The One Item You Underestimated In This Year's Budget

It’s the New Year. Hooray! In with the new, out with the old. Change.


It’s the New Year. Hooray! In with the new, out with the old. Change. Isn’t that the deal we were promised? Change?

Let’s talk for a minute about your budget. Because, I suspect, if there is going to be change happening in our shops, it’s going to be happening in our budgets.

We have a standard Chart of Accounts for the industry, and it has been widely used and developed through the years. When I look at this Chart of Accounts, I can’t find the line item that we’re going to discuss today. And yet, that non-existing line item is probably the one thing that will expand the most in your business expenditures this year.

Compliance. There it is; I said it. Compliance. It’s just a word. But this year, that word is going to be the focus of everyone while they continue to serve the customers that remain. And, while they try to find materials from an ever-decreasing number of operating mill suppliers.

Compliance will be the next "irresistible force" for our businesses to deal with. Right up there with "price concession demands" from customers; right next to looking at our increasingly aging "accounts receivables;" and, of course, that "100 percent on time" and "zero defects" stuff.

What do I mean by "compliance?" Do I mean that shops will be spending more on safety glasses and hearing protection? (Chart of Accounts line item 626, thank you very much.) Not really.

The progressive, innovative, globally competitive shops that I visit have understood the fundamentals of personal protective equipment for a long time. Probably since the founding generation started the business. Injured workers are nobody’s goal.

By compliance, I mean additional costs to document, train, investigate, acquire and put to use the equipment, materials, energy and supplies we need to operate our businesses.

Hazardous energy control. You have a program for hazardous energy control. I know that you do. Show me your training records. Have your machine operator show me his or her personal safety lock. Those are the kinds of costs I’m talking about.

Hazcomm training. Yes, I know that all of the drums have that multi-color label that describes the hazards. But can you show me evidence of when you last reviewed this important safety area with each of your employees? (Chart of Accounts 565, Training.)

Machine guarding. If the inspectors come in and don’t like what they see, costs to get guarding-compliant will be due and payable within 30 days, or else the machine will be out of service until it is guarding compliant. (Chart of Accounts 651, Machinery and Equipment Repair.)

Paperwork audits. Right-to-know materials. Waste oil. Oil for heat recovery. Scrap materials disposition. My guess is that documentation in these areas will need to be organized and reviewed. Compliance costs will show up in these areas, even if it is just supervisory time auditing to be sure that everything is as it should be. (Chart of Accounts 531, Supervision.)

Consulting. Outside consulting costs probably weren’t foreseen on your budget plan for 2009. But I’m thinking there are a number of reasons that might justify bringing in an outside consultant to help ensure that your processes and systems are functioning as documented and that they are the necessary ones to comply with the applicable regulations. (Chart of Accounts 892, Professional Services.)

So where does that "compliance" line item hide on our operating statements? I didn’t find it in a single place. But factory indirect, professional services, training, machinery and equipment, and administrative are a few of the places I would expect to see some company-specific budget "inflation" in the year ahead.

It’s my personal opinion that it is anticipation that differentiates the great managers from those that are merely competent. January 2009 seems like a good time to anticipate the possible vulnerabilities our shops might be facing in the regulatory area and then make some thoughtful, planned adjustments.

Out with the old, in with the new. Change. I’m thinking that some of that change will be in the regulatory and compliance items that are (not) found separately in our budgets. Let’s get started!