The nature of the business clearly has a bearing here. In certain parts of the garment business next weekâ€™s clearance sale is â€œlong-range future.â€ It may take four years to build a big steam turbine and two more to install it; in the turbine business six years may be â€œimmediate presentâ€ therefore. And Crown Zellerbach is forced to plant today the trees it will harvest fifty years hence.
Different areas require different time-spans. To build a marketing organization takes at least five years. Innovations in engineering and chemistry made today are unlikely to show up in marketing results and profits for five years or longer. On the other hand a sales campaign, veteran sales managers believe, must show results within six weeks or less; â€œSure there are sleepers,â€ one of these veterans once said â€œBut most of them never wake upâ€.
This means that in getting objectives management has to balance the immediate future â€“ the next few years â€“ against the long range: five years or longer. This balance can best be found through a managed-expenditures budget. For practically all the decisions that affect the balance are made as decisions on what the accountant calls â€œmanaged expendituresâ€ â€“ those expenditures that are determined by current management decision rather than by past and irrevocable decisions (like capital charges), or by the requirements of current business (like labor and raw material costs). Todayâ€™s managed expenditures are tomorrowâ€™s profit; but they may also be todayâ€™s loss.
Every second year accountancy student knows that almost any â€œprofitâ€ figure can be turned into a â€œlossâ€ by changing the basis of depreciation charges; and the new basis can usually be made to appear as rational as the old. But few managements including their accountants realize how many such expenditures there are that are based, knowingly or not, on an assessment of short range versus long range needs, and that vitally affect both. Here is a partial list:
Depreciation charges; maintenance budgets; capital replacement, modernization and expansion costs; research budgets; expenditures on product development and design; expenditures on the management group, its compensation and rewards , its size, and on developing tomorrowâ€™s managers; cost of building and maintaining a marketing organization; promotion and advertising budgets; cost of service to the customer; personnel management, especially training expenditures.
Almost any one of these expenditures can be cut back sharply, if not eliminated; and for some time, perhaps for a long time, there will be adverse effect. Any one of these expenditures can be increased sharply and for good reasons, with no resulting benefits visible for a long time. By cutting these expenditures immediate results can always be made to look better. By raising them immediate results can always be made to look worse.
There are no formulas for making the decisions on managed expenditures. They must always be based on judgment and are almost always a compromise. But even a wrong decision is better than a haphazard approach â€œby bellows and meat axâ€ inflating appropriations in fair weather and cutting them off as soon as the first cloud appears. All managed expenditures require long application; short spurts of high activity do not increase their effectiveness. Sudden cuts may destroy in one day what it took years to build. It is better to have a modest but steady program of employee activities than to splurge on benefits, lush company papers and plant baseball teams when times are good, only to cut down to the point of taking out the soap in the washrooms when orders drop 10%. It is better to give the customer minimum service than to get him used to good service only to lay half the service force when profits go down. It is more productive to spend 50,000 dollars each year for ten years on research than to spend, say, two millions one year and nothing the next nine. Where managed expenditures are concerned, one slice of bread every day is better than half a loaf today and none tomorrow.