Budget Performance Reports

Knowing what we all know about DMC as a company, it's hard not to be suspicious of every financial accounting produced. After all, even the venerable Arthur Andersen was caught in the dark DMC cloud, and was forced to pay some $30 million to jilted investors when the whole thing finally settled in the late 1997. (Arthur Andersen, by the way, was finally decimated in the Enron affair and now soldiers on as a shadow of its former self.)

I'll try not to be cynical. Constant suspicion of smoking guns and fudged figures aside, DMC had to be honest with itself at least sometimes. For example, the DMC board met monthly to discuss expenditures. One bound "Budget Performace Report" was issued to each executive. I only have March and June 1981.

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Though only 2 months apart, it is jarring to see the stark difference in affairs painted by these two reports:

The March 1981 report is mostly hopeful: due to the delay in the US launch, the company had a "savings of $1,114,100 with a year to date favourable of $2,154,200" and detailed the many cost-cutting measures it had taken, such as curtailing travel, supplies, company cars and publicity costs. All in all, though it noted some small losses (one of which was an 'adverse due to loss on canteen sales') the general picture was rosy and creates the picture of a healthy company that was actively looking to stop the bleeding — even as they were going hat-in-hand to the government once again.

June 1981, by comparison, comes across as more harsh:

"…savings have been more than offset by overspends on Purchase services others, employee recruitment, rent and rates, and insurance." It continues,

Performance against budget this month continues to be considerably adverse. … The major factor once more has been direct labour performance where failure to meet volume targets and budget standards, despite continued significant overtime working, has resulted in an adverse… The trend shown in this report indicates that no improvement likely in performance has occurred to date nor is an improvement likely in the near future without further action by management to contain expenditure levels…

In other words, a call for management to crack down on spending and crank up production wherever possible. This squares with all contemporary accounts that the order had come down to increase production to 80 cars a day at all costs, in order to make the stock issue successful.

A healthier approach might be to make your first examples as well as you can and produce the appropriate amount of product based on a reasonable estimate of market demand, but something else seemed to be more important here. Oops, I promised not to be cynical.

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