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For 2004, The Watco Cos. Inc. has taken its yearly financial budget one step further and created an Annual Operating Plan (AOP), according to the short-line holding company's February newsletter.

"The standard budget process begins with the numbers and ends with the numbers, usually with little or no consideration of other business factors," said Chief Financial Officer Randall Readinger. "The AOP, on the other hand, starts with the customer and ends with the financial numbers."

To develop an AOP, Watco marketing and operating officials first met customers to determine each shipper's specific service needs.

Next, Watco officials developed a service plan outlining necessary track maintenance, locomotives, rail cars and manpower to meet shippers' needs, and standards and measures to monitor the company's performance.

"Each plan for a particular operation is then compared and adjusted to ensure that they are consistent," said Readinger.

Finally, Watco officials created a financial plan designed to reflect customer, service and operating plan profitability. All profit centers are measured by operating profitability, asset utilization, cash flow and revenue growth. The company — which owns seven short lines operating in 10 states — combines the first two measurements to determine return on assets.

"The AOP provides the framework to pull all of the factors together that relate to the achievement of our foundation principles, customer satisfaction and profitability," said Readinger.