Obama’s First 100 Days: Report Card, Part 2

Welcome to Part 2 of our business planner’s report card for the Obama administration’s first 100 days! Please refresh your memory of Part 1 by using the archive link to review last week’s column.

As you may recall, we gave the administration a B minus on its business model and a B plus on its economic volume plans. Now we’ll proceed to establish grades on its cost, revenue, and social value plans.

Cost Budget

In the third section of our plan, we ensure that our costs are reasonably aligned with our revenues. We review whether certain products, services, or customer segments are more expensive to serve than others. And we check our contingency plans to verify that we can manage any unforeseen cost overruns.

Looking at our government’s fiscal budget, all we can say is “Yikes!” Our deficit has soared to levels unseen since World War 2. Cost expenditures by citizen group are extremely lopsided; senior citizens, for instance, receive full medical care and prescription drug coverage through the Medicare system, while the working poor pays for their care through payroll taxes while receiving no health benefits at all. Furthermore, there are no contingency plans to reduce Medicare services if the proposed universal health care system experiences cost overruns.

To be sure, some economists (like the Nobel Prize winning columnist Paul Krugman) argue that these expenditures are necessary to prevent an even greater economic catastrophe. Nevertheless, from a business planning perspective, it is very difficult to imagine how the federal government budget may become balanced in the foreseeable future.

Grade: C plus. But only if you’re feeling generous, and only if you agree with economists like Krugman.

Taxation Revenue

In the fourth section of our plan, we confirm that our pricing structure can bring in sufficient resources to finance our operations. We also assess whether we should slash our prices if we are confronted with a price war. And we consider how our competitors are using their own pricing strategies to seize market share from us.

From the perspective of our national government, taxes are the prices that are charged to generate the revenue to finance public services. Certain industries are granted price discounts in the form of tax incentives to keep factories and other employment functions in the United States. And our competitors are nations such as China and India, as well as tax havens such as Monaco and Liechtenstein, that seek to attract American businesses and wealthy individuals to their shores.

How is the administration faring in their quest for new revenue sources? Not badly! Conservative Republicans may not appreciate the administration’s tax plans, but the revenue section of any business plan must explore such options if the preceding section indicates that costs are very high. Thus, in this context, proposals to increase income taxes on wealthy individuals and on polluting companies appear reasonable.

Grade: A minus. But only if you are willing to accept that new revenues are needed to repay the debt being incurred on our soaring costs.

Social Value

In the final section of our plan, we ensure that our organization can remain solvent on both an accrual accounting and on a cash flow basis. We establish financial and nonfinancial goals and then measure our progress in achieving them. And we refer back to our first section to ensure that we’ve remained faithful to our business model as we’ve progressed through the planning process.

How has the Obama administration fared with these issues? Well, in the short term, every penny of government expenditure has been fully financed through the issuance of U.S. government securities to Chinese and other foreign investors. Nevertheless, the debate rages on whether demand for our debt will weaken over time.

And we’ve certainly established significant nonfinancial goals, such as the abolition of nuclear weapons and the conversion of our oil-fueled economy to one that consumes renewable energy resources. But progress thus far has been mixed; the market share of hybrid automobile models, for instance, has fluctuated along with gasoline prices.

Even arch conservatives admire President Obama’s ability to focus his efforts on just four essential initiatives: the economy, education, energy, and health care. But some believe that he should simply focus on a single issue: the economy.

Who is right? Who is wrong? It’s much to early to tell! The administration has determinedly chosen its path, but it is impossible to see what lies around the turn in the road.

Grade: B. And we can easily visualize this rising to an A+ or falling to an F within a year.

Final Grade

Across all five sections, we’ve given the administration an A minus, a B plus, a B, a B minus, and a C plus. That averages to a respectable B, with a note that our grade for social value may gravitate to virtually any level within a year.

In fact, time will tell whether our entire economy will soar, crash, or simply continue to muddle along at the low end of the economic spectrum. But we’ll continue to blog on a weekly basis, covering the stories that can help you develop your own report card for the Obama administration.

Obama’s First 100 Days: Planner’s Report Card

Two years ago, my personal budget planning tool entitled Nurturing the Nest Egg: A Business Approach to Personal Financial Planning was co-published by Pension Governance Inc. and the Connecticut Society of CPAs. It advised individuals to plan for their retirement as if they were developing a business plan, by establishing a formal written document with sections dedicated to: (1) personal mission and model, (2) volume, (3) costs, (4) revenue, and (5) ROI and value added.

One year later, my professional article entitled Sixty Questions to Address Before Expanding a Business Practice was published by the CPA Journal. It advised public accounting firms to plan each new service initiative by developing a stand-alone business plan for it, with sections dedicated to: (1) the business model, (2) volume, (3) costs, (4) revenues, and (5) investment value.

Do they look similar? That’s right; they use the same model! The jargon may vary slightly from situation to situation, but the concepts are universal in nature. In fact, any business venture — from a blue collar worker’s retirement strategy to a Fortune 500 company’s new global venture — can be planned with reference to these universal management concepts.

Well, if that is true, then we should be able to assess President Obama’s management of our economy using our five universal concepts. That might seem a bit ambitious for a single column, so we’ll take the liberty of dedicating two columns to this task, the first one below and the second one to be published a week from today.

America Inc: Our Business Model

In the first section of any strategic plan, we assess whether our business model can function at various levels of activity. The model must be understandable in simple terms that describe how: (a) human capital is … (b) provided with the tools that are needed to create items of value that … (c) customers will seek to purchase, thereby … (d) providing the resources that finance future growth. At its heart, any model contains these four essential components.

Let’s try to conceptualize the pre-crash American economy in these terms. Glancing back at our growth model, is it any surprise that our economy crashed? We underinvested in our human support systems of public education and health. We also underinvested in tools such as public transportation and energy. Our foreign trading partners demanded less of what we wished to sell, leading to mammoth imbalances of global trade. And our government fell deeply in debt, ensuring that future funds would be less available to invest in economic growth.

It may be unreasonable to have expected the Obama administration to have solved all of these problems within its first 100 days. A fairer test, for report card grading purposes, may be to assess whether they have announced reasonable plans to address these issues.

So … have they?

They have indeed issued concrete proposals to improve our human capital and the tools that we require to produce items of value; furthermore, some of these proposals are already being implemented through the federal government’s stimulus legislation. Specifically, investments have been authorized to upgrade our schools, our health care technologies, our railroads, and our clean energy infrastructure. That is all good news.

The bad news, though, is that their plans about creating global green energy industries and halving government budget deficits have not yet been supported by any concrete plans to eliminate our global trade or government budget deficits. Until initiatives such as carbon cap and trade taxation systems and entitlement program reductions are implemented, it is difficult to assess whether America’s new business model will actually succeed in the global economic market.

Grade: B minus. A good start, but needs a lot more work.

Gross Domestic Product: Our Business Volume

The second section of any business plan assesses whether our entity can maintain production activity levels that meet the demands of customers without burning out in the process. An individual, for instance, may analyze whether he needs to work significant overtime hours to earn his target compensation, and whether he is physically capable of going without sleep to produce more earnings if necessary. And in prosperous times, a firm may consider whether it can ramp up production to meet surges in customer orders while avoiding equipment breakdowns.

The American economy has a simple statistic that summarizes our overall production level: the Gross Domestic Product. Although GDP bottomed out at negative 6.3% in the fourth quarter of 2008, it improved to negative 6.1% in the first quarter of 2009 and is expected by Federal Reserve Chair Ben Bernanke to end its decline later this year.

Although some business leaders are worried that this improvement merely represents a temporary bounce, most believe that our economy has turned a corner. Thus, although life is still exceedingly difficult for many Americans, our negative growth trend certainly seems to be improving.

Grade: B plus. Still not positive, but moving in the right direction.

Next week … Part 2 of our report card!