I interviewed Joseph Danielson who is a Multi-Functional Finance Manger for Lockheed Martin.
Do you use a software program for your budget. If so, what program?
If there isn’t adequate funding, what are the first 3 things you cut out of your budget?
How would you handle a project that was running over budget?
How do you handle unexpected expenses?
When a budget decision has to be made, who gets together to make the decision?
If you are under budget on a project, what happens with the money?
What is your biggest budget expense?
Do you usually stay within your budget for the year?
Have you ever had to cut employees for over staffing or to make up for budget cuts?
How much of the budget goes to medical coverage for employees? Is it worth offering? Would you consider good health initiatives for employees using coverage?
How do you encourage employees to follow money saving protocols that may be tedious?
If you have to do layoffs because of lack of money, how do you decide who to layoff?
Have you ever slacked on keeping a good budget? If so, what happened?
What are the budgeting rules you live by, if any?
Does someone else help you with budgeting? If so, how often do you follow up with them about the budget?
1. Most of our budgets are done in excel. We do track our actual cost in our financial ledger called SAP. When we create our budget we do look at where we’ve come in year over year using reports from that SAP system.
2. As I’m sure you can imagine it’s different depending on circumstances and how much we really need to cut. I would say the first thing we look at is if there is any material that we don’t need to buy or can move it out to the next year. This could be anything from just letting our inventory supplies get lower or pushing off the purchase or office equipment that we might not need to buy that year. Next we probably look at more capital type projects. This is where we are looking at large machines, large software packages, or upgrades to different equipment. Sometimes those projects will be pushed back as well or not done if there isn’t enough budget. Probably the next thing we look at is the employees and see what our staffing levels are and if they need to be changed.
3. The first thing I would probably try to do is a root cause analysis. That is, I would try to focus on what is really driving budget issues. Are we having troubles developing the product, are we not keeping to the schedule, are their personnel issues, management issues, or did we just create a bad budget. Most our projects are funded by the government. We give regular updates to our customers on where we are on the budget and schedules so we generally can find the problems pretty quickly. We then generally create an action plan to get back onto the budget. If we really see no way on getting back on the budget we will try to go back to the customer to get more funds if possible.
4. We try to have budget for unexpected expenses. Sometimes people call these rainy day funds or management reserve. No project goes exactly as planned, so you need to have some buffer in your budget for unexpected expenses. Sometimes it does mean giving up another aspect of the program or having certain people work less on it, but it’s pretty situational.
5. We have program managers and cost account managers. Basically the program manager runs the whole project and the cost account managers are in charge of their part of the budget and tracking it. (Generally it’s a small part of their overall job as it might be an engineer or someone like that). They generally get together with someone from the finance team and put together the budget, track it, and report any variances.
6. It depends on the type of contract we have with the government. We have 2 main type of contracts with the government. We have fixed price contracts. These contracts are “hey I’m going to to give you a jet for 80 million dollars. I don’t care what it cost me. If I go over then I have to eat the cost. If I go under then I get to keep the money.” We also have contracts call cost plus contracts. On these contracts it’s more “Hey I’m going to develop an airplane for you. I think it’s going to cost 80 million. However if I go over you need to pay me for the extra cost. If I go under you can keep the money.” A lot of our development or support contracts are that second type of contract. We do have incentive to under run though because with those cost type contracts there is generally a fixed fee associated with the contract. Say for our 80M airplane we get 5M of fee/profit associated with it. If I under run the cost I have to give the cost back, but I keep the fee. This gives me a better return on my sales, which investors like to see. (this is probably more information than you want but I can talk about it a lot more if you want
) On the indirect cost side of things we would go to our finance director and Vice President of Operations to see if they approve of the increased expenses.
7. Our biggest budget expense for our projects is usually the labor piece of it. When I work with our overhead budgets the biggest expense is probably our insurance expense.
8. We are generally conservative in our company culture. We usually have some budgets that are over and some that are down, but overall we are generally down.
9. I have not personally had to do the cuts to employees, but I have helped develop budgets for managers that need to make cuts by letting employees go.
10. My company is pretty protective about how much we spend on health insurance, so I probably can’t give you that percentage. We do feel that it’s worth offering as we feel our health insurance helps us attract and obtain some top talent. Our company has a lot of competition for smart engineers, so we feel our benefits are competitive with the industry. We definitely use health insurance companies that try to push good health initiatives. We have had health screenings, health coaches, benefits/money for meeting certain health goals. We have been able to earn incentives by having a pedometer and meeting certain goals.
11. Generally if someone is in charge of any budget then it is part of their yearly evaluation which determines your raises. We also try to give employees incentives to come up with cost saving initiatives where they can get awards and cash for helping the company save money.
12. I haven’t been personally involved, but I believe first they look at what job and level they need to cut. Is the job essential or a nice to have. Then they look at the lowest performers. If there isn’t anyone who isn’t really performing poorly then they go to whoever has been there the least amount of time.
13. No. It’s my job to keep people to budgets and making sure they follow all our rules and regulations. I have had to raise concerns up to management for certain managers who don’t take all the steps to make sure they keep on budget after repeated warnings and discussions. Usually we can work it out, but once I take things to their manager things generally get resolved.
14. Spend less than you make. Make sure your budget is something you can really live by. Make sure you track you progress so you can make corrections before it’s too late.
15. For our indirect budgets I have two employees that help put together most of the charts and reports. I am generally in daily contact with them about the budgets and some analysis that needs to be done on them, and our normal monthly business rhythms. We do have a monthly meeting where we meet with all the budget holders to review their progress for the year.
Joseph seems to handle a budget for big engineering projects involving a large amount of money. I can see he has good incentive to mange the budget under budget because they can usually keep the money saved if they are under. Also if employees find money saving solutions they can get bonuses or rewards.
It would be so tedious to keep up with the budget to make sure it stays on track. He mentions they have to stay on track to catch problems early if it starts to go over budget.
I struggled with our little budget cut project and had to figure out all the numbers and exact expenses and determine where to make feasible cuts. It involved staffing ratios as well, which got a little confusing. I’m glad we studied this a bit, because if I ever have to do budgeting for a large company with a lot of projects and employees I’ll feel a little more prepared now. I haven’t done much budgeting in my personal life other than spend less than I make. It is kind of fun to see where all the money goes and where I can make cuts. I want to keep better records now.