Budget Theory

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• Budget Theory

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Two Questions

• Why Do We Budget and Forecast?
• Budget and Forecast Timeline
• How Do We Budget and Forecast?

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• Why Do We Budget and Forecast?

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Why Budget and Forecast?

• Budgets and Forecasts
• A budget is a formal expression of the plans for
  the operation for a specific period. This agreed
  upon plan is then frozen.
• A forecast is a projection of activity based upon
  the latest information.
• A budget or forecast is your best estimate of the
  departments financial results for a fiscal year.

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Why Budget and Forecast?

• Budgets and Forecasts
• Measure actuals and forecasts against the budget
  throughout the planning process.
• Analyze anticipated versus actual results.
• Predict future performance and anticipate
  changes.
• Assist in monitoring control of current
  performance.
• Provide early warning of deviations from plans.

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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.
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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
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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
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Budget and Forecast Timeline
Financial Review Review financial
position Operating budget surplus /
deficit Research update Future
commitments Capital project requests Deficit
review Other issues
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• How Do We Budget and Forecast?

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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 FA rates, tuition
growth, etc.) Most Important -- Your
knowledge of your organization and business,
including its current financial status
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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
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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?
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How to Budget and Forecast
Review of Operating Statement and Funding Source
Detail Statement
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General Operating Funding Sources
Represents your departments 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 In many
cases, salaries and benefits are the largest part
of the budget.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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Agency Funding Sources
Agencies - Funding Sources 900000 - 910000 Not
included on the operating statement. Represents
a group outside of the university that uses the
universitys 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.
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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.
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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.
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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.

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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 Finan
cial Review Designated Designated Unrestrict
ed Endowment Capital Reserve Financial Review
Temporarily Restricted Temporarily Restricted
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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