Bill called this morning to ask if I had finished with the budget revisions. I told him I had just finished up even though the revisions had been sitting on my desk since yesterday afternoon. I told him I’d bring it down to his office. He looked it over. He went right to the bottom line to see what the total impact of the new vehicles was. The impact was substantial even though we’d only added 100 vehicles. This is because we already covered all the overhead with the existing product lines, so all the gross margin on the new product goes straight to earnings.
“This looks pretty good,” Bill said.
“Yes it does,” I said, “but ‘looks’ is the operative word there.”
“What do you mean?”
“Well you don’t have any idea what the actual costs are going to be so you don’t have any idea of whether or not you can hit those margins on a per unit basis. In addition to that you don’t have any idea how many of these things you can sell.”
“So we could actually do better than this?” Bill said.
“Or much, much worse.”
Bill thought about that. He was thinking about the possibility of not making this budget next year and what impact that will have on his bonus. If he misses the budget by more that 10 percent there won’t be any bonus at all. Down at the division level the thing to do is budget as low as corporate will allow—to sandbag the budget in other words. That makes it a lot easier to outperform the budget. Then the bonuses will be substantial. Of course you have to strike a balance. If you do too well against budget, management won’t let you sandbag the next year. It’s not that they necessarily know that you did. It’s that a year of stellar performance makes them greedy. They will expect that kind of performance every year. They will pump up your subsequent budgets to make it harder for you to earn your bonus. If they get stellar performance without having to pay bonuses, they win twice. It’s an annual game—budget chicken—where everybody is trying to get to an outcome that maximizes their personal gain. Whoever blinks first loses.
“Maybe we ought to trim this back a little,” he said.
I remembered that I won’t be getting a bonus in any event. I’ve been fired. I don’t actually care if they make budget or not. In fact I’m rather hoping they don’t. I’m a vengeful, rat-bastard at heart.
“On the other hand,” I said, “these margins are pretty conservative based on what we’ve done historically with our other product lines. How do you feel about the unit sales projections? Can we sell a hundred units?”
“I don’t know,” Bill said. “If we get any traction with it at all it should be fairly easy to move that many.”
“Then go for it. This budget ought to make corporate very happy.”
“Yeah, I think you’re right,” he said.
“You’re going to miss me when I’m gone,” I said.
“I already do.”