Our company learns a basic lesson in math

[Rizon]

I can’t explain exactly what has happened because it is too complicated to explain. But the basics of this are:

We decided to sell a service for X
The service has a direct cost to us of Y

Y > X

This wasn’t done to save money on taxes or skew numbers in any direction or benefit anyone’s side company. This was done because the people that agreed to it are dumb (mostly my boss) and didn’t pay attention. And because of the type of business we are, we cannot change “X” so that it’s greater than Y (written contracts that run 7 years).

I don’t want to put any numbers down, but this one deal alone annihilates 17% of our cash assets the first 18 months with $0 return. The return in remaining 66 months makes up 0% of that loss …

*facepalm*

And on top of this I’m the accountant. I was never consulted at any step of the process. These goons decided to try to be heroes and attempt to calculate numbers themselves, and fell flat on their faces.

I just found out today and am desperately trying to work something out with the Treasurer to stop the deal from going through, and so far nobody besides my boss (who spearheaded this contract) knows it’s headed for fail. Unfortunately, the people above my boss approved this deal.

This is probably something that should get my boss fired. But last year he botched a contract that cost us 33% of our annual income, and was rewarded with a raise and bonus.

[Matthean]

I'm pretty sure if somebody under me cost the company 33% of our annual income, I would make sure that person was shown the door.

[bob]

Unless you love your job or have some other reason you need to stick around, it sounds like its time to exit this mess.

[DaddyTorgo]

Wow...yeah...what Bob said. The cost-cutting is going to start hitting sooner rather than later if this goes through. Better to get out now.

[JediKooter]

So who did your boss marry that is keeping him from getting fired?

EDIT: Wait...he cost your company 33% last year and now an additional 17% this year, for a total of 50%? WTF!?!?!? You could have a bunch of chimps, a donkey and some magnets that could probably do better than that.

[Rizon]

Originally Posted by JediKooter

So who did your boss marry that is keeping him from getting fired?

It's a job where they hire from their own rank of customers, and he was a customer for 35 years. So he was well known and beloved by those who like glad-handers. I disagree strongly with this line of thinking, but the powers that be seem to love it.

Why he hasn't been fired? I think because the executive committee above him doesn't want the responsibility of finding a replacement, and my boss is a Yes Man that is easy for them to control.

[Rizon]

Originally Posted by JediKooter

You could have a bunch of chimps, a donkey and some magnets that could probably do better than that.

Truth!!!!

[JediKooter]

Originally Posted by Rizon

It's a job where they hire from their own rank of customers, and he was a customer for 35 years. So he was well known and beloved by those who like glad-handers. I disagree strongly with this line of thinking, but the powers that be seem to love it.

Why he hasn't been fired? I think because the executive committee above him doesn't want the responsibility of finding a replacement, and my boss is a Yes Man that is easy for them to control.

I'm speechless. That is just crazy, unless the executive committee has that much money to burn, that losing 50% of your annual income is a trivial thing. I bet if you misplaced a decimal point in your accounting, you'd be shown the door rather quickly.

In the immortal words of The Amity Ville Horror...'Get out'...

[cartman]

This reminds me of something when I was managing a group of consultants in San Jose. We had just gone through a merger, and they shuffled the management structure. One of my lead guys called me and said "Do you know anything about this new assignment I just got a call about?". Nope, I knew nothing about it. So I called the new boss.

I asked him, "What is this assignment you have Henry schedule for next week? I already had him booked at another site." The new boss said, "It is a desktop imaging project, and he's able to be booked for 40 hours next week." I replied, "But he's already booked at another client next week for a router and networking upgrade." He told "I know, but that was only 20 hours. This project will allow him to hit 100%. We need to get our utilization numbers up."

I then asked what the bill rate was. He told me $50/hr. I told him the networking gig was $145/hr. He said it didn't matter, we had to get our utilization numbers up. I then explained in as clear as terms as possible that 40X$50 < 20 x $145, and Henry's base salary came out to more than $50/hr, and there would be at least another 10 hours of work for him at another customer that week. Didn't matter, had to get utilization numbers up.

Cue the facepalm pic. We all left the company not too long after that, and about a year after we left, what was a Fortune 500 company declared Chapter 7.

[Draft Dodger]

thread title is misleading, because it doesn't sound like your company has learned anything

[SackAttack]

Originally Posted by JediKooter

So who did your boss marry that is keeping him from getting fired?

EDIT: Wait...he cost your company 33% last year and now an additional 17% this year, for a total of 50%? WTF!?!?!? You could have a bunch of chimps, a donkey and some magnets that could probably do better than that.

The way I read the description, your edit is incorrect. The deal last year nerfed 33% of the company's annual income.

The deal that spawned this thread nerfed 17% of the company's cash assets - depending on how solvent the company was before these two deals, that 17% of cash assets could be equivalent to quite a lot more than 17% of annual income, or quite a lot less.

If this is par for the course for the company in question, I'd tend to believe that 17% of cash assets doesn't come close to 33% of annual income. They just wouldn't have that much cash on hand to burn.

[JediKooter]

Originally Posted by SackAttack

The way I read the description, your edit is incorrect. The deal last year nerfed 33% of the company's annual income.

The deal that spawned this thread nerfed 17% of the company's cash assets - depending on how solvent the company was before these two deals, that 17% of cash assets could be equivalent to quite a lot more than 17% of annual income, or quite a lot less.

If this is par for the course for the company in question, I'd tend to believe that 17% of cash assets doesn't come close to 33% of annual income. They just wouldn't have that much cash on hand to burn.

Ah, I see what you're saying. I grouped the two together thinking they were the same thing.

Haha! Very true. I know I'd be checking my direct deposit every pay day to make sure the check didn't bounce.

[Rizon]

Originally Posted by JediKooter

Haha! Very true. I know I'd be checking my direct deposit every pay day to make sure the check didn't bounce.

Luckily I do payroll, so I know

We actually do have a bit of cash, and also a ton of assets (3x more than liabilities). The loss of 33% of income is a massive hit, but doesn't sink us (we downsized and made cuts). It just means we'll never grow. We can survive the recent hit, as it's just basically a big smash to cash right off the bat.

Neither thing should have happened.

[JediKooter]

Originally Posted by Rizon

Luckily I do payroll, so I know

We actually do have a bit of cash, and also a ton of assets (3x more than liabilities). The loss of 33% of income is a massive hit, but doesn't sink us (we downsized and made cuts). It just means we'll never grow. We can survive the recent hit, as it's just basically a big smash to cash right off the bat.

Neither thing should have happened.

This says it all:

[Rizon]

Been looking for a way out, but I have job security through July, a 4 month old (free daycare 2 blocks from work) and I'm going to school, too. Trying to ride it out as long as I can (the hope is eventually these people stop hating me, fire my boss, and promote me to CEO so I an at least make some money captaining the Titanic during the last couple of hours).

[JonInMiddleGA]

Originally Posted by Rizon

It's a job where they hire from their own rank of customers, and he was a customer for 35 years. So he was well known and beloved by those who like glad-handers.

Oh crap, I've seen that movie play out a couple of times.

Seems to lead to hiring idiots who were easy marks when they were on the other side of the transactions. Good if they're buying from you, baaaaad if they switch sides.

[JediKooter]

Originally Posted by Rizon

Been looking for a way out, but I have job security through July, a 4 month old (free daycare 2 blocks from work) and I'm going to school, too. Trying to ride it out as long as I can (the hope is eventually these people stop hating me, fire my boss, and promote me to CEO so I an at least make some money captaining the Titanic during the last couple of hours).

Well why not? I mean, they let Captain Calculus stay at the helm, why not let someone else see what they can do with it?

[molson]

A little OT Rizon but I actually have some great business opportunities I've put together for your company, maybe you could help get me in touch with your boss, thanks.

[tarcone]

I have a great bridge for sale.

[sterlingice]

Originally Posted by JediKooter

You could have a bunch of chimps, a donkey and some magnets that could probably do better than that.

I love the "and some magnets"

Or is that the plot of the next project you're working on?

SI

[stevew]

To bad you can't finagle a way to be a whistleblower on this mess. Especially if there's some backdoor participation by the CEO on the other side. Granted, he's probably not competent enough to sell X worth of services for only Y and go full swindle.

[sterlingice]

"Never attribute to malice that which is adequately explained by stupidity."

SI

[Suburban Rhythm]

We could probably swap some great stories. I'm an accountant as well, for a non-profit. Actually a handful, which all fall under the umbrella of a "managing group" that might just be the dumbest collection of people I've ever seen. It only works out because the managing group is collecting a 15% annual fee off the top of each NP entity, so the NPs bleed money...and nobody gives a damn, because their getting paid no matter what.

[Mota]

Originally Posted by JediKooter

Well why not? I mean, they let Captain Calculus stay at the helm, why not let someone else see what they can do with it?

This would not be the first company in the world where leadership was determined by upper management's favorite drinking buddy vs. the most qualified person.

Matter of fact I see that in my company all the time, it's all about who you know...

[JediKooter]

Originally Posted by sterlingice

I love the "and some magnets"

Or is that the plot of the next project you're working on?

SI

I can neither confirm nor deny that rumor.

Originally Posted by Mota

This would not be the first company in the world where leadership was determined by upper management's favorite drinking buddy vs. the most qualified person.

Matter of fact I see that in my company all the time, it's all about who you know...

Definitely not arguing that. It's all the money this guy has basically evaporated into nothing and he's still working there, that has me shaking my head. I mean, I don't care how good of friends we are or how many shots you bought me last happy hour, if you're bleeding my company, you need to go.

Yup, 100% agree with you on who you know. It's a "good 'ol boys" club for sure. Especially at that level.

[Ksyrup]

Originally Posted by Rizon

And on top of this I’m the accountant. I was never consulted at any step of the process.

I'm glad attorneys aren't alone on this. I once had a client about 7or 8 years ago call me up just after January 1 to tell me that they had implemented an entirely new corporate (sub/affiliate/parent) structure and realized I might need to know about it. It didn't occur to them to bring me in on it until after the fact, of course. After I looked at it, it turned out that by creating a certain entity, housing its warranty operations solely in that entity, and making it an affiiliate (sister company) as opposed to sub of the parent, they had just bought themselves double the regulation and an immediate crisis situation (from my perspective, anyway) of essentially issuing regulated products without a license in a dozen states, or without proper pre-notification in the states they did have a license. All for the tax benefits of the new structure.

Of course, the flipside is they also bought a drastic increase in my services for about 9 months to straighten out the mess.

[JonInMiddleGA]

Originally Posted by Ksyrup

Of course, the flipside is they also bought a drastic increase in my services for about 9 months to straighten out the mess.

FTW

[SackAttack]

Originally Posted by JediKooter

Well why not? I mean, they let Captain Calculus stay at the helm, why not let someone else see what they can do with it?

Captain Calculus, huh. I wonder what his battle cry/motto would be.

[sterlingice]

Originally Posted by SackAttack

Captain Calculus, huh. I wonder what his battle cry/motto would be.

I'm Integral!

SI

[SackAttack]

Originally Posted by sterlingice

I'm Integral!

SI

17% isn't an integer!

[path12]

Might as well figure out your embezzlement scheme. Doesn't sound like anyone is going to notice.

[Passacaglia]

Originally Posted by SackAttack

Captain Calculus, huh. I wonder what his battle cry/motto would be.

Delta!!!!!!!

[Warhammer]

Are we talking variable or fixed costs here? Before we slam the guy, I had something similar happen at one of my previous jobs. Management, led by accounting, was slamming a production line that was making roughly 4% profit. Our target was something like 15-20%. We had one account that we were selling at a 20-25% loss. However, when you drilled down, you found that the fixed costs for the production line were higher than the variable costs!

At our next meeting, the issue came up. I asked why the fixed costs for the line were so much higher than the other lines. This had fewer people, that were paid less, had no engineering support, etc., etc. They were taking fixed costs from other lines and burying them in this one so the other lines looked better. To make things worse, they did this because they had this one account. So, I am given marching orders to raise prices to the company by 25%. They say screw you and pull the business.

The line now shows a hellacious loss because we lose so many units on the line. They wind up pulling the line out of the facility, that overhead gets thrown on the other lines, etc., and next thing you know, 2 years later the plant closed.

[JediKooter]

Originally Posted by SackAttack

Captain Calculus, huh. I wonder what his battle cry/motto would be.

"MAY MY FUNCTIONS BE LINEAR!!"

I do like Passacaglia's idea better.

[Rizon]

Originally Posted by Warhammer

Are we talking variable or fixed costs here? Before we slam the guy, I had something similar happen at one of my previous jobs. Management, led by accounting, was slamming a production line that was making roughly 4% profit. Our target was something like 15-20%. We had one account that we were selling at a 20-25% loss. However, when you drilled down, you found that the fixed costs for the production line were higher than the variable costs!

At our next meeting, the issue came up. I asked why the fixed costs for the line were so much higher than the other lines. This had fewer people, that were paid less, had no engineering support, etc., etc. They were taking fixed costs from other lines and burying them in this one so the other lines looked better. To make things worse, they did this because they had this one account. So, I am given marching orders to raise prices to the company by 25%. They say screw you and pull the business.

The line now shows a hellacious loss because we lose so many units on the line. They wind up pulling the line out of the facility, that overhead gets thrown on the other lines, etc., and next thing you know, 2 years later the plant closed.

Luckily it's not that complicated (I don't really want to go into too much detail for privacy reasons). We sell a service for $113. The direct cost to us for that service is $131. Indirect cost about $7. We are unable to raise the $113 until September of 2013. There is also an upfront cost so large that, if we are able to use our normal profit margin after 9/13, it would still take 96 months to break even. Contract expires after 84 months. Charging more than our normal profit margin to cover the difference would price us far beyond our competition.

My boss's normal MO is to ignore everything until it absolutely needs to be taken care of. I believe he got suckered into this (happened many times before), pushed it to his superiors (who are just as dumb), and then realized later that he made a mistake and is now putting off the inevitable.

On top of the cost to us, this also affects our customers. Last time we went through a change just like this (2005) we gave our customers 7 months notice. This time we will be giving them 3 weeks notice.

[Rizon]

Originally Posted by Rizon

Luckily it's not that complicated (I don't really want to go into too much detail for privacy reasons). We sell a service for $113. The direct cost to us for that service is $131. Indirect cost about $7. We are unable to raise the $113 until September of 2013. There is also an upfront cost so large that, if we are able to use our normal profit margin after 9/13, it would still take 96 months to break even. Contract expires after 84 months. Charging more than our normal profit margin to cover the difference would price us far beyond our competition.

My boss's normal MO is to ignore everything until it absolutely needs to be taken care of. I believe he got suckered into this (happened many times before), pushed it to his superiors (who are just as dumb), and then realized later that he made a mistake and is now putting off the inevitable.

On top of the cost to us, this also affects our customers. Last time we went through a change just like this (2005) we gave our customers 7 months notice. This time we will be giving them 3 weeks notice.

Oh, and there are some other options. One is making the customers pay a portion of the upfront fee (which we are allowed to do per contract), but so far that fee would be very large (and unfair). Probably not a good idea since our other service fee was just paid (and was raised 10%) and it's right before tax season, and we haven't even notified them yet that they are owing anything with this service change.

EDIT: there may also be time to back out of contract (egg on our face), or renegotiate contract, or to rescind the 9/13 thing (though that was the reason the contract was approved by superiors [there was to be no additional cost to our customers for the next 18 months]).

[Rizon]

Executive Committee meeting today at 3:30pm. I just found out this morning what the final contract looks like, and it was worse than expected.

On top of this, found out late yesterday our California business status was suspended by the state due to another error by my boss.

Oh boy. His saving grace will probably be we can't go ahead with the new contract because we can't enter into contractual agreements since we are no longer a legit business.

So math lesson of today: two negatives make a positive!

[DaddyTorgo]

Originally Posted by Rizon

Executive Committee meeting today at 3:30pm. I just found out this morning what the final contract looks like, and it was worse than expected.

On top of this, found out late yesterday our California business status was suspended by the state due to another error by my boss.

Oh boy. His saving grace will probably be we can't go ahead with the new contract because we can't enter into contractual agreements since we are no longer a legit business.

So math lesson of today: two negatives make a positive!

LMAO

I'd get out of there. Sounds like this joker is going to destroy the company. Unless you're business-critical and want to stick around and cash your check while it implodes that is.

[JediKooter]

He's like the Inspector Clouseau of bosses.

[Suburban Rhythm]

Originally Posted by Rizon

Executive Committee meeting today at 3:30pm. I just found out this morning what the final contract looks like, and it was worse than expected.

On top of this, found out late yesterday our California business status was suspended by the state due to another error by my boss.

Oh boy. His saving grace will probably be we can't go ahead with the new contract because we can't enter into contractual agreements since we are no longer a legit business.

So math lesson of today: two negatives make a positive!

And no doubt, someway this will be spun as him having the foresight to avoid a bad deal in the first place.

[cartman]

Just curious, based on you being in the Bay Area, is there any chance the first name of your boss is Tim? Sounds suspiciously like the branch manager of the company I mentioned above.

[JonInMiddleGA]

Originally Posted by Suburban Rhythm

And no doubt, someone this will be spun as him having the foresight to avoid a bad deal in the first place.

It was ... shrewd foresight on his part. Yeah, that's it. Shrewd foresight. That's the ticket.

[Raiders Army]

Not the same thing, but I wonder how Amazon will fare with the Kindle Fire by selling them at a loss.

[molson]

I would think the other company would have quite a lawsuit on their hands here. Though, if this deal was as bad as it sounds, maybe it's better to breach it and pay damages rather than go through with it anyway.

[DanGarion]

Originally Posted by Raiders Army

Not the same thing, but I wonder how Amazon will fare with the Kindle Fire by selling them at a loss.

Probably the same way Microsoft has handled the Xbox and Xbox 360 and every other company that makes consoles...?

[Coffee Warlord]

Originally Posted by Rizon

Executive Committee meeting today at 3:30pm. I just found out this morning what the final contract looks like, and it was worse than expected.

On top of this, found out late yesterday our California business status was suspended by the state due to another error by my boss.

Oh boy. His saving grace will probably be we can't go ahead with the new contract because we can't enter into contractual agreements since we are no longer a legit business.

So math lesson of today: two negatives make a positive!

Inquiring minds wanna know how Titanic Enterprises is doing.

[Rizon]

Originally Posted by Coffee Warlord

Inquiring minds wanna know how Titanic Enterprises is doing.

Executive committee decided to move forward with the product upgrade/swap, but split the costs between a loss to us and charging our customers more. This decision is up for final approval Wednesday. If it's approved, it means we give our customers a 2 week notice that they have to pay something (after telling them they were not going to pay anything) at a mandatory product swap.

Bizarre.

I was not invited to give my 2 cents, though I did submit a report to my boss of what the numbers were. Not sure if it was used in the meeting.

Apparently upgrading a contract 4 years before it expires, and taking this companies first offer, seemed like a good idea to some people.

[Matthean]

Originally Posted by Rizon

If it's approved, it means we give our customers a 2 week notice that they have to pay something (after telling them they were not going to pay anything) at a mandatory product swap.

[Rizon]

Originally Posted by Matthean

Seriously. It's going to get really ugly if that passes. I'm glad my office is in the back of our building. Though I might try to pick up some Kevlar this week.

[Passacaglia]

This guy is probably also the cause of that smell somehow.