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CACUBO Winter Workshop, February 19, 2014
BudgetingCamy Broeker
Associate Vice ChancellorFinance
IUPUI
CACUBO Winter Workshop, February 19, 2014
Agenda for Session
What is budgeting and why is it important? Academic planning Budget development Primary architectures of budgeting Major sources of revenues Major components of expenditures Forecasting and ownership Capital budgets – integration with operational
budgets Budget cuts
CACUBO Winter Workshop, February 19, 2014
What are Budgets?
Plans: expectations of deliverables expressed in financial terms› Allocation of Resources - Revenues spent to achieve
specific purpose Commitments:
› Enrollments› Research funds› Services› Faculty/Employees › Capital – Systems, Buildings, Equipment
Controls › Mechanisms to authorize revenues and expenditures
CACUBO Winter Workshop, February 19, 2014
What are Budgets?
Budgets are fiduciary enablers: assurances to boards of trustees and/orstate authorities that revenues and expenditures will be kept in balance
Performance measurement› Expected deliverables – academic or
administrative
CACUBO Winter Workshop, February 19, 2014
Academic Planning
More diverse faculty› Sometimes different faculty for emerging
academic field More diverse student body More facilities or upgraded facilities Increased reputation and quality
CACUBO Winter Workshop, February 19, 2014
Academic Planning
Plans should become strategic› Could be constrained by resources› Prioritization will be important
Plans can influence revenues› Shift to focus on research› Quality initiative can decrease enrollment
Reallocation of expenditure budgets to achieve academic priorities
CACUBO Winter Workshop, February 19, 2014
Academic Planning
Planning and budgeting should be dynamic
Budgets enable plans Both are a snapshot in time Both must be adaptable to change Plans can and should influence budget Unfortunately, budget can influence
plans
CACUBO Winter Workshop, February 19, 2014
Budget Development
Operating budgets› Forecast of revenues and expenses› For an operating period – typically 1 year› Authorizes spending› Basis for performance measurements
Capital budgets› Major outlays› Longer timeframes
CACUBO Winter Workshop, February 19, 2014
Budget Models
Incremental Budgeting› Annual awarding of increments to prior
year budget› Presupposition that the priorities remain
the same› Adjustments should be made to refine to
ensure prioritization
CACUBO Winter Workshop, February 19, 2014
Budget Models
Zero-based Budgeting› Start at $0 and build up based on needs› The overall package of all activities
represents the budget› Requires priority ranking of the activities› Puts everything up for grabs› Zero-based budgeting is rare in practice› It assumes courage to implement
fundamental changes
CACUBO Winter Workshop, February 19, 2014
Budget Development
Begins with estimating annual revenues
Identifying spending priorities› Examine programs funded in prior years› Propose increases (decreases) for
upcoming year Ends with balancing expenditures to
expected revenues
CACUBO Winter Workshop, February 19, 2014
Budget Development - Revenues
Tuition Revenue› Enrollments
Freshmen Upper Class (Retention and Transfers)
› Setting tuition price Undergraduate rates tend to be set at
institutional level Public schools:
have state restraints have instate and out of state student considerations might have caps on increases
CACUBO Winter Workshop, February 19, 2014
Budget Development – Revenues
Student fees other than tuition› Special fees related to a program› Fees directly associated with a class, i.e.
lab fees› At many schools these fees are controlled
by the school› Can be directly allocated to the
program/school› Are significant at many institutions
CACUBO Winter Workshop, February 19, 2014
Budget Development – Revenues
Gifts › Include to the extent gifts provide support
to operations› Capital campaigns – less predictable› Have to match restricted gifts with uses› Some gifts are controlled by specific
schools, departments and even faculty members Requires coordination between multiple
people
CACUBO Winter Workshop, February 19, 2014
Budget Development – Revenues
Endowment› Contingent on restrictions, realized
endowment returns and earnings can be available for budget support
› Endowment spending rate usually established and monitored by institution
› Schools might have policy on appropriate use for operations
CACUBO Winter Workshop, February 19, 2014
Budget Development – Revenues
Investment Income› Generated from short and long term investments› Modeling the cash flow is important – think about what
has recently happened with the economy Research Dollars
› Indirect cost revenue› Freeing up of unrestricted dollars› Budgets are done at proposal stage
Other› Sales and services
Conferences and seminars (plus expenditures) Clinical income (internal or private practice plans)
› Rents
CACUBO Winter Workshop, February 19, 2014
Budget Development - Revenues
Auxiliary Enterprise Revenues› Look and feel of for profit› Gross sales revenues should cover total
operating costs› Net operating income should cover debt
service› Campus (cash) subsidies should be budgeted› Indirect subsidies should be understood
Like facilities, utilities, administrative costs› Financial structure is complex and should be
enhanced with strong financial reporting
CACUBO Winter Workshop, February 19, 2014
Budget Development - Expenditures
Salaries› Develop policies for annual adjustments› Turnover savings can be available for
other uses› Position control › Policies related to use of salary savings
and vacant positions Benefits
› Not always easy to forecast› Multiple ways of handling the charges
CACUBO Winter Workshop, February 19, 2014
Budget Development - Expenditures
Financial Aid Materials, Services and Supplies
› Items such as paper, toner and software› Internal sales usually a contra expense (inc)› Cost of goods sold (auxiliaries)
Travel Capital Equipment
› Should capital outlays be budgeted?› Depreciation should be budgeted for
auxiliaries
CACUBO Winter Workshop, February 19, 2014
Other Budgeting Issues
What should be budgeted? Only operating (current funds)?
Should net income be budgeted? What about use of cash – non base
budget dollars? Should revenue not intended to be
used be budgeted? Should the budget balance?
CACUBO Winter Workshop, February 19, 2014
Ownership of Budget Variances
Governing boards should own variances
Role of:› President› Provost› CFO
Delegation to Deans and Directors Who owns surpluses and deficits Excessive negative variances over time
CACUBO Winter Workshop, February 19, 2014
Budget Forecasting
Budget to actual variances with estimated projections through fiscal year
How often?› Depends on the revenue sources
Tuition and Fees known after first month Other sources can be variable
› Minimum of quarterly› Monthly at end of fiscal year
Review for internal controls and decision making with leadership
CACUBO Winter Workshop, February 19, 2014
Capital Budgets
Require long planning lead times Implemented over multiple budget
cycles Capital budgets should include:
› Equipment› Enterprise Software› Renovations› New Facilities› Infrastructure
CACUBO Winter Workshop, February 19, 2014
Budget Architecture
Three budget designs› Centralized unrestricted budgeting› All funds budgeting› Revenue responsibility budgeting
CACUBO Winter Workshop, February 10, 2011
Budget Architecture Centralized unrestricted budgeting
› Central owns unrestricted revenues › Goal is to divide these revenues appropriately
among the expenditure budgets of the units› Central estimates and identifies
Revenues Expenditure inflation factors Priorities
› Discussions are exclusively on expenditures› Negotiation is the behavioral modality› Restricted endowment and gifts are off the
table
CACUBO Winter Workshop, February 10, 2011
Budget Architecture
All-funds Budgeting› Central owns unrestricted revenues› Designated and restricted gifts are on the
table with unrestricted revenues› Deans strive to maximize their share of the
pie› Provosts requests are against the same
incremental resources› Administrative fees can play a role in
funding some activities
CACUBO Winter Workshop, February 19, 2014
Budget Architecture
Revenue Responsibility Budgeting› Based on local ownership of revenues
Tuition earned by unit stays in unit Research recoveries stay in unit where generated
› Local ownership of expenses Facility expenses Administrative services
› Deans develop feasible revenue and expenditure budgets
Central can still play roll in establishing guidelines and priorities
CACUBO Winter Workshop, February 19, 2014
Budget Architecture Revenue Responsibility Budgeting, cont
› Budget variances stay in the unit, whether positive or negative Positive: allows for large multi-year projects at
unit level Negative: school’s must develop recovery
plans when deficits occur› Pressures are put on keeping down
administrative fees› Deans become very powerful› Forces the issue of fiscal responsibility to the
school/department level
CACUBO Winter Workshop, February 19, 2014
Budget Cuts
Fiscal year beginning cuts Mid year cuts Base budget vs. cash Possibilities
› Salaries Slow down in hiring Freezes Reduction in force
› Travel› Identification of non-mandatory services› Other deferrals
CACUBO Winter Workshop, February 19, 2014
BudgetingQuestions