The Art Of Avoiding Budget Headaches

Managing yearly budgets is a huge challenge.  Workers in all sectors, public and private, have to do more with less. Accurately predicting budgetary needs is part of the challenge. Unexpected events can stress tight budgets and cause huge headaches. In all sectors, preventive maintenance spending has great value in ensuring budgetary certainty.  There are potential “budget-busters” that could threaten to derail yearly budgets - things for which targeted preventive spending can go a long way to eliminating these threats.

Headaches Coming from Budget Management

Think about these job roles.  You may be one of them or know someone who is.  What do all of these people have in common?

• City and municipal managers
• Fleet administrators
• Small business owners

The answer we’re looking for is that they all get their fair share of headaches from budget management. Budgeting is a challenging process that requires an accurate assessment of past trends combined with the ability to predict the future.  To do that well takes talent.

Budgets are typically divided into fixed costs vs. variable ones. In household budgets, fixed costs would be line items like the mortgage, car payment, maybe the cell phone bill. The variable costs of the household would stem most often from costs derived from human behaviors – food, electricity, gas for the car.  You can try to predict these based on what’s happened in those areas in the past, but by their very nature, they don't stay the same, their ultimate costs are variable from month to month. 

Whether you’re talking about a home budget or the budget for your business or department, it always seems to be the variable expenses that throw it all into disarray. If you’re in charge of managing funds that are spent on the operation and upkeep of equipment, fuel and/or vehicles, the unexpected expenses of repairs, breakdowns, equipment-related crises and fuel problems are what give you the biggest headaches.

Everyone’s under more budget pressure than ever before

The mantra of doing more with less resonates across both public and private sectors. Increased market competition compels private entities to optimize resources, a trend exacerbated by the economic downturn of 2009 and the COVID-19 pandemic, which weeded out weaker players, leaving a competitive field of stronger entities. This competition, beneficial for consumers, also propels businesses to enhance efficiency to stay ahead.

On the other hand, state and local governments face budget stresses sans competition for market share. Their challenge lies in fulfilling mandated responsibilities within strict budget confines, which aren't expanding. Past financial liabilities, like worker healthcare costs, strain budgets, pushing cities like San Jose and Detroit towards financial precipices. Seeing other agencies struggle financially heightens the budget management pressure across all government levels.

Unexpected budget items, such as equipment breakdowns, add to the stress, being unpredictable yet inevitable. This unpredictability mirrors personal finance, where advisors like Dave Ramsey emphasize emergency funds to cushion against unforeseen financial events, which are bound to occur periodically.

Be it in a small-to-medium business or a local government entity, annual budgets are devised based on best projections for anticipated needs. However, the inability to predict every expense with certainty underscores the challenge of budgeting. The drive to do more with less, therefore, becomes a universal approach to navigate the unpredictable financial landscape, whether in business or government operations, to ensure stability and fulfillment of objectives amidst fiscal constraints.

If you consider your budget, it’s probably not too difficult to come up with a list of the kinds of unexpected things that may happen in your sphere of influence – the things which threaten to become “budget busters”.  For those of you who are tasked with dealing with some combination of vehicles, equipment, and fuel, what are the kinds of things that are difficult to plan for ahead of time, but which invariably end up putting the strain on your budget?  Some answers could be:

• Fluctuations in fuel prices that make it difficult to predict how much it will cost to fuel your fleet and business. Is there anything worse than signing a diesel fuel contract at $3.50 a gallon, only to see fuel prices drop the next day to $3.40?
• Equipment breakdown. Nobody plans to have something not work when it’s supposed to.
• Vehicle or workplace accidents. Definitely not completely avoidable, but the object of safety training by most businesses to reduce their likelihood. A great example of the kind of preventive spending we’ll talk about later.

Preventive maintenance spending combats unexpected expenses and always saves more in the long run

Some unexpected expenses are inevitable, like damages from natural disasters or accidents. However, allocating budget for preventive measures can mitigate the impact of certain unforeseeable costs. For instance, a municipality may budget for regular tree trimming to prevent storm-induced power outages.

Convincing individuals to invest in preventive maintenance can be challenging yet it's often cost-effective. In healthcare, spending on preventive care and education yields a high return on investment compared to reactive spending on treating diseases post onset. For example, investing in health education to prevent diabetes is financially wiser than covering extensive medical costs for treating diabetes complications later.

This principle extends to other sectors like fleet maintenance. Establishing preventive maintenance budgets for regular vehicle servicing at designated intervals minimizes reactive spending. Services like oil changes, filter replacements, and tire rotations, though costing upfront, prevent more expensive issues down the line. For instance, city bus fleets in places like Orlando or Newark don’t wait for an engine failure; they perform timely engine oil changes to avoid hefty repair costs, thus saving more in the long run. Preventive budgeting, although may seem an upfront expense, significantly reduces total expenditures over time by averting major reactive spending, showcasing a larger return on investment. This proactive approach not only is economically savvy but ensures smooth operation across various sectors, be it public health or public transportation.

Return on investment is the key to justifying preventing spending

For those that don’t feel they have the budget space to spend on preventive maintenance, the return on investment issue may be the key to convincing them.  And it shouldn’t really be any other way.  It’s not going to be worth it for a city budget manager to allocate x dollars in an area that doesn’t have an overt problem if it can’t be shown that the expense will result in 2x or 3x or some kind of sizable return amount of savings.  Sometimes, you do have to spend money to make money. 

Preventive maintenance spending is beneficial because it’s a fixed cost with predictable results

Financial advisors suggest saving a three-month emergency fund because it provides a financial cushion, imparts a sense of peace, and even goes as far as changing our overall outlook on the things we face in life. These are all things that have value beyond the simple monetary measure.

Translating this to a professional setting, preventive maintenance spending in budgets embodies a similar extended value. By allocating funds for preventive actions like oil changes, you curtail future variable expenses stemming from equipment breakdowns, thereby safeguarding your budget's solvency. This proactive spending, although a fixed cost, minimizes the risk of unanticipated, potentially larger expenses later, akin to an emergency fund buffering against financial shocks. 

Preventive budgeting transcends mere monetary Return on Investment (ROI), cultivating a stable, less stressful operational sphere. Analogous to how an emergency fund eases our personal financial anxiety, preventive maintenance spending reduces budgetary stress, facilitating smoother operations and financial predictability. This is a more holistic view of things, where the value(s) of peace of mind and operational stability expands the traditional cost-saving narrative.

Spending budget money on preventive maintenance in your sphere of influence gives you more budget certainty and reduces future surprises.  As to how much additional value that has, to get the answer, you have to answer the question for yourself – how much is peace of mind worth to me in my position? 

Staying within budget makes you a hero

Let’s say you surveyed a thousand professionals and asked them any number of questions arranged around the theme of “what makes you most happy in your job”. Most people think that money is the key driving force for workers. No doubt about it, money is a good thing and everyone likes getting paid for what they do.  Everyone likes doing a good job and not getting fired for it.  But money isn’t the be all and end all for the average person.  What comes out time after time is that workers are fulfilled by two really important, non-monetary things: number one, positive feedback on their performance, and number two, recognition.

Meeting your department or fleet or organization’s budget helps you hit both of these. Spending a small amount of budget capital on preventive maintenance helps keep your area in budget by reducing budget fluctuations from things like equipment breakdown. And when you consistently meet your budget or even get in under the money line at the end of the fiscal year, it makes you look good to the people who matter. If you work for local government or a fleet manager, it’s going to go over really well with the people above you who make important decisions.  If you own a business and work for yourself, well, you need all the help you can get, so it doesn’t matter who it makes you look good to – your company’s bottom line is looking better because of it.

Which problems threaten to negatively impact a municipality’s budget from a fuels standpoint?

Now that we’ve laid these out from a high-altitude perspective, let’s narrow the focus down.  It’s agreed that preventive spending is a good thing that has lots of value, saves money, and help you stabilize your budget. Lets talk some specifics in Bell Performance’s area of expertise of fuels. Both fuels and the equipment that uses the fuel are consistent contributors to the whole “unexpected problems that threaten my budget” issue.

If you handle fuel or manage any kind of equipment, what are the most common fuel-related and equipment issues that might threaten your budget?  It’s useful to consider that question, along with looking at what types of solutions to consider that may help reduce the surprise of some of these.

Conclusion

Prevention-related spending is a proven way to minimize unexpected budgetary stressors while saving crucial budgetary funds. But sometimes it takes the right vision and perspective to commit to doing this, because the savings and benefits of preventive spending are not always immediately apparent.  Like the sports team that commits resources to a player development department or the corporation that takes some of its profits to invest in an employee wellness program, the fruits of preventive spending are different from the results of the reactive spending that so many of us are used to doing.  Reactive spending is done in response to a problem or existing situation and the results are usually immediate and visible.  Preventive spending is far more cost effective and always yields a higher Return On Investment than reactive spending does.

Why not make this the year that you reap the benefits of fewer unexpected problems and more peace of mind?