CAD Manager-Basics of Budgeting31 Jul, 2005 By: Robert Green
Plan ahead for a better budget.
IT'S A FACT OF LIFE that as a CAD manager you'll have to participate in the budgeting process. And because most CAD managers aren't educated as accountants or financial analysts, the process can seem alien at first. Corporate budgeting presented a large learning curve for me at my first CAD management job, but it's a task I recognized as necessary for my own success.
The first task in the budgeting process is comprehending the extreme importance of your budget document. There's no other document you produce that receives as much management scrutiny or will be referred to as often as your budget. In fact, your budget may be the only document you produce that is seen by board-level management! Given the amount of attention your budget will receive, you should strive to make it as comprehensive, legible and well thought out as you can.
If you put together a shoddy budget document, management will think of you as shoddy. If you forget to include things, you'll be seen as naive. I could continue, but you get the point, right? The bottom line is that you'll be judged by your budget, so be sure to do a great job—you don't want a bad budget to come back to haunt you later.
Gather the Data
The budget should include every cost you can think of for supporting the CAD users in your company. When in doubt about a cost, include it. Here are some guidelines and recommendations to be sure you're not missing anything:
Recurring items. Toner, paper, printer cartridges, blank CDs, backup tapes, hardware maintenance contracts, software subscription fees, fixed-fee technical support contracts, and so on. These items should be easy to forecast based on the previous year's material usage and a known hardware/software inventory.
Training. Too often overlooked and always the first thing cut. You may not know exactly what type of training you'll need next year, but it's safe to assume you'll need some training. Start at one training day per employee plus an allowance for books, and don't forget the cost for materials preparation on your part. Why not budget for it so you don't have to ask later?
Professional development. Think training is just for CAD users? If so, think again. The only way that you'll become a better CAD manager is to get some professional training yourself. This type of budgeting can include new product training, professional conferences, a night course on accounting, an IT certification, etc. The point is you need to demonstrate that you'll be developing your skill set, and to do that you must budget for it.
Be frugal, not cheap. The typical mistake in budgeting is to underestimate and try to impress your superiors with how cheap you can be. A cheap budget will only force you to beg later for funds that should have been in the budget in the first place. It's always wise to show frugality in your budgeting, but if you come in too cheap, management will know you've forgotten something. You'll get more respect by thinking of everything and planning accordingly than you ever will for shaving a few bucks off the budget.
Changing Budget Parameters
A budget is not a static document, but an ever-changing one that must anticipate how your company will change, grow, relocate or redesign its business model over time. The real trick is to think in multiple time frames: what will you need now, in a year, in two years, and so on. Great managers have the ability to see where their company is going (or trying to go) and then align their budgets to achieve great performance in the present while spending wisely for the future. So to budget for a better future, what specific things should you be on the lookout for?
Growth. Is your company growing, buying out its competitors, opening branch offices, working with offshore manufacturing, moving toward telecommuting or home-based work? How much will your company need to grow during the next year to meet your work commitments?
These sorts of changes can wreak havoc with budgeting because the infrastructure required to keep a geographically dispersed team in sync is very different than just adding another computer in an adjacent cube. Because you may not know your company's forecasted growth, you should ask your management team so you can budget accordingly.
Linear growth. When budgeting, keep in mind that some costs are linear with respect to growth. The low user growth line in Figure 1 shows a flat linear cost profile typical of adding new computers for new workers. The medium/high user growth curve shows that more robust growth can result in some upward cost pressure as a new server or plotter is added to accommodate higher user counts.
Figure 1. The type of growth expected by your company affects the costs you should include in your budget.
Step growth. The branch/new office growth curve shows what happens when a company expands into more offices and remote locations that require computer and software infrastructure. The stepwise curve you see illustrates that each new office, even if manned by only one user, requires things like routers, Internet access, servers and printers. These stepwise costs are nasty little pills that your budgeting process can easily miss.
Capital items. As growth happens, you'll find that you'll need more big-ticket items like plotters, workstations, and CAD software. What makes these capital items is the way they are treated for tax purposes. Capital items must be depreciated over a five-year period or leased in order to get favorable tax write-offs.
Companies tend to evaluate these types of expenditures carefully, so you may even want to perform a basic ROI calculation to justify the item. For more information on ROI determination, see the February 2005 CAD Manager's column (http://management.cadalyst.com/0205cadman).
Training. There is a relationship between linear/step costs and support/training budgets that you should consider. Linear costs, such as adding new employees, tend to have a known training burden, but step costs, such as collaboration software and document management systems, may require substantial training resources.
Be sure to account for these training costs in your budget, or you may not have enough resources to expand your department properly.
Let's Get Started
To start your budget, I recommend opening a new spreadsheet session and entering all the basic costs you can think of. As you build your spreadsheet, make at least three columns to account for three years of budget projections. Even though you'll be responsible for producing only next year's budget, there is real value in thinking several years forward as you work the numbers. A funny thing happens when you think in terms of the future: You start to make better decisions for the present!
After you've entered your data, take some time to format the spreadsheet to make it easy to read. Be sure to total all expenses by category and by year. I'd also recommend that you separate normal recurring costs from the big capital items and subtotal those categories separately. After all, if management can't decipher your budget document, they won't be able to tell how impressive it is.
Do yourself a favor and make a concise, logical budget document. Have several people proofread it before you submit it.
A Disciplined Approach
Rather than writing your budget all at once, try a more disciplined approach from now on. Every time you read about a product or service that you'd like to learn more about, request a price quotation from a vendor you may wish to use.
If you consistently ask about pricing and implementation costs, you'll form better relationships with your vendors and get them to do your budgeting work for you. You'll also see which vendors are responsive and knowledgeable before you have to rely on them. This approach works for everything from hardware to training to software. Remember the old adage: don't guess—ask.
Where will you keep this data? Create a budgeting folder to store articles, Web site notes, quotes from vendors, and so forth. In essence you'll be creating a budgeting data warehouse in this folder. By always keeping budgeting and future trends in mind, you'll be much better prepared to write your budget when the time comes. I've also found that by constantly having the future in mind, you tend to make better strategic decisions, thus making your budget money work harder for your company.
Now that you've beefed up your budgeting knowledge, start thinking about your future budget every time you attend a meeting or talk to a vendor. Build your budgeting folder up a little bit each month as you focus more on how your future will be affected. Every once in a while, take your folder home and leaf through all the information as you update your budget plans. If you can build the skills to constantly think in the future while budgeting for the here and now, you'll be recognized as a great manager.
Robert Green performs CAD programming and consulting throughout the United States and Canada. Reach him at firstname.lastname@example.org.