By Tanya Gaudet, CSCMP, C.Mgr.,
Manager, Procurement and Insurance Services at the Town of New Tecumseth
It is that time of year again when many public sector organizations are in the throes of budget planning for the next fiscal year. A daunting task in the most typical of times, budgeting in 2022 has presented challenges that are anticipated to continue into 2023. Heightened demand, supply chain issues, and labour shortages have resulted in delays and cost increases in many service areas. The Bank of Canada, which aims to keep inflation at the 2 percent midpoint of an inflation-control target range of 1 to 3 percent, has struggled to curb runaway inflation rates in recent months and is forecasting that CPI will remain elevated in 2023 and 2024. In its July 2022 monetary policy report, the Bank of Canada projected CPI will land somewhere around 4.6 in 2023 and 2.3 in 2024.
What does your organization’s budget process look like? Realistically, most organizations employ some form of long-range planning. That is to say, somewhere within your organization’s records, there is probably a plan that sets out project planning and asset replacement costs for the next 5, 10, or 15 years, perhaps longer. After years of low inflation, it is not uncommon for said plans to include a modest two percent year-over-year increase. Hopefully, your long-range financial plans are reviewed regularly. If not, it is probably time to dust that plan off and revisit it for 2023. Concessions may have to be made.
In addition to the long-range financial plan and related capital projects and asset replacement plans, we have escalating operational expenses to contend with. In June of 2022, Statistics Canada released a report that cited some staggering increases. It found that food costs had risen 9.7% from April 2021 to April 2022. Shelter costs had risen 7.4% over the same period, contributed to in part by the 22.2% increase in natural gas, and the whopping 64.4% in fuel oil and other fuels. Accommodation costs were up 17.2%. Homeowner replacement costs were up 13%.
Have you tried to order replacement fleet vehicles lately? Consider yourself among the fortunate if you received a bid, much less had an actual vehicle delivery materialize, and forget about those traditional pricing incentives that we became accustomed to. Have you tendered any construction lately? Did it come in 35-40 percent above what you had historically paid? You are not alone.
When budgeting, a good rule of thumb is to ask more than one supplier to provide you with an estimate. Some organizations will instead conduct a formal Request for Information process to solicit budgetary estimates. Others might engage the services of a third-party cost consultant. Whether your organization has given the autonomy for budgetary estimates to other departments or whether that function remains centralized within your procurement department, now, perhaps more than ever, it is important for procurement professionals to remind your organization to factor in real-time estimates into next years’ budget (perhaps I should say real-time guestimates). After all, few suppliers are currently willing to provide even short-term pricing guarantees; they certainly will not (and likely cannot) reliably predict 2023 pricing estimates and availability. With all that said, suppliers will have the best idea of what their plans are for 2023.
Another consideration for budgeting is planning for the purchase in the ideal time period. Construction contractors, for example, typically book work and offer the most lucrative pricing during off-season months. Procuring facility construction or renovation work for July and August delivery limits the number of available contractors, as this is the limited time when school building renovation work is typically completed. Procuring heavy truck delivery during the period when local municipalities have reduced load road restrictions in place may lead to inflated pricing, as deliveries may occur in multiple versus a single trip or may take a longer route to the destination. Examples of goods and services that have an optimal purchase period are endless. With a front-row seat to the marketplace day in and day out, procurement professionals can bring much value to the budget process and other procurement planning activities.
In keeping with the theme of the 64th OPBA conference, “Together Towards Tomorrow”, this is the optimal time for procurement professionals who are not already doing so to take a seat at the collaborative budget table and to help your organization achieve financial success.