How to approach budget setting to avoid headaches
It’s that time of year again. Budget meetings will probably be a fixture across your calendar this month and there’s a good chance even looking at the date in your diary will give you a headache.

Budget setting is often seen as a challenge between the Senior Management/Executives and the cement plant personnel. On the one side you have the theory – what is possible if everything is running as it seems to on paper – and on the other side there is the reality of daily operations, where budget targets are not always met. With this mindset in place, plant personnel tend to start high with their financial budget and low with their production budget, knowing that there will be extensive negotiations on both.

This kind of mentality doesn’t breed trust between the two sides, which can create issues when management ask for more production and plant personnel attest it can’t be done without more resources. The conversations that follow are probably the cause for your pre-emptive headache. So how do we avoid these difficulties and come up with a budget that works for everyone?

                             "A budget that is forced through without an action plan is doomed from the start"

Budgets need to be reasonable
If both sides start by being realistic and reasonable about what is possible, it’s much easier to trust in the process. Production increases, for example, should be accompanied by action plans that support those increases. Greater throughput will usually require investment or some other resource. If a plant has produced 100 tph all year, it’s unlikely it can achieve 105 tph next year without some level of investment. Both plant personnel and senior management need to be receptive to ideas and practicalities. A budget that is forced through without an action plan is doomed from the start.

Budgets can be negotiated
All that being said, it is reasonable to approach the budget meetings as a platform for negotiation. If senior management wants 105 tph, plant personnel can use the promise of a production increase to negotiate for additional resources.

Prepare for budget meetings
Take the time to properly prepare for budget meetings. From the plant personnel perspective, this means arriving to the meeting with all the facts you need to support your arguments. Itemise the major items in the budget so that you can demonstrate to senior management what you are spending on. Think about what they might realistically ask from you and from the process. Be prepared to answer their questions and counter their arguments on spending with your own.

Include everything you think is necessary in the budget – even those things that may not be necessary right away. It’s better to highlight to senior management what needs doing and the risk of delaying the decision to proceed, than it is not to mention it. All risks should be shared risk, so always be upfront about them.

Be realistic about time as well as money
It’s easy to make false promises when you’re trying to get approval on a project, but it’s important to be realistic. After all, these meetings happen every year and you want the good grace of senior management the next time you come to the table, cap in hand. If CAPEX is involved, set reasonable timescales – especially if the impact of the investment is reflected in the business plan. Bear in mind there may be a ramp up time before new equipment delivers on performance guarantees. And don’t forget to factor in potential project delays.

Defend the essentials
At the end of the day, plant personnel know the process best so when it comes to must-have items, be prepared to mount a defence. JAMCEM has the knowhow to support the entire budget process for your company. We have completed this process many, many times in multinational cement producers. If you need help, give us a call. You can be sure you will end up with a realistic but challenging budget that both sides will be satisfied with.