Budgets and Allocations

Years ago, in one of the various roles I served a small company, (to me it was large, but in the bigger scheme of things not as large as it seemed) I was responsible for developing an operating budget for the areas of business for which I was responsible.  It was in a time of rapidly fluctuating input prices -- particularly for fuel -- which were a significant component of our operating costs.  We were challenged to find ways to reduce those expenditures yet, to grow our top line revenue.

Any type of business operation works somewhat like a funnel.  You, hopefully, have a large amount of material going in the top (revenue) and after siphoning off what is necessary to keep the business running and generate that revenue, a steady stream coming out the bottom of the funnel.  The size of the "out" end of the funnel is larger, or smaller, based on the amount siphoned off to cover those operating expenses.  Most people in management focus on the expenses, whereas most leaders focus on the amount going into the funnel at the top.  That is one of the key differences between management and leadership.  One seeks to control activity and the other seeks to stimulate activity.

In a generalized sense, both types of individuals fill crucial roles in an organization and both are constantly thinking about the allocation of resources to meet various needs.  [I didn't intend such a lengthy preamble to what I wanted to say this morning.]

Allocation of resources is a complex problem for most businesses.  It can be complicated for a household dealing with competing needs -- house payment, groceries, fuel, clothing, etc.  If you expand the thinking to a country economy, or even beyond to the world economic situation, the problem becomes almost insolvable.  We depend on the marketplace to allocate resources based on pricing mechanisms that are often manipulated by governments -- such as the tariff "wars" with China, or the product embargoes against Iran.  Ideally a free market allows for efficient allocation of resources.  That free market can mean large price fluctuations based on temporary shortages, or gluts of specific products -- especially applicable to agricultural products -- food.  These can be local, regional, or global in nature.

Is there a better way?  After all, security issues will always come into play in interactions between countries -- or, between companies.  Those issues affect the movement of goods and services around the globe.

I don't think a "One World" government is the answer -- mainly because it concentrates power in too few hands, but I do think better needs-based intelligence could help provide a solution.  The growth of databases and the computing power now available can help us to solve global issues of resource allocation.  Making that "intelligence" available to businesses can provide better decision-making processes based on the dynamics of resource movement.

The problem is an old one; it is simply that of logistics.  When I was in college I took a course in Operations Research which was the mathematics behind solving efficient allocation of resources.  In simplest terms, an example is the best way to describe it.  If you are a large railroad company moving freight around the country, how do you determine the routing of individual rail cars to most efficiently transport them across the country from their point of origin to the nearest point of termination?  If you really think about it, it can become extremely complex.

For many years this type of problem was solved by brute force computation and a few wild guesses.  Today, it can be solved very quickly with computers.  Now expand that thinking to the worldwide allocation of food....

It's Going to Take One Big Mole!

This is interesting in light of my previous post this morning concerning China.

Russia Plans World's Longest Tunnel, a Link to Alaska (Update3)

By Yuriy Humber and Bradley Cook

April 18 (Bloomberg) -- Russia plans to build the world's longest tunnel, a transport and pipeline link under the Bering Strait to Alaska, as part of a $65 billion project to supply the U.S. with oil, natural gas and electricity from Siberia.
The project, which Russia is coordinating with the U.S. and Canada, would take 10 to 15 years to complete, Viktor Razbegin, deputy head of industrial research at the Russian Economy Ministry, told reporters in Moscow today. State organizations and private companies in partnership would build and control the route, known as TKM-World Link, he said.
A 6,000-kilometer (3,700-mile) transport corridor from Siberia into the U.S. will feed into the tunnel, which at 64 miles will be more than twice as long as the underwater section of the Channel Tunnel between the U.K. and France, according to the plan. The tunnel would run in three sections to link the two islands in the Bering Strait between Russia and the U.S.
``This will be a business project, not a political one,'' Maxim Bystrov, deputy head of Russia's agency for special economic zones, said at the media briefing. Russian officials will formally present the plan to the U.S. and Canadian governments next week, Razbegin said.
The Bering Strait tunnel will cost $10 billion to $12 billion and the rest of the investment will be spent on the entire transport corridor, the plan estimates.
``The project is a monster,'' Yevgeny Nadorshin, chief economist with Trust Investment Bank in Moscow, said in an interview. ``The Chinese are crying out for our commodities and willing to finance the transport links, and we're sending oil to Alaska. What, Alaska doesn't have oil?''
Finance Agencies
Tsar Nicholas II, Russia's last emperor, was the first Russian leader to approve a plan for a tunnel under ......

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Follow the link and read the entire article. A tunnel under the Bering Strait? I suppose it is better for us to beat the Chinese to the vast repository of raw materials in Siberia. I can't see them sitting still for it when they will desperately need these materials and the energy over the coming years. It is going to become a matter of priorities for them. Do they invade north into the "storehouse", or head west to the "powerhouse"? If they go north, they get both. Will this country be willing to go to war as an ally of Russia against China to prevent it? We'd better be becoming energy independent quickly!