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Management Side
Technical Side
Zero Based Budgeting—Time to get Started for 2010
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I have had the extraordinary privilege of performing one or more consulting functions on the majority of greenfield paper machines and/or mills actually built in the United States in the last 10 to 15 years (I think there have been close to 20 projects overall that succeeded in actually getting to startup). In any grade, a greenfield project has many advantages over its peers, one of the most important being that the operating budget starts with a clean piece of paper.

In my career, I have also seen many management fads come and go. One of these was “Zero Based Budgeting.” The principle behind this concept is a noble one: start the operating budget each year with a clean piece of paper. In practice, this never worked, for no one really started with a clean piece of paper.

If one studies professional books on the art of negotiation, one finds that the winner in negotiations is always the party that is not in a hurry. The party most anxious to close out a negotiation will always concede something to the party dragging its feet in order to complete the process. This always happens, whether the negotiation is a simple one (a family trying to decide where to dine out) to the most complex (purchasing a company or signing a peace treaty).

Taking the three seemingly stand alone paragraphs above, I offer the following suggestion. In order for your on-going operations to compete with their newer peers, I offer for your consideration that you think about trying zero-based budgeting-—for your operating year starting 01 January 2010. Most of the problems with implementing zero-based budgeting seem to center around a lack of time. If you get serious now, eighteen months out, to implement zero-based budgeting in 2010, and pursue the idea vigorously starting today, it just may have a chance. For what you will do, particularly with the parties that want to foil the process, is engage them early, having a chance to wear them down before they out-linger you. You need time to wear them out.

You may think this is too far in the future to worry about—you are concerned about being profitable next quarter. Of course you are concerned about profitability next quarter, but the simple fact is that if your 2010 budgeting process uncovers a great savings soon, you will implement it now, not wait until then.

I think we should always be looking out two or three years in the budgeting process, and implementing any discoveries of savings immediately. It is a way to remove wild variability in highly volatile times. I’ll expand on some techniques that may be helpful when I write this column again next month.















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