In June 2014, then-Mayor of Toronto Rob Ford was half-way through his stint in rehab, David Soknacki, former budget chief under Mayor Miller, was still in the running for Rob Ford’s job and across the city hundreds of civil servants started working on the 2015 City of Toronto budget. The draft of that budget will be released tomorrow, January 20th 2015.
Don’t bother reading it.
Finance and non-finance executives have known for years that budgets are time-consuming and wrong; they’ve known that budgets lead to “gaming” from management who pretend to make cuts or offer up savings from costs that never existed; they distract managers from focusing on customers; they encourage budget-owners to make short-term decisions that harm long-term strategic objectives; they are old and dusty before they even start. They are a signal of management failure. And if you live in Toronto you know that.
There was much discussion in 2014 about whether Mayor Ford had saved the City $1Billion or not. Had he reduced the actual cost of running the City or reduced the rate of increase of a budget that might have been increased by a larger amount had he not reduced it? Or something. If you want to see the details of previous budgets I have attached a link to the City’s budget site below. My point is that the budget is itself a waste of time and energy.
Gas prices have dropped from over $1.30 to approximately $0.90 since June 2014 and the Canadian dollar has dropped about 10% against the US$. Why does that matter? When department heads put together their budgets they make assumptions about costs and income: the oil industry in June 2014 was pretty pumped (pardon the pun) but is now doom and gloom with job cuts everywhere. If you had prepared Suncor’s budget in June 2014 based on the oil price I mentioned above would you stick with it now?
And don’t imagine the oil price only impacts the oil industry: what is the impact on the TTC? on garbage collection? on heat and lighting costs for City buildings? Even our fruit and vegetables include a cost to transport them to our doors. And then, what if that food is bought from California? Does the reduced value of the Canadian $ off-set the savings on transportation costs?
In its (60 page) 2014 budget proposal, the Office of the Treasurer for the City of Toronto boasted a “favourable variance” on its 2013 budget that included savings of $3.7M from not hiring staff. In fact, as at September 30th 2013 it had 68 vacant positions. It doesn’t explain what the impact of not hiring 68 staff was: were these people ever needed? did delaying the hiring process cause a negative impact on citizens who needed help from the City? In 2012 the department’s “call abandonment rate was over 30%: is that because they didn’t have enough staff? (Call abandonment is a fancy way of saying callers gave up in disgust because nobody answered the phone). Comparing against budget instead of comparing against industry standards is pointless, yet that is what the Council demands of its staff.
I’m not saying you shouldn’t be forward looking, in fact I’m saying you need to be looking ahead more often. Spending 8 months on producing a wrong budget is ridiculous. Organisations need to be constantly reviewing their service delivery, performance against targets and efficiency, not just grinding out a budget once a year and sticking with it through hell and high water. Don’t wait till next year to improve, do it now.
Instead of a crusty old budget process the City of Toronto needs to be agile, responding to unexpected events, adjusting to new realities and focused at all times on service delivery. Here are some alternative performance management ideas:
- manage performance against service targets not against budget
- compare performance against external benchmarks not internally generated, isolated budgets
- manage in real-time not in comparison to assumptions that can be 18 months old
- operational managers must communicate performance information honestly and openly
- utilise the resources needed to achieve stakeholder satisfaction not the ones allocated in the past
- remove internal barriers to co-operation
- focus the whole organisation on long-term strategic objectives through short-term targets
- use a feedback loop to constantly update plans and assumptions with actual experience
Details of the City of Toronto budget timetable and budgets from previous years can be found here:
The 2014 Office of the Treasurer budget can be found here:
A 2003 Harvard Business Review article on the wastefulness of budgets can be found here:
The Beyond Budgeting Institute can be found here