Written on: September 12, 2012 by Phillip J. Baratz
Often, whether working internally on developing marketing and hedging strategies, or externally in our ever-expanding work with our clients, we try to focus on what the goals of planning are. Generally, we find that while conceptual goal-setting is easy (i.e., wanting a 65 cent per gallon margin, a net profit of $1.2 million, or lowering the amount of service department overtime during January), the details, and the tracking of “how are you doing?” is where plans start to fall apart. Instead of driving down the road (operationally), and seeing where we end up, we prefer to start with where we want to be, and then envision the small steps (moving backwards) to our starting point. That way, we can not only map out every step of the way, but but also, more importantly, know when we are off the trail.
There is a fairly well-defined set of responsibilities that the owner of an oil company should have in order to plan for and achieve financial goals. It starts with a budgeting process: one that is realistic, that is as detailed as can be, and down to the “whens” of what should be happening. The notion is to develop a calendar, one that is shared with management and staff, that breaks down the individual tasks and responsibilities for those tasks. All of this needs to be set up, including the listing of what things need to be reported upon daily, weekly and monthly. Once things are planned—and bear in mind that the expectations MUST be realistic—the plan needs to be approached as something that is flexible, as rarely (if ever) has a full one-year plan ended up working out exactly per plan.
Once budgets are set and the calendar has been planned out, you will absolutely NEED to start the tracking and reporting process. Some things might be tracked daily, others weekly, and some will be dependent upon the season of the year. While gross margins and sales volumes, delivery efficiency and customer gains/losses might warrant a closer, more frequent look as the current month progresses, excess service call reviews might best be kept to a lengthier interval, as transactions accumulate and your staff is on alert for offenders, etc. Gaining awareness of an issue today that could impact your operation, negative or positive, tomorrow should always be the objective. This diligence presents numerous and timely opportunities for positive change, resulting in the always-desired arrival of better-than-expected numbers at month’s end.
By providing yourself with the knowledge that, for example, you are charging correct gross margins per gallon, but that your deliveries are off by 35% MTD (month-to-date), you will be armed with the information needed to determine how/if you need to raise your margins on accounts (not fixed-price accounts, as those margins are not able to be improved). Or, if you see that delivery tickets are being “pulled way ahead,” you might want to move a river somewhere else. We have found that the greatest challenge in the attempt to track and learn from data is that MTD data is rarely available; and when available, it is often not used to get things back on track.
Sometimes owners, subconsciously, either don’t feel the need to—or simply don’t want to—share plans with their department managers or supervisors. Those particular men and women are the exact ones who need to understand the nature and goals of not only the budgeting process, but the reporting and modifying processes as well. If there are clear expectations (budgets), results (reporting) and actions (corrections) that are discussed and planned, having everyone on the same page will be the best bet towards achieving those results.
All too many companies operate, financially, on a razor’s edge—seeking salvation by virtue of a cold winter. You have very important financial and operational decisions that need to be made, and making them in the same manner as you have made them in the past might well be WHY you are sitting on a razor’s edge. There is a lot of information that is both needed and available. Instead of being (understandably) overwhelmed by the number of things that you NEED to know, focus on the risks and the potential impact of not knowing, and therefore not being able to react. We are in the information age. You have access to the information; you just need to know how to use it.