Budget #'s

Here is my first cut at taking the existing budget numbers to a desk-level. Here are the key assumptions behind my cost allocations:
Direct costs for each group went to that group.
Gas Ops was allocated to Houston gas.
Power Ops was allocated to East and West Power based on commercial headcount.
Most other costs were allocated to Gas, East Power, West Power, Canada, OOC based on commercial headcount.
There are a hundred ways you could do this exercise, I'm not saying that this is the right way, but at least I was able to break the costs down.

I then calculated an EBIT by desk, funded a bonus pool, paid bonuses to all the non-commercial people, and figured out what a bonus pool would look like by desk based on the proforma values. I am not necessarily saying that this is the way that we should do it, but I think that it is one way to view the world upon which we can make whatever changes/adjustments we deem necessary. Here are my initial conclusions / reactions:
The proforma produces bonuses for commercial employees equal to roughly 6% of their gross margin.
This number is high relative to the 1-2% we are used to, but considerably lower than the 8% to 12% that appears to be available in the market.
Our costs are way too high. For every dollar of direct commercial expenses there are four dollars of allocations. That just seems way out of hand.
This model sells with lower costs. With current costs, I have a hard time convincing people in Portland that this looks good relative to people's alternatives.

I think that we need to have a lot of discussions next week on how this new organization would be managed. I don't see why we couldn't debate, if not nail down, a bunch of things next week. For example:
How do we allocate VAR to the best performing traders and the market that offers the best opportunity at the time?
Do we need to incent desk heads based on netco earnings while compensate traders based on desk earnings?
How will we carve up the bonus pool? What are our choices? What gets the VAR to the right places and properly incents teamwork?
How do we best manage costs? How do we send appropriate cost signals for sunk costs? For variable costs?
We need a very strong, professional, operations manager who is steeped in cost accounting, efficiency, quality control, and leadership. There is a science to operations management that I haven't seen applied at Enron. For example, what does it cost us to schedule a MW - average and marginal? What does it cost us to run a book? What does it cost us to settle transactions?
What package are we going to be able to offer to incent people to stay? When can we start talking about it? Who should we discuss this with?
What does our management team look like? Is it three people? Five people? Ten people?

I want to make this thing work. My clear first choice for 2002 is to be on this team. I want to be as contructive and helpful as possible in achieving this end. I can't commit unequivically (sp?) until we sort out all of the numbers, I feel like I can sell this to the Portland team, and I know what comp looks like for me and the key people in Portland. I feel like some adjustments to the proforma and a clear understanding of 2002 comp will probably get us there.

When do you want me in Houston (for a visit - not to move)?

Tim