh information.
Therefore, my advice this month is pretty simple, nothing sage about it. It's the same advice your parents, teachers, and Sunday school teachers may have taught you: Don't Lie. Sandbags are for floods, not for budgets.
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