Budgeting in Electric Plus SRL – Orange Romania SA partner

By Robert Cristian Kramer – WU Executive Academy Bucharest 2016-2018

Electric Plus SRL (we’ll call it ELP) is a chain of telecom retail stores which partners with Orange Romania SA. It’s partnership
contract includes selling telecom services, terminals and accessories. It has 41 stores, 23 mobile Points of Sales ( we’ll call them
PoS), 5 tehnical teams (used for installing its own Orange TV by DTH sales) throughout Romania and a Telesales department.
Its principal competitors are Vodafone Indirect and Retail Sales and Orange’s own Retail Sales.

Beginning with October 2016, the company began a financial exercise of budgeting its expenses, in light of its intention to
implement ERP (through SAP) until June 2017. It was a tremendous effort since no one in the company had real experience
with this, not even the new CFO. Also, it was the perfect opportunity for the CEO to communicate that the net income must be
at equal or greater than 12% per 2017, which was very ambitious, but also realizable, as I’ve seen later. That was the firs time
that I heard the term or seen the equation (though very logical)

I. At first, it was imperative to divide everything into cost centers (we’ll call them cc), for a better view of the cc
performances, revenues and expenses. That was relatively easy, because it was logical that a store is a cc in itself, and
its revenues and expenses are particular and ireproduceable. But what about the backoffice and the Area Sales
Managers (we’ll call them ASM)? Since they don’t generate any palpable revenues, not taking part in the effective
process of sales, how do we account their expenses? We decided to create cc even for them, but only to check the
expenses made by their positions, and these expenses would be spread in equal measures in their own area cc’s.

Activitate nivel 1 nivel 2 cod

GSM Administrative GSM Administrative GSM (backoffice) GSM_ADM
GSM Zona 1 Zona 1 (ASM) GSM_Z1
GSM Zona 1 bacau1 GSM_Z1_1
GSM Zona 1 bacau2 GSM_Z1_2

So, this exercise began with the creation of 64 cc’s but it was not over. For me, as a the GSM Director, began the unravelling of
the expenses, the real accounting and the understanding of the financial realities of the company. I now learned of the rent
expenses by PoS, IT expenses, personnel expenses (which were huge!), etc.
II. As a consequence, I started checking all the expenses for a correct dimension of the budgets, using my knowledge of
the specific of the PoS’s history as sales and management.

A few post actions :

- I redimensioned the auto expenses (this resulted in a limitation of the fuel expense according to a better working
routes and a better understanding of the rules of utilisation of the company’s vehicles).

- Salary expenses got a new look, accelerators by volume and cros selling were introduced in remuneration

- The working space expenses (very complex actually) were dimensioned to a biannual refresh of the space and a
better cleaning plan in order to limit the space degradation.

- Marketing expenses were reduced only to instrumental necessities, no unnecesssary expenses, even traditional ones,
were cut, since they had no notable effect on the productivity in sales or functionality of the team. Etc.

III. Adjusting the expenses rended necessary to take a good look at the revenues, also. Revenues were divided into :

- Revenues from Orange Romania (ORO) remuneration per commercial act

- Revenues from ORO mobile devices sale

- Revenues from ORO Prepay recharge sale

- Revenues from ORO accessories sale and

- Revenues from ORO prepaid packages (the sim and first month of offer)
 Just from reviewing these numbers helped me understand why the Net Income per PoS, in some cases, was bellow the
desired 12% : low revenue from accessories sales or from mobile devices sales. That helped me to pinpont from the
managerial perspective what are the weakspots in the sales flow and put together actions in order to remedy that gap.

IV. Understanding these notions was rather easy, everybody’s power of undestanding can manage revenues and direct
fixed expenses. What was relatively hard to perceive were the overhead costs with insurance, amortization, taxes,
interest and other legal fees, what is going on aside the „production”, in this case the sales activity. These costs, I
learned, are unavoidable, but weight a lot on the general income (a lot of them are carrying business decisions and
financial activities made before my investiture as GSM director, but had to be dealt with none the less.

For instance, from this I found out for the first time that the GSM_Z5_4(BB4) cc carries with it an older investment in the
working space registered as building amortization of a total value of 28k €, which had to be divided over a 5 year period as
depreciation.

V. Overhead costs with support departments. This was the icing on the cake. It was about the costs generated by HR,
Accounting, Legal and Carfleet. To me, the expenses generated were gravely big and exaggerated. That was the first
time that I ever cared about how much are they paid with or how many cars do they use, etc. And it determined me
to ask for a directorial board meeting and bargain some of the expenses that seemed to me to be unaccounted for.
The result : in the end everybody agreed that it was absolutely necessary that budgeting must happend also in the
support departments, and well balanced expenses will only lead to the strategic objective of the company : to make in
difference in the business. Less costs will leave me more space to move, more money to use use for development and
the appreciation of the CEO (also the owner of the company) will only lead to finalizing my projects, which included
opening one more business contract with ORO, the SOHO/SME collaboration.

VI. So , from this :

working
materials personnel auto IT M KT 3rd party other
net total space
tip expenses expenses expenses expenses expenses expenses expenses
margin expenses expenses

total total total total total total total total

GSM support -480.287 480.287 0 454.139 14.739 11.409
General support -1.000.819 1.000.819 705 466.730 160.142 188.648 21.365 13.955 53.564 91.482

, it got to this :
 working
materials personnel auto IT M KT 3rd party other
net total space
tip expenses expenses expenses expenses expenses expenses expenses
margin expenses expenses

total total total total total total total total

GSM support -456.466 456.466 0 434.221 11.332 10.913
General support -807.965 807.965 705 461.702 103.143 132.945 15.036 5.000 39.434 50.000

...which was enough to boost me to 11,5% net income from 10,9%.

VII. After that, to get to 12% it only took a few other minor tweaks, like re-descovering a few other income sources form the
ORO contract and boost them, rewarding the field agents with a minor sum for one auto-service-free month for their
working vehicule (determined a low-rate of car incidents, hence less repairing expenses).

VIII. After 1 month of practicing and applying the budgeting principle (controlled expenses) I am proud to declare that the
GSM department of ELP is now at 16% profit. 

realized ian 2017

revenues expenses profit %

GSM 3.607.351 3.012.317 595.034 16%

As a closing argument for my accounting assignement, I can say without being too enthusiastic about it, that accounting can be
very dull and boring. It can also be the most confusing of the arts/sciences. But if you want your company to live long, be
strong and get rich, then it could be the most important and helpful subject. I will never overlook accounting principles in
business, I understand profit is king but value created is King Kong and I will carefully make my decisions as a manager in
allignment with the numbers that build the business.