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What Does Your CFO Really Want To Know? Forecast Versus Budget.

Few conversations strike more needless apprehension into the heart of even the most experienced Director of Aviation than the Chief Financial Officer’s request for an aviation department forecast. Many Chief Pilots fear this particular task as much or more than other challenging responsibilities that he or she is required to perform. But truth be told, there is simply no valid reason for such undo concern when aviation managers know, and understand, exactly what information the CFO truly wants to have. To reach that point, step back and look at why the financial executive wants a forecast.

Budgeting is strategic. Forecasting is tactical.

Anyone in business is presumed to be familiar with, sometimes painfully so, quarterly, annual, and multi-year budgeting processes. While an accurate and well-developed budget is important in effectively managing the aviation function, its role must be clearly understood. A budget simply identifies the financial destination at which you intend to arrive. Nothing more.

Traditionally, a budget lays out the amount of funds that will be expended for the goods, services, salaries and benefits to be procured with those dollars, and the time period over which disbursements will be made. Except for contingency amounts, any major change in the operating environment requires additional funding, unless such an event was forecast. That sudden need for more, unplanned, money usually comes as a surprise, which can often easily turn into a possibly contentious issue.

A forecast, on the other hand, is the flight plan to the budget destination – which is assumed to be profitability over a set period of time. The forecast lays out how that destination will be reached. Just as flight plans may need to be changed after departure due to weather, congestion or runway closures, forecasts may also require alteration based on new conditions or events that occur which affect the company or the department. Budgets should be built on both forecasts and history, not just the latter.

Forecasting is important. First, without a forecast (flight plan), you really don’t know how you are going to reach your destination, or where you are along the way once you’ve started. Second, if there is no forecast, or it’s incomplete or inaccurate, all other decision-making that follows will, in all probability, be wrong. Of course, along the way there can be, and usually are, changes to the operating environment. Emerging equipment requirements (FANS, TCAS, ADS-B), regulatory revisions or updates, financial and tax considerations, and business assumptions can all require an updated forecast.

Realistically, the more useful of these two tools in the shorter term is the forecast. Particularly when updated frequently, forecasts provide representations of the actual circumstances in which a business finds itself. That information can be utilized to determine an immediate or near-term action to initiate.

A budget, on the other hand, may contain targets that are now no longer truly beneficial, or for which market conditions may have changed so dramatically that attempting to achieve those goals is now not wise. This latter point is of particular importance in a rapidly changing marketplace where assumptions used to create a budget may have actually been rendered obsolete.

From the CFO perspective, flight departments become problematic when unexpected situations continue to arrive on his or her desk. This is often the first litmus test that senior executives may be having concerns over their aviation leader’s ability to effectively provide the right type and level of transportation. Also, frequent surprises can cause everything else that is flight department related to become the subject of speculation or create credibility issues.

Predictability is as highly valued in the boardroom as it is in the cockpit. When accurate and appropriate forecasts are provided in a timely and ongoing manner, the comfort level increases and trust grows. If you think otherwise, look no farther than airframe and engine support programs utilized by corporate flight departments. Regardless of the provider, these programs provide the ultimate in financial predictability – at a price. (While not a showstopper, in the current business aircraft marketplace, support programs can also prove beneficial when marketing an aircraft whose time has come for sale or replacement.)

Delivering value. The bottom line is that a CFO really only wants to know one thing: How much value is being received for expenditures related to the flight department. Effectively communicating that message requires gathering relevant data, intelligently analyzing that information, and then presenting the results and recommendations in a straightforward, logical, data-driven and persuasive manner.

However, before that can occur, there is a lot of homework to be done. The first step hopefully started the day you began your role as head of the aviation department: frequent and ongoing discussions with your customers to determine their true needs, how well those requirements are being met, and what they require that is not currently being provided. Without this dialogue, all the research, analysis and recommendations simply constitutes a guessing game. Better odds can be found with a coin toss.

Successfully communicating flight department value requires acquiring and manipulating a substantial amount of information. However, this effort is critical to not only demonstrating the worth and benefit over other travel alternatives, but also forms the basis for fleet planning, one of the most critical long-term requirements for any aviation professional.

Now think like a CFO. Put yourself in his or her shoes. He or she really doesn’t want to become an aviation expert – that’s why you are there – but is highly motivated to make an expert decision. Accomplishing that goal requires that there must be a thorough understanding of, and belief in, the price – value equation provided by the service that the flight department delivers. Simply put, productivity increases, reduced time away, and decreased physical demand all have worth. Your challenge is to show just how worthwhile the business aviation function truly is. Do that and your executive suite conversations will become more productive, but you will also discover a valuable new ally.