The Budget Process - TRACS

1 10/7/20141 The 2014 TRACS Annual ConferenceOrlando, FloridaOctober 22, 2014 Jan M. Haas, Sr. VP, Finance & AdministrationThe Budget ProcessDeveloping the Budget and gaining institutional Definition Relationship to strategic planning Types of budgets Process preparation Presentation MonitoringThe Budget ProcessDeveloping the Budget and gaining institutional 2 Definitions Institutional budgeting is the Process whereby the plans of an institution are translated into an itemized, authorized, and systematic plan of operation, expressed in dollars for a given period. Budgets are the blueprints for the orderly execution of program plans; they serve as control mechanisms to match anticipated and actual revenues and Budget ProcessDeveloping the Budget and gaining institutional 3 Source: National Association of College and Universities Business Officers, College and University Business Administration, 4thEdition, (continued) Budgeting is a management tool for both planning and control.

2 Fundamentally, the budgeting Process is a method to improve operations - a continuous effort to specify what should be done to get the job completed in the best possible Budget ProcessDeveloping the Budget and gaining institutional 4 Source: Managerial Finance, Seventh Edition, J. Fred Watson & Eugene F. Brigham, The Dryden Press, Hinsdale, IL, to Strategic PlanningBudgetThe Budget ProcessDeveloping the Budget and gaining institutional 5 MissionCore ValuesVisionGoals/StrategiesAnnual PlanBridge to Strategic Planning Coordinated effort of strategy and budgeting Effective translation of annual plan to a financial plan (the Budget ) Standard framework for both annual and financial planningThe Budget ProcessDeveloping the Budget and gaining institutional 610/7/20143 Operating Budget Revenue Expenses Salary and Benefits OperationsCapital Budget Relationship to the mission Strategic importance Multi year, committed projects Essential projects ( , safety, accreditation) Financial return (NPV, IRR, Break-Even)

3 Probability of successThe Budget ProcessDeveloping the Budget and gaining institutional 7 Factors Affecting the Budget ProcessInternal Factors Mission Fiscal policies Compensation goals and policies Pricing policies Management style Accountability Debt policiesThe Budget ProcessDeveloping the Budget and gaining institutional 8 Source: National Association of College and Universities Business Officers, College and University Business Administration, 4thEdition, Affecting the Budget ProcessExternal factors Sources of support Government regulations -OSHA, EPA, ADA, FERPA, PPACA, Title IX, etc. Competition for students Demographic trends InflationThe Budget ProcessDeveloping the Budget and gaining institutional 910/7/20144 Process The Process should communicate: institutional priorities to various constituencies, identify specific commitments, and establish preliminary control over institutional resources.

4 The result of this Process is a document that is used to monitor and control the ongoing operations of an Budget ProcessDeveloping the Budget and gaining institutional 10 ProcessMajor participants include: The Governing Board Chief Executive Officer Senior Administrators Budget Officer Planning and Budgeting group FacultyThe Budget ProcessDeveloping the Budget and gaining institutional 11 Key Success Factors Process must provide a clear mission as well as strategic and financial context for decision making Overall capacity should be communicated early in the Process Budget calendar must provide adequate timeframes for completion of tasks A Process for ongoing feedback should be implemented to promote continuous improvement of the processThe Budget ProcessDeveloping the Budget and gaining institutional 1210/7/20145 Preparation1.

5 Create a Budget calendar2. Determination and communication of Budget guidelines3. Estimates of revenues and expenditures4. Internal Budget hearings with academic and support units5. Preparation of Budget requests6. Standards/Targets/BenchmarksThe Budget ProcessDeveloping the Budget and gaining institutional 13 Source: Budgeting, Ken Martin, , Messiah College, February 11, Develop a Budget calendar Leadership discusses preliminary targets Present Budget parameters to Budget group Set Budget targets Distribute Budget materials Budget workshops Budget submissions reviewed Reviews consolidated for leadership Report to Finance Committee Board of Trustees approvalThe Budget ProcessDeveloping the Budget and gaining institutional 14 Preparation2. Determination and communication of Budget guidelines Salary and wage increases Tuition rates Levels of support for student aid Increased operational expenses Improvements in certain programs Implementation f new programs Reduction or elimination of existing programsThe Budget ProcessDeveloping the Budget and gaining institutional 1510/7/20146 Preparation3.

6 Estimating Revenues .. Enrollment data Economic conditions Investment earnings Revenues from gifts Auxiliary enterprisesand Expenditures Improvement of existing programs Development of new programs Policies for salaries, promotions & employee benefits Student-faculty ratios, class size, teaching loads Increased costsThe Budget ProcessDeveloping the Budget and gaining institutional 16 Preparation4. Internal Budget hearings with academic and support units5. Preparation of Budget requestStandardized forms Personnel Operating expenses Capital expendituresThe Budget ProcessDeveloping the Budget and gaining institutional 17 Source: Managerial Finance, Seventh Edition, J. Fred Watson & Eugene F. Brigham, The Dryden Press, Hinsdale, IL, Standards/Targets/Benchmarks Accreditation agency guidelines National association recommendations ABACC financial benchmarking State agency reports Key Performance IndicatorsThe Budget ProcessDeveloping the Budget and gaining institutional 1810/7/20147 Presentation Costs and benefits of offering programs Consequences of reducing support services Effects of demographic trends Effects of other factors (both internal and external) AssumptionsThe Budget ProcessDeveloping the Budget and gaining institutional 19 Presentation (continued)

7 Comparison to budgets of prior years Explanations of major changes Description of programs added or eliminated Wage and salary policiesThe Budget ProcessDeveloping the Budget and gaining institutional 20 Source: Budgeting, Ken Martin, , Messiah College, February 11, Learned New positions = permanent $ Leadership needs to assess departmental needs early in the Process Provide feedback on priorities and communicate decisions firmly Remain flexible Encourage staff to become involved in cost reduction efforts Communication builds alliancesThe Budget ProcessDeveloping the Budget and gaining institutional 2110/7/20148)Lessons Learned (continued) Decisions should be based on trends and introduce increment tally; it is difficult to retract Quick fixes can increase deferred maintenance with expensive consequences Managing the Budget Process is different than controlling revenues and expenditures Educate others by saying it often and in a variety of ways Avoid the shotgun approachThe Budget ProcessDeveloping the Budget and gaining institutional 22Q & AThe Budget ProcessDeveloping the Budget and gaining institutional M.

8 Haas Sr. VP, Finance &