Everything has Changed, Except Budgeting?
How to budget for waste amidst uncertainty
Fall is right around the corner, and many businesses are beginning to think about budgeting for next year. Each business has their own expense categories, but one that most businesses have in common, is waste and recycling. For 2021 in particular, program managers are struggling to figure out how best to budget for next year’s waste expenses.
How, exactly, amidst uncertain operating conditions are you supposed to budget for your waste expenses for 2021? Obviously, what has worked in the past is likely not applicable. Or is it?
Analyzing both current sales and operating metrics is a tried and true method of preparing a budget that has not changed. Understanding your organization's method of budgeting and what circumstances exist for re-forecasting will help guide you on which approach is best-suited for your budgeting needs. The first step will be to analyze your current sales and/or business levels to figure out how best to proceed.
My Sales and Operating Levels are Unchanged
If operationally things appear to be the same as the they were before the pandemic, then your waste volumes will likely remain the same. Thus, there might not be a reason to change your waste generating forecast for next fiscal year. Although, if the waste pickup schedule is working currently with minimal to no excess yardage or extra pickups, then there may be an opportunity to review your services in line with your sales to reduce bin sizes, pickup frequencies and potentially save cost.
My Sales and Operating Levels have Increased
If the business is experiencing a rise in current sales, and therefore, generating more trash, then a different route for 2021 might be a more strategic choice. For example, if most Grocery Stores, were to use 2020’s waste projections to budget for 2021, it would likely result in a bad budget. Their massive jump in sales will likely mean that their waste projections for 2021 will be need to take higher waste volumes into account.
Establishing a metric such as waste generation connected to sales will significantly assist you in making decisions. Understanding the sales forecast will then allow you to better predict the potential waste generation to arrive at a more accurate budget. Perhaps, the forecast is that sales for the next six months will stay the same, and then taper off in a stair-stepped approach, planning for a slight decrease every two months thereafter. This would provide an excellent guide for predicting the amount of waste generated to be utilized in your budget.
My Sales and Operating Levels have Decreased
Some industries have been hit harder than others. Those businesses certainly would not want to utilize the same budgeting methods for 2020 in 2021. That said, action should be taken to decrease your bin sizes, pickup frequencies and/or roll off hauling schedules or else the expenses will remain the same. Connecting your sales to the amount of waste generated will allow you to make more informed budgetary decisions.
For 2021, plan to make some switches to reflect the loss in traffic. Perhaps you’ve linked your waste pickup days to the days you receive shipments from the truck. Then utilizing your revised shipment schedule to adjust those pickup days can result in a lower waste expense. Utilizing shipment forecasts for the next several months could provide you with some insight on how best to budget for the amount of waste being generated. Perhaps, you assume the next six months sales will stay the same, and then use a stair-stepped approach, planning for an increase in waste generation in line with sales every two months thereafter.
Linking Waste Generation to Expense
Once you’ve arrived at a forecast for waste generation you can now link it to the expense. First, you must establish a correlation between your existing waste generation and expense. This could be done based on cubic yards, weight or some other internal metric that you use. Once identified, apply that expense metric to the forecasted waste generation in order to arrive at a potential budgeted expense.
Currently, the waste industry is in a rising cost environment due to landfill increases, severe depression of recycling commodity values and CDL labor shortages. With the business closures of 2020, several hauling companies saw substantial losses, just like their clients, as a result of decreased volumes. This will indeed lead to even higher costs coming into 2021. Therefore, it would be a good idea to plan for an expense increase over the existing waste costs to ensure that an appropriate budget has been developed.
Lastly, understanding your existing hauler contract cycles can help you predict when and if your current fixed pricing will expire. This can assist you in figuring out which month to apply the increase for each cost center enabling your budget to be more accurate.
In conclusion, while everything has changed, some things remain the same. Organizations still need to budget and program managers are responsible for planning for the future. Taking a data driven approach will ultimately assist you in yielding the best results for your operations.