Transcript Lecture 32-Script REV.ppt

Lecture 32:
Budgets, Forecasts
And Business Plans
Business Plans
Business Plans…
…Need to be employed by
anyone who is in business
…Set a strategy for future
growth and can be used to
attract investors and loans
They aren’t just used by start-ups…
…Business Plans are also kept
and developed over time by
existing businesses, and even
started over when new
opportunities arise
Types of Business Plan include:
Summary
Internal
Special
Growth
Project
Feasibility
Mini
Start-up
Presentation
Business Plan Essentials:
-
Executive Summary
Business Strategy
Marketing Strategy
Team & Management
Structure
- Financial Budgets &
Forecasts
Executive Summary
• Introduction to business
• Competitive advantages
• Brief summary of the plan
Business Strategy
• Tactics
• Strategic Impact
• Business’s core values
Marketing Strategy
•
•
•
•
•
•
•
SWOT Analysis
Market Research
Distribution Channels
Strategic Alliances
E-commerce & Technology
Marketing Budget
Credibility & Risk Reduction
Team & Management Structure
• Skills, Experience, Training
& Retention
• Advisers
• Management Systems
Financial Budgets & Forecasts
•
•
•
•
•
Profit & Loss Forecast
Cash Flow Forecast
Balance Sheet Forecast
Capital Expenditure Budget
Break-even Analysis
Building a Business Plan
Create a Business Plan as the
first step on your path to
success
Learning Objectives
At the end of this module, you will be able to:
– Identify the essential elements of a Business Plan.
– Identify how a good Business Plan can create an anchor for continued success.
– List additional resources that can help you develop an effective Business Plan.
Building a Business Plan
13
About FDIC Small Business
Resource Effort
• The Federal Deposit Insurance Corporation (“FDIC”) recognizes the
important contributions made by small, veteran, and minority and
women-owned businesses to our economy. For that reason, we strive to
provide small businesses with opportunities to contract with the FDIC. In
furtherance of this goal, the FDIC has initiated the FDIC Small Business
Resource Effort to assist the small vendors that provide products, services,
and solutions to the FDIC.
• The objective of the Small Business Resource Effort is to provide
information and the tools small vendors need to become better
positioned to compete for contracts and subcontracts at the FDIC. To
achieve this objective, the Small Business Resource Effort references
outside resources critical for qualified vendors, leverages technology to
provide education according to perceived needs, and offers connectivity
through resourcing, accessibility, counseling, coaching, and guidance
where applicable.
• This product was developed by the FDIC Office of Minority and Women
Inclusion (OMWI). OMWI has responsibility for oversight of the Small
Business Resource Effort.
Building a Business Plan
14
Executive Summary
• A Business Plan identifies key areas of your business so you can maximize
the time you spend on generating income.
• Key investors will want to look at your Business Plan before providing
capital.
• A Business Plan helps you start and keep your business on a successful
path.
• You should prepare a Business Plan, although, in reality, many small
business owners do not.
Building a Business Plan
15
What is a Business Plan?
• A Business Plan is a written document that defines the goals of your
business and describes how you will attain those goals.
• A Business Plan is worth your considerable investment of time, effort, and
energy.
• A Business Plan sets objectives, defines budgets, engages partners, and
anticipates problems before they occur.
Building a Business Plan
16
10 Reasons Why You Need a Strong
Business Plan
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
To attract investors.
To see if your business ideas will work.
To outline each area of the business.
To set up milestones.
To learn about the market.
To secure additional funding or loans.
To determine your financial needs.
To attract top-level people.
To monitor your business.
To devise contingency plans.
Building a Business Plan
17
How Detailed Should
Your Plan Be?
• Business plans differ widely in their length, appearance, content, and the
emphasis placed on different aspects of the business.
• Depending on your business and your intended use, you may need a very
different type of Business Plan:
– Mini-plan: Less emphasis on critical details. Used to test your assumptions,
concept, and measure the interest of potential investors.
– Working Plan: Almost total emphasis on details. Used continuously to review
business operations and progress.
– Presentation Plan: Emphasis on marketability of the business concept. Used
to give information about the business to bankers, venture capitalists, and
other external resources.
Building a Business Plan
18
Assembling a Business Plan
Every Business Plan should include some essential components:
– Overview of the Business: Describes the business, including its products and
services.
– The Marketing Plan: Describes the target market for your product and
explains how you will reach that market.
– The Financial Management Plan: Details the costs associated with operating
your business and explains how you will pay for those costs, including the
amount of financing you may need.
– The Operations and Management Plan: Describes how you will manage the
core processes of your business, including use of human resources.
Building a Business Plan
19
Seven Common Parts of a
Good Business Plan
• Business plans must help investors understand and gain confidence on
how you will meet your customers’ needs.
• Seven common parts of a good Business Plan are:
1.
2.
3.
4.
5.
6.
7.
Executive Summary
Business Concept
Market Analysis
Management Team
Marketing Plan
Financial Plan
Operations and Management Plan
Building a Business Plan
20
Part 1: Executive Summary
• The Executive Summary of a Business Plan is a 3-5 page introduction to
your Business Plan.
• The Executive Summary is critical, because many individuals (including
venture capitalists) only read the summary.
• The Executive Summary section includes:
– A first paragraph that introduces your business.
•
•
•
•
Your business name and location.
A brief explanation of customer needs and your products or services.
The ways that the product or service meets or exceeds the customer needs.
An introduction of the team that will execute the Business Plan.
– Subsequent paragraphs that provide key details about your business, including
projected sales and profits, unit sales, profitability, and keys to success.
– Visuals that help the reader see important information, including highlight
charts, market share projections, and customer demand charts.
Building a Business Plan
21
Part 2: Business Concept
• The business concept shows evidence that a product or service is viable
and capable of fulfilling an organization's particular needs.
• The Business Concept section:
– Articulates the vision of the company, how you plan to meet the unique needs
of your customer, and how you plan to make money doing that.
– Discusses feasibility studies that you have conducted for your products.
– Discusses diagnostics sessions you had with prospective customers for your
services.
– Captures and highlights the value proposition in your product or service
offerings.
Building a Business Plan
22
Part 3: Market Analysis
• A Market Analysis defines the target market so that you can position your
business to get its share of sales.
• A Market Analysis section:
–
–
–
–
–
–
Defines your market.
Segments your customers.
Projects your market share.
Positions your products and services.
Discusses pricing and promotions.
Identifies communication, sales, and distribution channels.
Building a Business Plan
23
Part 4: Management Team
The Management Team section outlines:
– Organizational Structure: Highlights the hierarchy and outlines responsibilities
and decision-making powers.
– Management Team: Highlights the track record of the company’s managers.
You may also offer details about key employees including qualifications,
experiences, or outstanding skills, which could add a competitive edge to the
image of the business.
– Working Structure: Highlights how your management team will operate
within your defined organizational structure.
– Expertise: Highlights the business expertise of your management and senior
team. You may also include special knowledge of budget control, personnel
management, public relations, and strategic planning.
– Skills Gap: Highlights plans to improve your company’s overall skills or
expertise. In this section, you should discuss opportunities and plans to
acquire new information and knowledge that will add value.
– Personnel Plan: Highlights current and future staffing requirements and
related costs.
Building a Business Plan
24
Part 5: Marketing Plan
 The Marketing Plan section details what you propose to accomplish,
and is critical in obtaining funding to pursue new initiatives.
 The Marketing Plan section:
– Explains (from an internal perspective) the impacts and results of past
marketing decisions.
– Explains the external market in which the business is competing.
– Sets goals to direct future marketing efforts.
– Sets clear, realistic, and measurable targets.
– Includes deadlines for meeting those targets.
– Provides a budget for all marketing activities.
– Specifies accountability and measures for all activities.
Building a Business Plan
25
Part 6: Financial Plan
(Slide 1 of 2)
• The Financial Plan translates your company's goals into specific financial
targets.
• The Financial Plan section:
– Clearly defines what a successful outcome entails. The plan isn't merely a
prediction; it implies a commitment to making the targeted results happen
and establishes milestones for gauging progress.
– Provides you with a vital feedback-and-control tool. Variances from
projections provide early warnings of problems. When variances occur, the
plan can provide a framework for determining the financial impact and the
effects of various corrective actions.
– Anticipate problems. If rapid growth creates a cash shortage due to
investment in receivables and inventory, the forecast should show this. If next
year's projections depend on certain milestones this year, the assumptions
should spell this out.
Building a Business Plan
26
Part 6: Financial Plan
(Slide 2 of 2)
• The Financial Plan is the most essential part of your Business Plan. It
shows investors the timeframes you have scheduled to make profits.
• Some elements of the Financial Plan include:
–
–
–
–
–
–
–
–
Important Assumptions
Key Financial Indicators
Break-even Analysis
Projected Profit and Loss
Projected Cash Flow
Projected Balance Sheet
Business Ratios
Long-term Plan
Building a Business Plan
27
Different Financial Planning Options (Slide
1 of 2)
 Short-term Forecast: Projects either the current year or a rolling 12month period by month. This type of forecast should be updated at least
monthly and become the main planning and monitoring vehicle.
 Budget: Translates goals into detailed actions and interim targets. A
budget should provide details, such as specific staffing plans and lineitem expenditures.
– The size of a company may determine whether the same
model used to prepare the 12-month forecast can be
appropriate for budgeting.
– In any case, unlike the 12-month forecast, a budget should
generally be frozen at the time they are approved.
Building a Business Plan
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Different Financial Planning Options (Slide
2 of 2)
 Strategic Forecast: Incorporates the strategic goals of the company into
the projections. For startup companies, the initial Business Plan should
include a month-by-month projection for the first year, followed by
annual projections for a minimum of three years.
 Cash Forecast: Breaks down the budget and 12-month forecast into more
detail. The focus of these forecasts is on cash flow, rather than
accounting profit, and periods may be as short as a week in order to
capture fluctuations.
Building a Business Plan
29
Part 7: Operations and Management
• The Operations and Management section outlines how your company will
operate.
• The Operations and Management section includes:
– Organizational structure of the company. Provides a basis for projected
operating expenses and financial statements. Because these statements are
heavily scrutinized by investors, the organizational structure has to be welldefined and realistic within the parameters of the business.
– Expense and capital requirements to support the organizational structure.
Provides a basis to identify personnel expenses, overhead expenses, and costs
of products/services sold. These expenses/costs can then be matched with
capital requirements.
Building a Business Plan
30
Key Takeaways From This Module
• Business Plans are critical for the success of a company.
• Different businesses will require different types of Business Plans.
• All Business Plans have some essential sections that explain the core
aspects of the company.
• In order to help your company have a better chance of gaining interest
and investors, a Business Plan should include seven essential sections:
1.
2.
3.
4.
5.
6.
7.
Executive Summary
Business Concept
Market Analysis
Management Team
Marketing Plan
Financial Plan
Operations and Management Plan
Building a Business Plan
31
Sources and Citations
• Small Business Administration, Business Planning, How To Prepare a
Business Plan
• Gary Cadenhead, No Longer Moot
• Shirleen Glasin, ProSidian Consulting, Building a Business Plan
• Entrepreneur.com, Small Business Encyclopedia, Business Plans
• AllBusiness, A D&B Company, 10 Reasons Why You Need a Strong Business
Plan
• Business Owners Toolkit, Total Know-How for Small Businesses
Building a Business Plan
32
CHAPTER 5
FORECASTING MARKET DEMAND AND
SALES BUDGETS
LEARNING OBJECTIVES
The process of forecasting helps an organization make
decisions; it is necessary for determining information
about future markets. This chapter should help you
understand:
 The importance of forecasting in a firm’s marketing
decision
support system.
 The uses and different categories of sales forecasts.
 The two forecasting methods – survey and
mathematical – and
their different uses.
 That the responsibility for approving the final
forecast rests at
the top management level.
 The need for knowledge of computers, because they
are used
in forecasting and developing sales
budgets.
MANAGING SALES INFORMATION
“Our charge is to design, build, and implement
decision support systems that help our field and
marketing managers make business decisions.”
Dan McKee
Marketing decision support
systems
manager for Marion Merrell Dow,
Inc.
FORECASTING MARKET DEMAND
A marketing decision support system (MDSS) is
an ongoing, future-oriented structure designed
to generate, process, store, and later retrieve
information to aid decision making in an
organization’s marketing program. It involves
problem-solving technology composed of
people, knowledge, software, and hardware
“wired” into the sales management process.
USES OF SALES FORECASTS
A sales forecast is the estimated dollar or unit
sales for a specific future time period based on a
proposed marketing plan and an assumed
market environment.
A sales forecast is important for at least five reasons:
1. A sales forecast becomes a basis for setting and
maintaining a production schedule – manufacturing.
2. It determines the quantity and timing of needs for labor,
equipment, tools, parts, and raw materials – purchasing,
personnel.
3. It influences the amount of borrowed capital needed to
finance the production and the necessary cash flow to
operate the business – controller.
4. It provides a basis for sales quota assignments to various
segments of the sales force – sales management.
5. It is the overall base that determines the company’s
business and marketing plans, which are further broken
down into specific goals – marketing officer.
FIGURE 5.1 PLANNING/FORECASTING/BUDGETING SEQUENCE
Marketing Plan
Sales Forecasts
Sales Force Budget
THE FORECASTING PROCESS
The forecasting process refers to a
series of procedures used to
forecast.
A market factor is an item or element
that (1) exists in a market, (2) may be
measured quantitatively, and (3) is
related to the demand for a product
or service.
A market index is simply a market
factor expressed as a percentage
relative to some base figure.
FIGURE 5.2 THE FORECASTING PROCESS
F
orecast
O
bjective
Determine Dependent and
Independent Variables
D
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valuateR
esults
versusF
orecast
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FIGURE 5.3 BASIC STEPS IN BREAKDOWN METHOD OF FORECASTING SALES
General Environment Forecast
Industry Sales Forecast
Company Sales Potential
Company Sales Forecast
Product Lines
Individual Products
Customers-Territories-Regions-Divisions-U.S.A.-World
for
Industry sales forecast, or market
potential, is the estimated sales for
all sellers.
Company sales potential is the
maximum estimated or potential
sales the company may reach in a
defined time period under given
conditions.
The company’s share of the
estimated sales for an entire
industry is referred to as market
share.
SALES FORECASTING METHODS
Two categories of sales forecasting methods exist:
• Survey methods are qualitative and
include
executive opinion, sales
force composite,
and customer’s
intention surveys.
• Mathematical methods are test
markets,
market factors, naïve
models, trend analysis, and
correlation analysis.
FIGURE 5.4 THE MORE POPULAR OF MANY FORECASTING METHODS
S
u
r
v
e
y
M
e
t
h
o
d
s
Executive
Opinion
User’s
Expectation
Sales Force
Composite
M
a
t
h
e
m
a
t
i
c
a
l
M
e
t
h
o
d
s
Test Market
Build-toOrder
N
a
i
v
e
Moving
Average
Regression
T
r
e
n
d
Exponential
Smoothing
SURVEY FORECASTING METHODS
Four basic survey methods are
• Executive Opinion
• Sales Force Composite
• User’s Expectations
• Build-to-Order
Executive Opinion
Executive forecasting is done in two
ways:
1. By one seasoned individual
(usually in a small company).
2. By a group of individuals,
sometimes called a “jury of
executive opinion.”
The group approach uses two methods:
1. Key executives submit the
independent estimates without
discussion, and these are averaged
into one forecast by the chief
executive.
2. The group meets, each person
presents separate estimates,
differences are resolved, and a
consensus is reached.
Delphi Method
Administering a series of
questionnaires to panels of
experts.
Sales Force Composite
Obtaining the opinions of sales
personnel concerning future
sales.
User’s Expectations
Consumer and industrial
companies often poll their actual
or potential customers.
Build-to-Order
Companies build final products only
after firm orders are placed.
MATHEMATICAL FORECASTING
METHODS
Test markets are a popular
method of measuring consumer
acceptance of new products.
Time Series Projections
Time series methods use
chronologically ordered raw data.
Classical approach to time series analysis:
• The trend component.
• The seasonal component.
• The cyclical component.
• The erratic component.
Naïve Method
Next Year’s Sales = This Year’s
Sales X
This Year’s
Sales
Last Year’s
Sales
Moving Average
Moving averages are used to allow
for marketplace factors changing at
different rates and at different times.
TABLE 5.1 EXAMPLE OF MOVING-AVERAGE FORECAST
PERIOD
SALES
VOLUME
1
200
2
250
3
300
750
4
350
900
300
5
450
1100 ( 3) =
366.6
6
?
Period 6 Forecast = 366.6
SALES FOR
THREE-YEAR
THREE-YEAR PERIOD MOVING AVERAGE
Exponential Smoothing
Exponential smoothing is similar to the
moving-average forecasting method. It
allows consideration of all past data, but
less weight is placed on data as it ages.
Next Year’s Sales = a (This Year’s Sales) + (1-a) (This Year’s
Forecast)
Trend Projections – Least Squares
Eyeball fitting is simply a plot of the
data with a line drawn through them
that the forecaster feels most
accurately fits the linear trend of the
data.
FIGURE 5.6 A TREND FORECAST OF SALES
Observed Sales
Forecast Sales
600
500
Sales
400
Trend
Line
300
200
100
0
1984
1985
1986
1987
Time
1988
1989
1990
Regression Analysis
Regression analysis is a statistical method used
to incorporate independent factors that are
thought to influence sales into the forecasting
procedure.
Linear Relationship
Curvilinear Relationship
Sales
Sales
FIGURE 5.7 REGRESSION ANALYSIS
0
Population
(A)
0
Population
(B)
)
W
M hi
Yo eth ch
u od Fo
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se h ca
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an ncr Ba Yo
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et ur cy
ho
d?
FIGURE 5.8 QUESTIONS TO ANSWER TO IMPROVE CHANCES OF HITTING THE
FORECASTING BULL’S-EYE
F
Have You Developed
a Good
Sales Forecasting
Process?
Market Decision Support System
Breakdown
Use Multiple
Forecasting
Methods
Buildup
140%
130%
120%
110%
O
R
E
C
A
S
T
r
te
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om He
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th a
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ul So
Co nd
a
e
s id ?
ut lp
O e
d sH
ul ce
Co our
S
90%
80%
70%
60%
TABLE 5.2 GUIDE TO FORECASTING
FORCASTING
METHOD
TIME SPAN
MATHEMATICAL
SOPHISTICATION
COMPUTER
NEED
ACCURACY
Executive Opinion
Short to medium
Minimal
Not essential
Limited
Delphi Method
Medium to long
Minimal
Not essential
Limited; good in dynamic
conditions
Sales Force Composite
Short to medium
Minimal
Not essential
Accurate under dynamic conditions
User’s Expectations
Short to medium
Minimal
Not essential
Limited
Test Markets
Medium
Needed
Needed
Accurate
Naïve Method
Present to medium
Minimal
Not essential
Limited
Moving Average
Short to long
Minimal
Helpful
Accurate under stable conditions
Exponential Smoothing
Short to medium
Minimal
Helpful
Accurate under stable conditions
Least Squares
Short to long
Needed
Desirable
Varies widely
Regression Analysis
Short to Medium
Needed
Essential
Accurate if variable relationships
stable
THE SALES MANGAGER’S BUDGET
The sales force budget is the amount of money
available or assigned for a definite period,
usually one year.
BUDGET PURPOSES
• Planning
• Coordination
• Control
TABLE 5.3 SALES FORCE OPERATING COSTS
1. Base salaries
4. Special incentives
a. Management
5. Office expenses
b. Salespeople
6. Product samples
2. Commissions
7. Selling aids
3. Other compensation
8. Transportation expenses
a. Social Security
b. Retirement plan
c. Stock options
d. Hospitalization
9. Entertainment
10. Travel
BUDGETS SHOULD BE FLEXIBLE
Sales, costs, prices, or the competition’s
marketing efforts are some factors that
may be higher or lower than expected.
THE BOTTOM LINE
Because of the growing trend in business to centralize
data collections, the job of forecasting has become an
integral part of a firm’s marketing decision support
system (MDSS).
A sales forecast is the estimated dollar or unit sales for
a specific future period based on a proposed marketing
plan and an assumed market environment.
Firms know sales forecasting is never 100 percent
correct.
Two categories of sales forecasting methods are
survey methods and mathematical methods.
Because the sales forecast has a major impact on the
company, the top executives give final approval.
To create a sales forecast, sales managers should
know how to use a computer.
Carnegie Mellon
Budget Theory
Why Budget and Forecast?
Internal financial control by department
Impacts decisions at higher levels of the University
Reporting responsibility to University
management
Deans, VPs, President, Provost
Reporting responsibility to Board of Trustees
Three meetings per year plus executive
sessions
Reporting responsibility to bond holders
Importance of good budgets and good forecasts.
Budget and Forecast Timeline
Late August – Guidelines sent to campus for the fall
financial review
Late October – Formal financial review with the
Provost and
CFO of the current year forecast and
the proposed
budget for the next three years
Mid November – Review of projections with
university management
Late November – Revised guidelines sent to campus
for the
winter financial review
Budget and Forecast Timeline
Mid January - Formal financial review with the
Provost and
CFO of the current year forecast and
the proposed
budget for the next three years
Mid February – Review of projections with university
management and the Board of Trustees
Mid February – Revised guidelines sent to campus
for the final
changes to budgets that will go the
Board of Trustees in May
Mid May – Board of Trustees review and approval of
next fiscal year budget
End of June – Budgets finalized in Oracle
Budget and Forecast Timeline
Financial Review
Review financial position
Operating budget surplus / deficit
Research update
Future commitments
Capital project requests
Deficit review
Other issues
Carnegie Mellon
How Do We Budget and Forecast?
How to Budget and Forecast
Information Needed to Start Your Budget or Forecast
Input is required from many sources
Department management
Key personnel in the department (PIs,
systems
support, faculty that
control significant
funding from
any source including
discretionary
funds, etc.)
Financial assumptions from university
management (salary pool,
benefits rates,
sponsored projects F&A
rates, tuition
growth, etc.)
Most Important -- Your knowledge of your
organization and business, including its
current
financial status
How to Budget and Forecast
Information Needed to Start Your Budget or Forecast
Financial Reports
Operating Statement
Funding Source Detail
Financial Review Reports
Allocation Letter
Salary Information
Planning Assumptions
Application Desktop Integrator (ADI)
Budget Development Integrator (BDI)
Most Important -- Your knowledge of your
organization and business, including its
current
financial status
How to Budget and Forecast
First Steps Depend Upon Your Organization
What is the largest part of your budget?
By funding type?
By expense type?
Does one portion of your budget depend upon
another
portion of the budget?
How to Budget and Forecast
Review of Operating Statement and Funding Source
Detail Statement
General Operating Funding Sources
Represents your department’s operating budget -university allocation, summer programming, executive
education, INI masters program, Heinz, GSIA, unrestricted
contributions
Allocation Budget
Base Allocation - Funding Source 000002 - Revenue code
71100
One-Time Allocation - Funding Source 000003 - Revenue
code
71200
of
In many cases, salaries and benefits are the largest part
the budget.
General Operating Funding Sources
Allocation Budget continued
Can segregate revenues, expenses, and transfers by
activity
codes for analysis purposes.
First budget the monthly expense and transfer portion of
the
budget as these will be incurred, ensuring that the
total
equals the allocation, then match allocation
revenue
monthly to net to zero.
The actual allocation revenue each month will equal the
budget.
General Operating Funding Sources
General Unrestricted - Funding Source 000001 (GL) or 000005 (GM)
Note: Very few organizations on campus use funding source
000005
Budget revenues and expenses monthly as they will be
incurred.
Budget transfers to / from the operating reserve as needed.
Allocations revenue can be budgeted / forecasted as follows:
One Time Allocation Revenue DIVISION – revenue
object
code 71210 – revenue allocated to the
department
by the division.
Central Allocation Adjustments – Revenue code 71250
(Used for current year forecasts only for
central
funding approved during the current fiscal year)
NOTE: When forecasting general operating, you may use only one
funding source. Be sure not to double count budget and forecast
dollars.
General Operating Funding Sources
Other Issues to Consider
Tuition that is split between colleges or departments –
use the IC
tuition object codes to record the tuition
transfer in both
units (65100 for IC UG tuition
transfer, 61502 IC graduate
tuition transfer)
Financial aid can be paid by the university (financial aid)
or paid by
the students from their university wages
(graduate student
wages). The first is a reduction in
revenue, the second is an
expense. Split financial aid
between undergraduate (75100)
and graduate (75102).
Budget tuition revenue and financial aid as they will be
incurred,
including an estimate of the quarterly
deferral for revenue
recognition.
General Institutional Funding Source
Represents general university expenses -Insurance, legal expenses, general banking fees, external
audit
services, commencement , diplomas, etc.
Allocation Budget
Base Allocation - Funding Source 000004 - Revenue
code 71100
Budget expenses monthly as they will be
incurred.
Budget allocation revenue monthly to net budget
to zero.
Other General Institutional - Funding Source 000004
Budget revenues, expenses, and transfers
monthly
as they will be incurred.
Designated Operating Funding Sources
Operating Reserve - Funding Source 060000
Budget transfers to / from other funding sources as they
will
be incurred. Ensure that transfers match.
Cost Sharing - Funding Source 063000
Any costs incurred and funded by the university that can
be
directly attributable as support to an existing
sponsored
project.
Expenses are budgeted in grants by project, task and
cost sharing award.
Transfers to fund cost sharing and expenses are
budgeted in
summary in the GL.
The university funds Facilities & Administration expense
in cost
sharing. Either the department or the university
can fund the direct cost sharing expense per agreement.
Designated Operating Funding Sources
Other Designated Operating Funding Sources
Faculty Discretionary Funds - Funding Source 061000
Internally Funded Projects - Funding Source 062000
Faculty Development Grants - Funding Source 064000
SURG - Funding Source 065000
Affiliate Programs - Funding Sources 066000-069999
Technology Transfer - Funding Sources 800000-809999
Royalties are transferred to the departments and
colleges.
Do not budget beginning net assets. These are
generated yearly by the University based on prior year ending
net asset actuals.
Sponsored Projects Funding Sources
Federal Sponsors - Funding Sources 071000 - 075000
Army, Air Force, Navy, Department of Energy
Non-Federal Sponsors - Funding Sources 081000 083020
Industry, State Government, Affiliate Sponsors
Future Funding - Funding Source 089000
Sponsored Projects Funding Sources
Sponsored projects are budgeted in detail in the
Grants
Management module of Oracle.
Award identifies the type of funding or revenue
source.
Project and task define the work to be done -budget expenses as they will be
incurred.
Salary budgeting and balancing is important.
Sponsored Projects Funding Sources
Sponsored projects then need to be summarized and
budgeted in GL by funding source.
Revenues, expenses, and transfers should be
budgeted as they will be
incurred. Do not
budget beginning net assets. These are
generated yearly by the University based on
prior year ending net asset actuals.
Issues to be considered
Use of Budget Management Spreadsheet (BMS)
for
actuals, budgets, GL funding
sources, etc.
Budgeting / forecasting in future funding
Sponsored Projects Funding Sources
Other Issues to Consider
Status of current contracts in hand
Status of open proposals
Department trends in win / loss on proposals
Historical sponsored projects trends for the
department
Current information of the status of the funding
from
your major sponsors
Timing of revenue recognition (revenue,
transfers)
Required cost sharing and funding
Auxiliary Funding Source
Auxiliary - Funding Source 050000
Auxiliaries include operations such as Dining, Housing,
Parking, Printing, Retail, Telecom
Identified as a unique entity in Oracle to allow it to be analyzed
as a
stand-alone business -- operating statement, balance sheet,
cash flow.
Auxiliaries are expected to cover all of their costs, so university
overhead is charged to each auxiliary.
Revenues are based on business generated by the auxiliary.
Expenses will often be directly related to revenues.
Many auxiliaries carry inventories.
Auxiliary Funding Source
Budget revenues, expenses, and transfers monthly as they will
be incurred.
Do not budget beginning net assets. These are generated
yearly by the University based on prior year ending net asset
actuals.
Capital is charged to the balance sheet, not the operating
budget
Depreciation expense is charged to all auxiliaries. Consider
items that will become fully depreciated during the planning
cycle, as well as new capital that will need to be depreciated.
For internal loans, interest is expensed; principal payments are
charged to the balance sheet.
Any surplus or deficit falls to the bottom line (net assets) and is
carried forward to the next fiscal year.
Business is evaluated on cash flow.
Recharge Center Funding Source
Recharge Centers - Funding Source 055000
Charge services to other parts of the campus.
Budget revenues, expenses, and transfers monthly as they will
be
incurred.
Do not budget beginning net assets. These are generated
yearly by the University based on prior year ending net asset
actuals.
Any surplus or deficit falls to the bottom line (net assets) and is
carried forward to the next fiscal year (Note:
surpluses cannot be
used by other parts of the
department or university).
The recharge center is expected to build prior year balances
into future pricing.
Unrestricted Endowment Funding Sources
Unrestricted Endowment - Funding Sources 000100 - 049999
The endowment is much like a mutual fund. The gift buys
shares in the endowment, and a yearly distribution of income is
made based on shares.
Budget endowment revenue at the beginning of each quarter;
budget expenses as they will be incurred.
Do not budget beginning net assets. These are generated
yearly by the University based on prior year ending net asset
actuals.
Balances carry forward into the next fiscal year.
Temporarily Restricted Funding Sources
Temporarily Restricted Endowment - Funding Sources 100000 199999
Temporarily Restricted Contributions - Funding Sources 200000
- 299999
Revenue must be spent per donor specifications.
Budget endowment revenue at the beginning of each
quarter;
budget gift revenue as it will be realized;
budget expenses as they will be incurred. DO NOT BUDGET
TRANSFERS.
Do not budget beginning net assets. These are
generated yearly by the University based on prior year ending
net asset actuals.
Balances carry forward into the next fiscal year
Capital Reserve Funding Source
Capital Reserves - Funding Source 090100
Budget transfers to / from other funding sources as
they will be incurred. Ensure that transfers match.
Do not budget beginning net assets. These are
generated yearly by the University based on prior
year ending net asset actuals.
Agency Funding Sources
Agencies - Funding Sources 900000 - 910000
Not included on the operating statement.
Represents a group outside of the university that uses the
university’s services and then either repays the university or is
funded by the university.
Unique object code for university funding -- 85802 - Agency
Funding
Examples include student organizations, clubs, etc.
May have university phone service, copy service, etc.
How to Budget and Forecast
Other Issues to Consider
When forecasting gifts, consider past trends
plus any
knowledge that you have on
future prospects.
When forecasting salaries, consider the
following:
Source of funding for faculty, staff, and
students
– salaries and benefits need to
be budgeted
in the proper funding
source.
Include new employees with the best
estimate of
where their time will be
charged.
Graduate wages must be split into
stipends
and tuition.
How to Budget and Forecast
Other Issues to Consider
When forecasting other operating expenses,
consider
any extraordinary spending in
the current year
that will not be required
in future years, as well as
any new initiatives
that will require funding for
the first time.
When forecasting capital expenditures,
consider any
extraordinary spending
in the current year that
will not be
required in future years, as well as any
new
initiatives that will require funding for the
first time.
How to Budget and Forecast
Other Issues to Consider
Balance transfers within your organization – i.e.
to fund
a deficit in operations, reflect the
debit in the
designated operating
reserve and the credit in
general
operating.
Include transfers to fund capital projects.
Coordinate all transfers, IC graduate tuition
transfers, IC
undergraduate tuition
transfers, IC educational
program transfers,
and IC other income for
Portugal
transfers with the organization that is
forecasting the other side of the entry to ensure
that all your numbers agree and will
balance
across the university.
How to Budget and Forecast
Funding Source Mapping – Operating Statement to
Financial Review
Financial Review – General Operating
General Operating
General Institutional
Financial Review – Sponsored Projects
Sponsored Projects
Financial Review – Auxiliary / Recharge
Auxiliary
Recharge
Financial Review – Designated
Designated
Unrestricted Endowment
Capital Reserve
Financial Review – Temporarily Restricted
Temporarily Restricted
How to Budget and Forecast
Verify your budgets and forecasts in Oracle.
Run Financial Review Reports report set
Run Budget Reports report set
Review yearly historical trends versus future
yearly
growth
PURPOSE AND USE OF
BUDGET PLANNING MODELS
Donna Kidd, Associate Vice President
George Mason University
[email protected]
Barbara Maddox, Director of Budget Operations
George Mason University
[email protected]
Southern Association for Institutional Research Annual Forum/VAMAP Budget Officers
Track
October 17, 2006
 WHY IS A BUDGET PLANNING MODEL
NECESSARY?
 WHAT IS ACHIEVED WITH A BUDGET PLANNING
MODEL?
• WHY IS A BUDGET PLANNING
MODEL NECESSARY?
– Set priorities for the institution in pursuit of
achieving goals
– Identify highest priorities to be
accomplished with available funds
• WHY IS A BUDGET PLANNING
MODEL NECESSARY?
– Identify and plan for future programmatic
needs
– Identify and plan for financial resources
needed to support overall activity
• WHY IS A BUDGET PLANNING
MODEL NECESSARY?
– Identify and project financial resources
available
– Identify and incorporate enrollment, staff,
facility, and financial data into overall plan
• WHAT IS NEEDED FOR A GOOD
BUDGET PLANNING MODEL?
– Document all assumptions clearly
– Document assumptions for revenue and
expenditures separately
– Review and update assumptions on a
regular basis
• WHAT IS NEEDED FOR A GOOD
BUDGET PLANNING MODEL?
– Begin with two years of actual data to
build plan data for future years
– Review and update data on a regular basis
• WHAT IS NEEDED FOR A GOOD
BUDGET PLANNING MODEL?
– Set a model that is flexible for easy
changes for all key factors (salary
increases, enrollment, etc.)
– Set a model that is flexible for easy
modeling and what-if’s
• WHAT IS NEEDED FOR A GOOD
BUDGET PLANNING MODEL?
– Provide summary data for presentation to
executive administration
– Provide back-up detail to address answers
to specific questions as needed
• WHAT IS NEEDED FOR A GOOD BUDGET PLANNING
MODEL?
– Share the model on a regular basis with
other audiences within the institution
– One of the most important things is to
share the model on a regular basis with
Board of Visitors or appropriate governing
body
• WHAT ARE COMPONENTS OF A GOOD BUDGET
PLANNING MODEL?
– Multi-Year (three to five years plan with
two years actual)
– Develop separate models for Educational
& General and Auxiliary Enterprises
activities
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Sources of funds by major category
– Uses of funds by major category
 WHAT ARE COMPONENTS OF A GOOD BUDGET
PLANNING MODEL?
 Total enrollment by year (fte
enrollment)
 Assumptions for in-state versus outof-state enrollment
 WHAT ARE COMPONENTS OF A GOOD BUDGET
PLANNING MODEL?
 FTE staff by category by year
 Compensation increases by
category by year
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Base funding by year
– Fixed cost increase requirements by year
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Inflationary costs by year
– Special programming needs by year
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Funding by source of funds – state, tuition,
other
– Expense by major category – salaries,
benefits, direct expenses
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Institutional funding set-aside for financial
aid per year
– Projected tuition and fee rate increase per
year
• WHAT ARE COMPONENTS OF A
GOOD BUDGET PLANNING
MODEL?
– Revenue per fte student – state, tuition/
other by year
– Expense per fte student – total by year
A SAMPLE TEMPLATE FOR A
BUDGET PLANNING MODEL
Enrollment Per Year
Enrollment Growth per Year
REVENUE
STATE APPROPRIATION BASE
SPECIAL STATE ALLOCATION
ENROLLMENT STATE ALLOCATION
TUITION
OUT-OF-STATE MIX CHANGE
CAPITAL FEE O/S STUDENTS
HEETF FEE O/S STUDENTS
INTEREST INCOME
OTHER E&G REVENUE
TOTAL REVENUE
EXPENSE
PERSONNEL
NON-PERSONNEL
INFLATION
UTILITIES
INSURANCE
EQUIPMENT REPLACEMENT
EQUIPMENT MAINTENANCE
SPACE RENTAL
FACILITY DEFERRED MAINTENANCE
SECURITY
RESERVE
UNIT PROGRAM SUPPORT
BASE ADEQUACY SUPPORT
ENROLLMENT GROWTH SUPPORT
OPERATING FUNDS NEW FACILITIES
FINANCIAL AID
TOTAL EXPENSE
FUNDING SHORTFALL ANNUAL
REQUIRED TUITION RATE INCREASE
TUITION: NET TUITION ALLOCATION
TUITION (SET-ASIDE): STUDENT FINANCIAL AID
TUITION & FEES, ANNUAL : INSTATE
ANNUAL TUITION & FEE RATE INCREASE
GENERAL FUND PER FTES
TOTAL PER FTES
• IMPORTANT THINGS TO
REMEMBER –
– SHARE THE BUDGET PLANNING
MODEL ON A REGULAR BASIS SO
OTHERS UNDERSTAND WHAT THE
ASSUMPTIONS ARE
– ESPECIALLY IMPORTANT TO SHARE
WITH GOVERNING BODY
• IMPORTANT THINGS TO REMEMBER
–
– SHARING THE MODEL ON A REGULAR
BASIS ENSURES A SMOOTHER
APPROVAL OF ANNUAL BUDGETS AS
THERE ARE FEWER SURPRISES
GOOD LUCK AND HAVE FUN AS YOU
BUILD YOUR PLANNING MODEL!
QUESTIONS?