Faculty Advisor: The Pros and Cons of Managing a Consolidated Security Budget

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Q. I may have an opportunity to consolidate security costs for our site locations and international regions into one single budget for which I would have oversight. What are the pros and cons of doing this and, in your opinion, should I?

A.
The answer here may depend on the company and how it treats its financials. The things that will have an impact on a consolidated budget include: the impact to legal entities requirements; the fluctuation of currency; the current and future allocation methods to the company and/or business units; the ability to identify variances that need to be explored; and the ability to measure your budget year over year against a specific program or region.  

Let me outline what I see as some of the pros and cons with regard to managing a consolidated security budget:

Pros

  • There would be one budget report to view as opposed to multiple; however, this can typically be provided by region, specific groups in roll-up summary reports at most organizations.
  • One budget can often "hide" variances that have occurred in other areas of your department. That is, a consolidated budget may provide the ability to offset deficits in one area with surpluses in another.
  • If the single budget is in U.S. dollars it may make it easier to plan without currency fluctuation; however, some companies forgive currency fluctuation and you may lose that benefit.

Cons

  • You may encounter legal entity issues with a domestic or international budget being consolidated together.
  • You may have issues with regards to allocations to other areas of the company that are driven out of specific budgets.
  • You may be unable to identify costs that need to be or should be attributed to incidents, other budgets and/or groups.
  • You may not be able to identify variances in your budget.  There may be variances that are favorable and unfavorable that wash each other out resulting in a missed opportunity to find the root cause of the variance.
  • If your current non-consolidated budgets are in local currencies it allows you to identify the impact of budget variance based on exchange rate fluctuations.
  • A consolidated budget makes it difficult to measure specific, program, site or area costs year over year.
  • A consolidated Capital Investment Plan within one budget may be subject to more scrutiny as opposed to plans that are within multiple budgets (distributed).
  • With a non-consolidated budget capital depreciation expenses can by allocated to specific sites and programs and not broadly across the entire company.
  • A change in budget process often results in a change of allocation methods and attention from business units who see an increase in their security allocation. 

While the idea of having one single budget may look attractive it would likely still require you to keep separate track of the costs for each individual program, region, facility or country, however it may be set up today. I have personally managed budgets both ways and my preference would be to have multiple budgets that roll up into consolidated reports.

Answer provided by Stephen Baker, Vice President, Deputy Chief Security Officer, Global Security, State Street Bank and Trust Company.

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