Transcript Budget Development and Planning

CACUBO Winter Workshop, February 19, 2014
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What is budgeting and why is it important?
Academic planning
Budget development
Primary architectures of budgeting
Major sources of revenues
Major components of expenditures
Forecasting and ownership
Capital budgets – integration with operational
budgets
Budget cuts
CACUBO Winter Workshop, February 19, 2014
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Plans: expectations of deliverables expressed
in financial terms
› Allocation of Resources - Revenues spent to achieve
specific purpose
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Commitments:
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Enrollments
Research funds
Services
Faculty/Employees
Capital – Systems, Buildings, Equipment
Controls
› Mechanisms to authorize revenues and expenditures
CACUBO Winter Workshop, February 19, 2014
Budgets are fiduciary enablers:
assurances to boards of trustees and/or
state authorities that revenues and
expenditures will be kept in balance
 Performance measurement
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› Expected deliverables – academic or
administrative
CACUBO Winter Workshop, February 19, 2014
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More diverse faculty
› Sometimes different faculty for emerging
academic field
More diverse student body
 More facilities or upgraded facilities
 Increased reputation and quality
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CACUBO Winter Workshop, February 19, 2014
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Plans should become strategic
› Could be constrained by resources
› Prioritization will be important
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Plans can influence revenues
› Shift to focus on research
› Quality initiative can decrease enrollment
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Reallocation of expenditure budgets to
achieve academic priorities
CACUBO Winter Workshop, February 19, 2014
Planning and budgeting should be
dynamic
 Budgets enable plans
 Both are a snapshot in time
 Both must be adaptable to change
 Plans can and should influence budget
 Unfortunately, budget can influence
plans
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CACUBO Winter Workshop, February 19, 2014
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Operating budgets
› Forecast of revenues and expenses
› For an operating period – typically 1 year
› Authorizes spending
› Basis for performance measurements
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Capital budgets
› Major outlays
› Longer timeframes
CACUBO Winter Workshop, February 19, 2014
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Incremental Budgeting
› Annual awarding of increments to prior year
budget
› Presupposition that the priorities remain the
same
› Adjustments should be made to refine to
ensure prioritization
CACUBO Winter Workshop, February 19, 2014
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Zero-based Budgeting
› Start at $0 and build up based on needs
› The overall package of all activities
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represents the budget
Requires priority ranking of the activities
Puts everything up for grabs
Zero-based budgeting is rare in practice
It assumes courage to implement
fundamental changes
CACUBO Winter Workshop, February 19, 2014
Begins with estimating annual revenues
 Identifying spending priorities
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› Examine programs funded in prior years
› Propose increases (decreases) for upcoming
year
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Ends with balancing expenditures to
expected revenues
CACUBO Winter Workshop, February 19, 2014
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Tuition Revenue
› Enrollments
 Freshmen
 Upper Class (Retention and Transfers)
› Setting tuition price
 Undergraduate rates tend to be set at
institutional level
 Public schools:
 have state restraints
 have instate and out of state student considerations
 might have caps on increases
CACUBO Winter Workshop, February 19, 2014
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Student fees other than tuition
› Special fees related to a program
› Fees directly associated with a class, i.e. lab
fees
› At many schools these fees are controlled by
the school
› Can be directly allocated to the
program/school
› Are significant at many institutions
CACUBO Winter Workshop, February 19, 2014
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Gifts
› Include to the extent gifts provide support to
operations
› Capital campaigns – less predictable
› Have to match restricted gifts with uses
› Some gifts are controlled by specific schools,
departments and even faculty members
 Requires coordination between multiple
people
CACUBO Winter Workshop, February 19, 2014
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Endowment
› Contingent on restrictions, realized
endowment returns and earnings can be
available for budget support
› Endowment spending rate usually
established and monitored by institution
› Schools might have policy on appropriate
use for operations
CACUBO Winter Workshop, February 19, 2014
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Investment Income
› Generated from short and long term investments
› Modeling the cash flow is important – think about
what has recently happened with the economy
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Research Dollars
› Indirect cost revenue
› Freeing up of unrestricted dollars
› Budgets are done at proposal stage
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Other
› Sales and services
 Conferences and seminars (plus expenditures)
 Clinical income (internal or private practice plans)
› Rents
CACUBO Winter Workshop, February 19, 2014
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Auxiliary Enterprise Revenues
› Look and feel of for profit
› Gross sales revenues should cover total operating
costs
› Net operating income should cover debt service
› Campus (cash) subsidies should be budgeted
› Indirect subsidies should be understood
 Like facilities, utilities, administrative costs
› Financial structure is complex and should be
enhanced with strong financial reporting
CACUBO Winter Workshop, February 19, 2014
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Salaries
› Develop policies for annual adjustments
› Turnover savings can be available for other
uses
› Position control
› Policies related to use of salary savings and
vacant positions
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Benefits
› Not always easy to forecast
› Multiple ways of handling the charges
CACUBO Winter Workshop, February 19, 2014
Financial Aid
 Materials, Services and Supplies
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› Items such as paper, toner and software
› Internal sales usually a contra expense (inc)
› Cost of goods sold (auxiliaries)
Travel
 Capital Equipment
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› Should capital outlays be budgeted?
› Depreciation should be budgeted for
auxiliaries
CACUBO Winter Workshop, February 19, 2014
What should be budgeted? Only
operating (current funds)?
 Should net income be budgeted?
 What about use of cash – non base
budget dollars?
 Should revenue not intended to be used
be budgeted?
 Should the budget balance?
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CACUBO Winter Workshop, February 19, 2014
Governing boards should own variances
 Role of:
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› President
› Provost
› CFO
Delegation to Deans and Directors
 Who owns surpluses and deficits
 Excessive negative variances over time
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CACUBO Winter Workshop, February 19, 2014
Budget to actual variances with
estimated projections through fiscal year
 How often?
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› Depends on the revenue sources
 Tuition and Fees known after first month
 Other sources can be variable
› Minimum of quarterly
› Monthly at end of fiscal year
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Review for internal controls and decision
making with leadership
CACUBO Winter Workshop, February 19, 2014
Require long planning lead times
 Implemented over multiple budget
cycles
 Capital budgets should include:
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› Equipment
› Enterprise Software
› Renovations
› New Facilities
› Infrastructure
CACUBO Winter Workshop, February 19, 2014
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Three budget designs
› Centralized unrestricted budgeting
› All funds budgeting
› Revenue responsibility budgeting
CACUBO Winter Workshop, February 19, 2014
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Centralized unrestricted budgeting
› Central owns unrestricted revenues
› Goal is to divide these revenues appropriately
among the expenditure budgets of the units
› Central estimates and identifies
 Revenues
 Expenditure inflation factors
 Priorities
› Discussions are exclusively on expenditures
› Negotiation is the behavioral modality
› Restricted endowment and gifts are off the table
CACUBO Winter Workshop, February 10, 2011
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All-funds Budgeting
› Central owns unrestricted revenues
› Designated and restricted gifts are on the
table with unrestricted revenues
› Deans strive to maximize their share of the
pie
› Provosts requests are against the same
incremental resources
› Administrative fees can play a role in funding
some activities
CACUBO Winter Workshop, February 10, 2011
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Revenue Responsibility Budgeting
› Based on local ownership of revenues
 Tuition earned by unit stays in unit
 Research recoveries stay in unit where generated
› Local ownership of expenses
 Facility expenses
 Administrative services
› Deans develop feasible revenue and expenditure
budgets
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Central can still play roll in establishing
guidelines and priorities
CACUBO Winter Workshop, February 19, 2014
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Revenue Responsibility Budgeting, cont
› Budget variances stay in the unit, whether
positive or negative
 Positive: allows for large multi-year projects at
unit level
 Negative: school’s must develop recovery
plans when deficits occur
› Pressures are put on keeping down
administrative fees
› Deans become very powerful
› Forces the issue of fiscal responsibility to the
school/department level
CACUBO Winter Workshop, February 19, 2014
Fiscal year beginning cuts
 Mid year cuts
 Base budget vs. cash
 Possibilities
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› Salaries
 Slow down in hiring
 Freezes
 Reduction in force
› Travel
› Identification of non-mandatory services
› Other deferrals
CACUBO Winter Workshop, February 19, 2014
CACUBO Winter Workshop, February 19, 2014