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