No one really likes surprises…I get that. The problem is that surprises, good and bad, personal and business, are a fact of life.
When managing aviation financial surprises occur within the Maintenance function, it’s advisable that your aviation leadership team know how to effectively deal with them and with your organization’s Chief Financial Officer (CFO).
Aviation surprises, in particular, which seem to appear from nowhere, usually have large price tags attached. And, understandably, many of us may be reluctant to pass such bad news up the ‘food chain.’
Depending on the true financial significance of the surprise, including the timing, the senior executive’s reaction can be quite negative.
The direct cost of any surprise will easily be the least expensive alternative to flying an aircraft with a known problem. It goes without saying that maintenance issues, which could compromise safety, must be corrected regardless of the price tag.
After all, safety is the fundamental cornerstone of our business.
So, what should one do what faced with the occasional large dollar ‘surprise’ maintenance issue?
You may have heard that well-worn phrase: Failing to plan is planning to fail. However, that is the first step of your preparation: Plan for the unexpected.
When budgeting — and you do create an annual maintenance budget, right? — keep these three fundamentals in mind:
- Be realistic
- Be conservative
- Be detailed
In other words, your maintenance team should know (more than anybody) about the aircraft to which they are assigned. They should be properly trained per the manufacturer’s specifications, be allowed to research and ask questions of the manufacturer.
And, importantly, network with other maintenance professionals. This will help prepare you to deftly handle such ‘surprises’ because you have planned and prepared.
Of course, even with the best intentions (i.e., PLANS), surprises will occur and must be managed.
Generally, the quicker you deal with them, the better. If an issue arises and further research is required to fully vet the problem (e.g., discovering the ultimate cost; lead time for parts; down time for the aircraft; identifying and offering plausible alternatives, etc.), communicate immediately with your organization’s Senior Leadership that a surprise has presented itself.
Assure the executives that you are ‘on it’ and intend to provide an update at a specific time. From there, the CFO will be alerted so proper provisions can be made, including in the financial statements, if necessary.
How to Think Like a CFO
Now, here’s a little insight into the operation of the CFO’s office. First, your CFO will possess an inherent tendency to be conservative and will generally be quite specific regarding accounting policies and the forecasting process.
Initially, he or she will rely heavily on the heads of divisions or departments to make the first budget pass and expect those professionals to make that a good first effort.
Anything offered up will, of course, be reviewed, including:
- Data compared to prior periods or years
- Other divisions or departments
- Other companies
- All in an effort to test the numbers and to test the reasons put forth to justify those numbers
These data are collected to help increase the ultimate accuracy of your plan, including your budget. This is done in an effort to limit surprises. Again, this is where the maintenance professional needs to know more than anyone else about the aircraft to which they are assigned.
It might be helpful for the aviation leadership team to understand that, with the advent of Sarbanes-Oxley (SOX), the ability for any CFO to be uber-conservative has been severely limited (for all the right reasons, of course). As a consequence of, the ‘rainy day reserves’ are all but gone from the financial statements of public companies and some private companies. But, nothing in the SOX compliance says anything about not being uber-careful in the budgeting, forecasting or planning process. So, repeated here for emphasis:
- Understand the core business/operation supported by your Aviation organization
- Know the idiosyncrasies of your particular aircraft
- Disregard the tendency to push for general or unidentified financial reserves, otherwise known as ‘sand-bagging’
How to Gain Trust with Senior Executives
When surprises do occur, know that it is the CFO or, maybe another senior executive (with input from the CFO) that has to explain the impact on the financial statements and/or footnotes. Arming the CFO with relevant information regarding the particular surprise is key to a successful outcome.
It is critical to do everything as quickly as is reasonably possible given the exact circumstances within your department.
Everything possible should be done to mitigate potential negative outcomes which could tarnish the reliability reputation of your organization.
Aviation is primarily a trust function within the confines of any company. Those who get on the aircraft and turn right to sit in their seats have the utmost trust in the skills of those who maintain the aircraft and those in the cockpit.
Please don’t let a financial ‘surprise’ affect that trust. Even if the dollar impact of the surprise is material, you can maintain your level of trust by responding quickly, accurately and with professionalism.
Gray Stone has developed a BudgetBuilder™ tool that might be very useful to you. It helps you to ask all the right questions to develop your key assumptions.
It also produces the first cut of your Operating Expense (OpEx) budget. Give us a call and we can discuss it with you.