Budgeting

1
Budgeting

• Budget Basics
• Presented by
• John W. Griffith and David Proulx

2
Presentation Overview

• Purpose of Budgets
• Key Components of Successful Budget Processes
• Roles and Responsibilities
• Major Phases of Budget Development
• Miscellaneous Topics

3
Purpose of Budgets

• Translation of Strategic Plans to annual
  objectives or actions
• Institutions Formal Financial Plan
• Communication of Priorities
• Control Structure

4
Key Components of Successful Budget

• Clear authority, responsibility, and
  accountability
• Establishment of priorities
• Collaborative, consultative decisions
• Clear, concise performance expectations
• Continuous, effective communication
• Good data

5
USNH Budget Process
State of NH
USNH
UNH
RC Unit
Departmental
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Budget OwnershipRoles and Responsibilities in
the Budget Process

• Business Officers
• Changing role
• Traditional Role CONTROLler
• New Role CONSULTant
• Key Responsibilities
• Establish the principles and facilitate the
  budget process
• Provide timely, accurate information
• Facilitate resource allocation decisions
• Recommend alternatives for revenue (pricing) and
  expenditure plans
• Maintain clear communication

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Roles and Responsibilities in the Budget Process

• Department Administrator
• Create the climate for Resource Management
• Translate Strategic Plan to Budget
• Monitor departments resources throughout the
  year
• Initiate timely responses to deviations from
  budget
• Communicate up, down, and across the organization

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Long Term Budget Cycle

• Budget development
• Normally begins well in advance of fiscal year
• Should focus on 3-5 year time period and be
  updated regularly
• Establish strategic priorities for unit/program

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Major Phases of the Budget Annual Cycle

• Connecting to the Strategic Plan
• Deriving annual objectivities or actions from the
  Strategic Plan
• Resource allocation decisions (aka aligning
  revenues and expenses)
• Monitoring
• Executing and evaluating the approved budget

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Budget Cycle
Strategic Plan
Communication of Results / Assessment
Budget Development
Budget Monitoring/ Maintenance
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Connect the Budget to the Strategic Plan

• Strategic Planning sets the direction and
  priorities
• of an organization. Budgeting is the most
  efficient
• vehicle for getting there.
• Strategic Planning is not the production of a
  detailed document or written plan
• A Strategic Plan is implemented by connecting it
  to the budget and finding priorities

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Connect the Budget to the Strategic Plan

• Too much time is spent dealing with the
• details. Strategic thinking/planning is
• critical to a successful budget process.
• Fill some/not all vacancies
• Increase budgets in some, not all, areas
• Cut budget in some, not all, areas
• Every budget should make progress toward
  strategic goals.

13
Resource Allocation Decisions

• Need leadership
• Use the budget as a change agent
• A framework for analyzing current budget
  allocations
• Staged/Planned Change

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Resource Allocation Decisions

• A perfect world Revenues/Sales resource
  requirements
• Reality Resource requirements exceed revenues
• Aligning revenues and expenses
• Fund Priorities
• Eliminate duplication
• Evaluate effect of institutional policies
• Redesign processes
• Assign reallocation targets

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Monitoring Financial Projections/Analysis

• Can be useful in four ways
• What changes need to be incorporated into the
  budget?
• Help define problems/opportunity
• Provide insight in allocation/reallocation
  decisions
• Evaluation

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Financial Analysis

• Budget to (Prior Year) Actual
• Actual CY YTD to PY YTD Review
• Current Year Projection vs. Budget
• Summarize data at reasonable level
• Focus on areas of strategic importance.

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Evaluating the Annual Budget

• Report financial performance on a regular basis
• Explain variances between the original budget and
  year to date financial results
• Document expenditures and revenue trends
• Incorporate current years experience and trends
  into next years budget
• Update the Strategic Plan

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Budget Flexibility

• Necessary to fund unforeseen circumstances and
  take advantage of opportunities.
• Allows you to implement a strategy regardless of
  the financial environment
• Budget flexibility buys you time for reallocation
  the less time you have to react to a financial
  crisis the narrower the range of options.

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Sources of Budget Flexibility

• Budget Contingency
• Year end balances fund balances
• Salary Vacancy Savings
• Term/Hourly positions
• Conservatively budget revenue Pad expense
  budgets (within reason!)

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Central Budget Requests

• Requests for centrally funded incremental funding
  must first be approved by the responsible Vice
  President then forwarded to the Central Budget
  Committee.
• Requests must be based on Institutional Strategic
  Plan
• RCM is a decentralized budgeting system. Most of
  the flexibility is at the RC Unit/VP level. This
  is why a good local budget process is so important

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Budget Requests Helpful Hints

• Plan ahead - last minute proposals are seldom
  approved
• Be Proactive share your ideas with others to
  gain support and get feed back.
• Must be strategic in nature and tied to strategic
  plan.
• Reallocate to fund part of your request
  internally. Demonstrate that your idea is
  important by investing in it.

22
Evaluation

• Hold people accountable for meeting budget
  numbers
• Periodic review of the budget to actual and
  projections
• Good reporting. Budget, report and analysis
  using the same reports
• Analysis of variance

23
Capital Budgeting

• Large non-reoccurring expenditures for long
  lasting assets.
• Funding Capital Replacement
• Qualifying the annual capital needs and budgeting
  an annual contribution. Dont wait until the
  asset needs replacing until you think of funding
  requirements
• Lease vs. Buying Decisions
• Dont let the annual budget process force you to
  lease assets that should be purchased.
• Borrow funds internally to purchase assets

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Tips for Managing Budgets

• Budget process works best if it is fair and open
  you can not please everyone but everyone can
  have input
• Establish contingencies to guard against the
  unexpected
• Be diligent about monitoring progress and make
  necessary adjustments
• Do not worry about small items, focus on areas
  that have material impact
• Make your budget yours, be proud of it, and use
  it as a guiding business tool.