Budgeting disasters – 2 Israeli case studies

This week, I learnt of two actual stories, where accountants and economists tried to save money, but lost a fortune.

At a macro level, last week Israel needed international help to put out a raging forest fire. Nothing wrong in seeking assistance. However, the need to issue an SOS was sparked (pun intended) by over a decade of de-investment in the country’s fire services.

The Finance Ministry had refused to approve requests. The Ministry of Interior and others had refused to insist on budget approval. Meanwhile as lives and homes were literally burnt away in seconds, the tv cameras filmed fire engines that would not start. It has been exposed that the main training ground cannot run “real” exercises, because neighbours have complained of the danger! Staffing levels are way below international comparisons, and so the list of unbelievables goes on.

How much has been “saved” over the past few years through this false allocation of resources? The starting estimate is around 100m nis or about US$30m, and robbaly several times that amount.

And in today’s Hebrew newspapers, we read that Israel’s budget debt for 2010 will be 40% less than predicted. Whichever currency you choose, that is a saving of billions. In the words of Monty Python, “say no more…”

Shortsighted? Well, how about this one. A specific Israeli company has been gradually losing its dominance. A new marketing strategy is being devised. Great. This involves “getting the word out”. Great. And much focus is being placed on the main annual exhibition in the sector. Fine.

Fine, that is until the overseas head office of the multinational asked for a justification of the exhibition budget. How many deals will be concluded that want to know. To date, the budget request has been rejected by the foreign senior finance staff in their comfortable new offices.

Meanwhile, at a lower level, an economist is demanding that the Israeli subsidiary sends in the final sales expectations for 2011.

I must assume that the numerous members of the planning staff at head office have cut their on-line free subscription to the Harvard Business Review. This magazine published numerous articles during 2009 and 2010, explaining how great companies are born out of recessions, when they SPEND on marketing. 

Why is the obvious so unobvious to those who should know better?

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