Friday, May 22, 2009

Golf Course Management by Zero-Based Budgeting

By Michael D. Vogt, CGCS, CGIA

The need to control golf course maintenance expenses in this economy is becoming more important than ever. Building a budget component-by-component, dollar-by-dollar is the goal. The best way to study costs is to develop the zero-based budget, and thereby justify each cost center. This approach is far better than the traditional approach of doing inflation adjusted budgets with percentage increases year after year. The end result is a justifiable course budget based on real costs for the actual year.

The first step for addressing the golf course budget is a written standard for quality goals and the establishment of golf course maintenance standards. These standards should be concise at describing the how, why and who so that the zero-based budget can be built.

Golf Course Standards
Standards are written guidelines for golf course maintenance minimums and goals. These standards should be carefully drafted by the golf course superintendent with major input from the green / grounds committee.

The Zero - Based Budget
Starting with all line items being zero, the budget exercise begins. Labor, based on predicted activities, should constitute the beginning of the process. The standards and cycle-times should yield an hourly total for routine maintenance. Labor dollar amounts should be relatively simple to assign to job tasks. For instance, mowing greens would not require a high wage earner to accomplish, while applying fertilizers and chemicals to green surfaces should require a more experienced, higher wage earner.

The wild card in any golf maintenance labor budget is weather and its related impact on dollars needed to provide standards that are acceptable to the membership. During the golf season, weather and its unique impact on golf course maintenance should be monitored to keep labor expenditures to a minimum. The superintendent must communicate with regular frequency to the predetermined authority on additions / deletions to the allotted funds in each budget category. Hot, humid weather can increase fungicide application rates and frequencies, or drought can increase power and water use. The superintendent with training and expertise must make decisions on course requirements; he / she must also be a good communicator when it comes to justifying budget variances.

Building a golf maintenance budget from zero must take into account the individual line item areas such as fertilizers and chemicals. These commodities are needed to safeguard turf from disease, insect damage, weeds and to control growth and enhance playability.
They usually amount to 8% - 15% of a total budget. Increases in prices have steadily made an impact on the cost to deliver fine turf. An application program with specific dates, rates and cost per square foot can easily be forecasted with the use of modern spreadsheet programs. Basically, programs to spray herbicides, fungicides, fertilizers and other chemicals can be forecasted. Pricing these products is generally performed through competitive bidding. Be aware that generic turf chemicals have become a formidable product offering in recent years, and only your superintendent will know which generic substitute will produce the desired results.

Equipment maintenance and repair are also large additional expenditures included in the golf maintenance budget (usually 3% - 7%). An examination of repair records should take place to arrive at anticipated repair costs or whether equipment replacement is necessary.

Building-up each line item in the budget based on experience and quality goals is necessary for establishing a zero-based budget. This way, each cost item is understood and justified.

Advantages of Zero-Based Budgeting:
Provides efficient allocation of resources based on needs and standards.
Challenges superintendent to find cost-effective ways to improve standards and operations.
Eliminates inflated budgets.
Increases staff motivation by good involvement in goals and in monitoring actual time expenditures, thus providing greater initiative and responsibility for all persons involved.
Improves communications and coordination with management, committees and the board.
Identifies and introduces new ways to do things.
Historical Incremental Budgeting (The Old Way)

Incremental course budgeting uses a budget or actual expenditures from the previous annual period. Incremental amounts are added to the old budget to arrive at the new budget. This approach is not recommended as it fails to take into account changing economic or operational circumstances. Moreover, it encourages “spending up to the present budget” to ensure reasonable allocations are available for the next budgetary period. It leads to a “spend it or lose it” mentality; i.e. the government’s approach to spending.

Comparison of Expenses – Zero-Based vs. Incremental Budgeting
Across the country, many superintendents have had or will be having their budgets frozen or reduced due to the economy. Many clubs also compare course operations, size and budgets with other nearby clubs.

Important issues for any club are golfers and their expectations for fine course maintenance. Sometimes to satisfy those expectations, maintenance costs can get out of control. Is it time to scale back on items such as bunker maintenance (a variable expense), as it fast becomes equal to greens maintenance costs? Is out-of-play area maintenance critical to the overall golf experience? Is a vast array of annual flowers superior to perennial plantings? The key is to document and communicate quality expectations with the need to achieve a healthy financial situation during these difficult economic times. Everything done on the course cost money, and thus, priorities need to be set.

There are few really reliable methods for comparing golf course maintenance budgets from course-to-course. The variables associated with comparing different course operations are:

· Managed sizes of turf on greens, tees and fairways.
· Geographic location of the course.
· The number of sand bunkers and bunker design.
· Number of annual rounds of golf played.
· Water and soil quality.
· The quality standards (goals) set for course conditioning.

Some comparisons that may be useful in certain circumstances are:

· Total maintenance cost per acre.
· Total maintenance costs per hole.
· Labor hours per week.
· Labor hours per golf hole.
· Maintenance dollars per golf round.

In 2007 a major golf association in the Northeast studied the maintenance expenses of more than 66 private clubs in the New York / New Jersey area.
[1] Of the clubs surveyed in three distinct regions, an 11% differential was observed in average maintenance budgets during the past year. In another 2007 set of country club statistics of major country clubs in the Saint Louis metropolitan area, the variation in golf course maintenance costs was just over 12% throughout the year of the study[2].

As we have continued to follow golf course maintenance expenses, the trend in maintenance costs has generally increased well in excess of the increases in the Consumer Price Index.

There could be further pressures on course maintenance expenses due to volatility in oil prices. The up and down fluctuation in oil prices will not only affect what is normally only a 3% -5% inflationary impact in the typical budget, but it can also vary the cost of most fertilizers and chemicals that are derived from petrochemicals and the associated delivery costs.

Controlling Cost
Over the years, a superintendent’s need for increasing budgets was necessary to keep pace with the members’ ever increasing demands for a better and better golf course. How does this effect budgeting?

One example is equipment purchases. Let’s take a walking greens mower. A 22” mower in 1988 was $2,500.00. Today it costs over $6,500.00. The inflation rate within the last 20 years was 82.44%
[3], and this would put today’s inflation adjusted cost for that greens mower at only $4,561.00. Yet today’s mower at $6,500.00 has inflated in cost by an additional 32.5%. Today’s mower will not produce a significant decrease in mowing height or an increase in quality of cut.

What can a Country or Golf Club do to control costs?

· Staff and committees need to become more knowledgeable about basic course maintenance practices; and,

· Staff and committees should ask for maintenance alternatives. Generally more than one method or piece of equipment is available for achieving specific tasks.

The primary point of this article is to call attention to the fact that the actual assembly of course maintenance costs can be improved with savings being generated simply by building up a zero-based annual budget. Every cost is justified, and this assures for better management of labor, equipment and material purchases.

If clubs do not take the initiative to require the zero-based budget, they will be forced to make unrealistic, across the board budget cuts in sharply declining economies. The zero-based budget makes sense for any economy, but even more so today when cost controls
and budget cuts are the order-of-the-day. Isn’t it time your club begins to protect its most important asset with a justifiable budgeting process?

About the Author

Michael D. Vogt, CGCS, CGIA, is a Golf Course Maintenance and Irrigation System Specialist with the McMahon Group, a private club consulting group. Michael developed his Zero-Based Budgeting techniques based on his 26 years as golf course superintendent and as General Manager.
[1] Cooperative Golf Club Survey, Metropolitan Golf Association Foundation, 2007
[2] Country Club Stats, RubinBrown, LLP, 2007
[3] Consumer Price Index, Bureau of Labor Statistics, November, 2008

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