Refinements and Improvements to the Annual Budget Process
Due to the economic challenges many institutions of higher education are facing today, and the need to do more with less, budgeting is clearly a very critical item on the agenda. Addressing the problems associated with the budget process and having people working together towards common goals and results is a top priority. And if Budgeting is a Financial Application, why are 90% of user’s non-financial people?
It is not uncommon for the faculty and staff at an institution of higher education to view the budget process as something that is being “force-fed” from Finance. In order to improve this process, an interface for the faculty and staff should be developed and utilized that “walks them through” the budget process in such a manner that will be simple and yet very powerful. What would be helpful is the flexibility to budget the way they think about their areas of responsibility and allows them to budget on course with the strategic plan of the institution, including full disclosure and documentation of how and why they need what they are asking for in their budget.
Additionally, it is not uncommon for the Finance Department to be under staffed, or be lacking in the resource capabilities to manage all of the complex mechanical aspects of the budget process, as well as being able to readily provide analysis and decision support. The mere process of preparing budget templates, distributing them to the faculty and staff, collecting these spreadsheets, verifying their accuracy, aggregating and consolidating numbers and preparing for the budget review sessions is a cumbersome and manual process for the finance staff. Instead, the budgeting system in-place should alleviate most of those time-consuming mechanics, and allow for the finance staff to focus their time and attention on value-added decision support and analysis.
Budgeting for Special Initiatives and Projects
Because the budget process requires identifying spending for special initiatives or projects that may “cut across” various accounts or even departments, it can become very difficult to track properly for these items in the budget process, and it presents the possibilities for human error; especially when a budget for a project is not approved and someone, presumable someone in Finance, has to accurately “strip” or remove all of the spending out of all of the impacted accounts in the budget process, and then reconsolidate the results.
Having a budget system that can easily create budgets for special initiatives and projects, thereby facilitating an initiative-oriented budget review process would be an ideal process to have in place. This type of system should allow for faculty and staff to submit these initiatives and then have the budget system automatically determine the impact on the account structure. Without this type of budget system, if an initiative is not approved, someone has to go back into each of the associated accounts and try to remember how much that account was attributed to that initiative that was cancelled. This can cause inaccuracies and it will lack an audit trail.
Detailed Budgeting for Position Control
For many institutions of higher education, it is not uncommon to find that over forty percent (40%) of expenses relates to personnel costs (salaries & benefits). However salary and headcount planning are many times disconnected from the rest of the budgeting process. This can lead to confusion, rework, and a lack of fiscal awareness and understanding on the part of the department heads who actually manage the faculty and staff.
To help alleviate this problem, having detailed budgeting for “position control” should be in-place. Salaries and benefits are a special line item in the budgeting process. Therefore, the budget system should be able to handle half of the requirements with respect to “position control” – the budgeting half.
The budget system should allow for faculty and staff to plan headcount down to the individual level and let the “system” handle additions, reductions, raises, FICA, benefits and other.
In addition, timely and accurate reporting is always a challenge, and faculty and staff are heavily reliant on Finance for reports. Producing these reports can be time consuming and prone to error, especially if you are using Excel linked spreadsheets.
What is needed is both budget reporting and monthly management reporting. A good system should have pre-defined report formats, specific reporting, and fully user customized reporting that does not require the user to learn a new report writing environment. It should be user friendly and simple to use, while meeting the institution’s specific needs.
Budget the Way They Think
Because there are divergent needs across institutions in the way people think about and develop their budgets, it can be a complex issue. For example, the needs of the English department do not match the needs of the Business department, which do not match the needs of the Music department. Each has a unique way of looking at their financial needs. This is all made more complex by the fact that the institution also has to consider diverse needs like housing, food services, athletics, facilities maintenance, alumni relations, admissions and other non-academic departments.
Therefore, what is needed is the flexibility to deal with the challenges of diverse departmental needs so that each faculty member or staff involved in the budget process will be able to budget the way they think, but do so in a well controlled environment.
Preparation of Multiple Budget Versions
Generally, budgets are and have to be prepared without full knowledge of what the actual student enrollments will be or what grants might be approved or what gifts are received. This is probably the biggest challenge in the budget process. Therefore, the institution should prepare multiple versions of the budget and then select a scenario that most closely resembles the reality of the school year when it begins.
Having a budget system that can manage multiple scenarios/versions is what’s needed. For example, the college or university will want to budget a worst case, best case and a most likely scenario. The system should accommodate that, and also make it easy for faculty and staff to then submit the “Final” budget which may incorporate elements of all those different scenarios.
Management expects fast answers to practical questions like “What’s the impact if we reduce the tuition increase from 3.5% to 2.5%?” At first blush, this may seem like a relatively easy calculation to make. However, when you take into consideration all of the other budget line items and variables that can be affected by this sort of change, producing a result with real accuracy can be difficult and time consuming. Ideally, you want to be able to achieve updated financial targets as directed by the institution’s President without necessarily going in to make significant account changes. Therefore, the budget process should allow for structured and practical “what-if” capabilities that will allow users to test assumptions on high level strategies to determine their impact on the budget without spending a lot of time making the calculations, yet having them be accurate.
Therefore, practical “what-if” capability that will make it easy for Finance to see the impact of changing key levers of the budget and identify ways to “close the gap” quickly is what is needed.
Implementation of a Budget Workflow Process
Often times the operational review and approval process can be inconsistent across the organization. Because of this, Finance has no way of knowing which budgets have really been operationally scrutinized and “scrubbed” by Deans and VPs and which ones haven’t. This leads to an equally inconsistent quality of budgets being submitted and consolidated; and ultimately to rework.
Because of this, a budget workflow process needs to be implemented. Both finance and administrators need to have a budget process that will allow for organizational budget review and budget approval of department budgets up through the organization chain of command. This process can dramatically reduce the time that it takes to get to a “Final” budget, and it allows for greater ownership of the budget and dramatically improves the quality of the budget numbers.
Utilization of a Budget Map
Generally, faculty and staff want everything that they need for a budget on one singular screen, but this is really impossible with Excel. They have to go to multiple files and multiple tabs, which can lead to frustration, confusion and rework.
Having a Budget Map in place that lays out all the accounts needed to budget for and presenting them in a way that’s easy to digest and understand will produce a much better result. It should answer questions at-a-glance like: which department am I budgeting for, which version of the budget are we working on, which accounts am I responsible for, what options do I have to both create and spread my budget numbers, what is my current budgeted headcount for the year and what final targets am I being asked to achieve.
In Summary about the Budget Process
While operating expenses continue to rise, the days of simply passing on those increases in the form of rising tuition can no longer be the norm. Students and their parents look for leadership in higher education to find ways to do more with less, and without compromising education and the student’s environment – that’s the new normal. Budgeting, and effective resource allocation, is at the heart of addressing the new normal, and it must be a priority.
It is important that the current budget process at institutions of higher education be reviewed and those current processes should be compared to the concepts and budget system described in this article. If they do not utilize this type of budget system, the institution should consider forming a Project Team to identify, review, and sample software solutions available through companies that have developed and implemented innovative, practical and incredibly powerful budget preparation software for institutions of higher education, that energizes a “Culture of Budget Accountability” among users. Tailored applications for institutions of higher education in budgeting and planning applications, replacing spreadsheet-based budgeting and providing maximum user flexibility and financial controls are readily available from industry specific software solution providers.
Ultimately, the goal to refine and improve the annual budget process at any college or university would be to have a budget system in-place providing for improved communication, greater ownership of the numbers and increased transparency enabling the institution to better manage financial performance throughout their fiscal year. And once the budget is in place, monitoring the actual operating results to the budget on a monthly basis, with variance analysis explaining the reasons for the differences is a necessity; recognizing adjustments may have to be made during the year to hold the overall actual operating results as close as possible to budget in order to avoid shortfalls and deficit spending