10/7/2014
The Budget Process
Developing the budget and gaining institutional buy-in.
The 2014 TRACS Annual Conference
Orlando, Florida
October 22, 2014
Jan M. Haas, Sr. VP,
Finance & Administration
The Budget Process
Developing the budget and gaining institutional buy-in.
Objectives
• Definition
• Relationship to
strategic planning
• Types of budgets
• Process preparation
• Presentation
• Monitoring
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The Budget Process
Developing the budget and gaining institutional buy-in.
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 expenditures.
Source: National Association of College and Universities Business Officers, College and University Business Administration, 4th Edition, 1982.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Definitions (continued)
• Budgeting is a management tool for both
planning and control.
• 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 way.
Source: Managerial Finance, Seventh Edition, J. Fred Watson & Eugene F. Brigham, The Dryden Press, Hinsdale, IL, 1981.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Bridge to Strategic Planning
Mission
Core Values
Vision
Goals/Strategies
Annual Plan
Budget
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The Budget Process
Developing the budget and gaining institutional buy-in.
Bridge 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
planning
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The Budget Process
Developing the budget and gaining institutional buy-in.
Operating Budget
• Revenue
• Expenses
Salary and Benefits
Operations
Capital Budget
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Relationship to the mission
Strategic importance
Multi year, committed projects
Essential projects (e.g., safety, accreditation)
Financial return (NPV, IRR, Break-Even)
Probability of success
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The Budget Process
Developing the budget and gaining institutional buy-in.
Factors Affecting the Budget Process
Internal Factors
• Mission
• Fiscal policies
• Compensation goals and policies
• Pricing policies
• Management style
• Accountability
• Debt policies
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The Budget Process
Developing the budget and gaining institutional buy-in.
Factors Affecting the Budget Process
External factors
• Sources of support
• Government regulations - OSHA, EPA, ADA, FERPA,
PPACA, Title IX, etc.
• Competition for students
• Demographic trends
• Inflation
Source: National Association of College and Universities Business Officers, College and University Business Administration, 4th Edition, 1982.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Process
• The process should communicate:
institutional priorities to various
constituencies,
identify specific commitments, and
establish preliminary control over
institutional resources.
• The result of this process is a document
that is used to monitor and control the
ongoing operations of an institution.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Process
Major participants include:
• The Governing Board
• Chief Executive Officer
• Senior Administrators
• Budget Officer
• Planning and Budgeting group
• Faculty
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The Budget Process
Developing the budget and gaining institutional buy-in.
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 process
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
1. Create a budget calendar
2. Determination and communication of budget
guidelines
3. Estimates of revenues and expenditures
4. Internal budget hearings with academic and
support units
5. Preparation of budget requests
6. Standards/Targets/Benchmarks
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
1. 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 approval
Source: Budgeting, Ken Martin, Ph.D., Messiah College, February 11, 2003.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
2. 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 programs
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
3. Estimating Revenues …
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Enrollment data
Economic conditions
Investment earnings
Revenues from gifts
Auxiliary enterprises
and Expenditures
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Improvement of existing programs
Development of new programs
Policies for salaries, promotions & employee benefits
Student-faculty ratios, class size, teaching loads
Increased costs
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
4. Internal budget hearings with academic and
support units
5. Preparation of budget request
Standardized forms
• Personnel
• Operating expenses
• Capital expenditures
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The Budget Process
Developing the budget and gaining institutional buy-in.
Preparation
6. Standards/Targets/Benchmarks
• Accreditation agency guidelines
• National association recommendations
• ABACC financial benchmarking
• State agency reports
• Key Performance Indicators
Source: Managerial Finance, Seventh Edition, J. Fred Watson & Eugene F. Brigham, The Dryden Press, Hinsdale, IL, 1981.
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The Budget Process
Developing the budget and gaining institutional buy-in.
Presentation
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Costs and benefits of offering programs
Consequences of reducing support services
Effects of demographic trends
Effects of other factors (both internal and external)
Assumptions
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The Budget Process
Developing the budget and gaining institutional buy-in.
Presentation (continued)
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Comparison to budgets of prior years
Explanations of major changes
Description of programs added or eliminated
Wage and salary policies
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The Budget Process
Developing the budget and gaining institutional buy-in.
Lessons 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 alliances
Source: Budgeting, Ken Martin, Ph.D., Messiah College, February 11, 2003.
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The Budget Process
Developing the budget and gaining institutional buy-in.
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” approach
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The Budget Process
Developing the budget and gaining institutional buy-in.
Q&A
Jan M. Haas
Sr. VP, Finance & Administration
[email protected]
www.cairn.edu
215-702-4312
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