The New Normal: Budgets, Cost Recovery and Pricing

2013 Massaschusets Parks and Recreation Association-Annual Confernece

Chris Nunes, CPREDirector of Parks and Recreation

The Woodlands TownshipThe Woodlands, Texas

Session Objectives• Identify the types and

components of a budget

• Develop a program/cost center budget

• Forecast cost recovery percentages thus identifying a potential program price

Then

Then

Now

Now

Background Information

• Somewhere between then and now our facilities, programs, and services changed but did our budgeting and pricing techniques?

Is this you and your facility?• Decreased share of base

fund/tax base• Competition/market share • Increase in requests for services• Facilities built in the late 1990’s

and early 2000’s• Slow growth, if any• Limited capital improvement

funding • Decreasing agency support

How can we better understand these challenges?

Background Information• Purpose of a Budget

• Document use of funds spent and received

• Standardized for ease of comprehension

• Means for evaluating program and service goals and objectives.

If you can’t measure it, you can’t manage it.”- Peter Drucker

Budget Information• Where does our revenue come from?

• Membership • Dedicated Fees• Taxes• Fees/Charges• Contracts• Grants• Donations• Other????

Budget Information

• Operating Budget Formats• Line Item Object

Classification• Program/Cost Center-

• Costs are separately figured and allocated- macro, micro, nano

Budget Information• Types of Budgets

• Capital• long-range, high-cost,

long-term budget items

• buildings, vehicles, major facility renovations etc.

• ROI on new facilities/equipment

Program/Cost Center Budgeting• How can you increase funding/decrease cost?

• Increase membership/sales/base fee/property/sales tax rate

• Review existing programs/services for efficiency/cost effectiveness

• Re-tooling the inventory- “sacred cows”• Other revenue- concessions, lease/rentals,

contract services, etc-CAUTION• Review programs and services on a micro

level, i.e. cost center

Program/Cost Center Budgeting

Why do I want to do a program/cost center budget? AccountabilityConstant review of budget Reduce reliance on subsidyEnsure quality of service Ability to understand market

and service paradigm Ability to understand core

services and patron needs

Program/Cost Center Budgeting

Setting up a Budget: Expenses What is your internal cost

structure? In House vs. Contract out Supply Costs Cost to produce a service Utilities Repair and Maintenance Efficiency of Staff Need for Staff Technology Other?

Program/Cost Center Budgeting

Budget Development What programs/services could be offered?

Pool Heater ExampleSwim LessonsSwim TeamStaff TrainingRentalsWater PoloSCUBAStroke Training

Remember that there are costs associated with providing these services.

Program/Cost Center Budgeting

Budget Development-Expenses

Program/Cost Center Budgeting

Budget Development - Expenses

Program/Cost Center Budgeting

Budget Development-Expenses

Budget Development- Direct Cost

Program/Cost Center Budgeting

What costs are missing……………….

Budget Development - Indirect Cost

Program/Cost Center Budgeting

What are you required to recover?

GreenPlay, LLC, 2008 Cost Recovery Study Bend, OR

Program/Cost Center Budgeting

Should there be a different overhead cost for different services?

Budget Development- Indirect Cost

Program/Cost Center Budgeting

Budget Development - Revenue/PricingWho benefits from the service? Who generated the need, therefore, the cost? What is the commitment or intensity of the program?Do community values support subsidy? Are we obligated to provide this service?Will the level of the fee affect the demand for the

service? Cost Recovery / Goals Recovery Policies

Pricing

• How can price be determined?• Cost Recovery Goals

(25%, 50%, 75%, 100%, 150%)

• What costs need to be recovered?

• Market Based• Price based on

time/location• Supply/Demand

Program/Cost Center Budgeting

Budget Development - Revenue/Pricing• How do I arrive at program estimates?

• Educated Guess• Historical Numbers• Trend identification• Competition (lack of)• Growth/Contraction• Other agency’s numbers• Fee Increase• Hunch………..

Pricing

• Will price have an impact on use rates?• Increase• Decrease• No Impact• Elasticity

Pricing

• Minor fee increase• Decrease 10%

• Major increase• Decrease 20-40%

• Value• Understand market, • Undervalued Services• Psychology of Pricing

• 5’s and 9’s• Price breaks• First year is the

toughest!!

Program/Cost Center Budgeting

• Historical Numbers• Growth/Contraction• Fee Increases

Program/Cost Center Budgeting

• Price by Height• Price by Location

Program/Cost Center Budgeting

• Riva Row Boat House• 2 years old• Elastic or Inelastic • Impact of a $5 fee

increase?• Growth or No Growth?• Impact of advertising

and marketing • Desire to keep fees

constant for two years or more

Pricing- Market Based

Differentiation = Quality, Expertise, Speed/Level of Service

Program/Cost Center Budgeting

Pricing- Market and Cost Recovery Based

• Approach• Two year-2007 • Tiered facility

• Service Levels• Service

Differentiation • Reaction of the

public/board

• What was the impact of these increases?

Pricing- Market and Cost Recovery Based

While there is a decrease in use, there may be a decrease in expenses, 51% decrease in use, yet $39,000 increase in net effect.

Pricing- Market and Cost Recovery Based

Program/Cost Center Budgeting• Ability to meet goals• Management Tool

• Monitoring Techniques

• Are you on track?• Additional marketing

needed to reach goals?

Program/Cost Center Budgeting

Can we use this methodology for individual programs?

Pool Fees

Pricing- Market Based

Pool Fees

• My competition just changed their price…..what do I do?• Evaluate the

competitor’s reason for the price change

• Evaluate marketplace response

• Considers own product’s strategy

Pricing-Issues

Pricing Issues

• What do I do?.......• Reduce price• Raise perceived

quality• Improve quality and

increase price• Launch low price

“fighting brand”

Capital X Budgeting

Capital X Budgeting

Program/Cost Center Budgeting

• Things to remember• Understand your pricing philosophy• Benefits/costs of micro detail• Decreasing use may increase revenue • Ability to use for programs, services and maintenance• Understand the marketplace and its relation to your

price• Control leakage• The devil (and the savings) is in the details………….

• "A billion here, a billion there—sooner or later it adds up to real money.“ — Senator Everett Dirksen

Thank You!!!!!!

Chris Nunes, Ph.D., CPREDirector of Parks and Recreation

The Woodlands Township2801 Technology Forest BlvdThe Woodlands, Texas 77381

281-210-3906cnunes@thewoodlandstownship-tx.gov