Budgeting for schools

Business Finance Training

BUDGETING FOR SCHOOLS

© Paul Lower 2009 www.financial-training-seminars.co.uk


Paul Lower FCMA

• Twenty years experience as Finance Director

• Global media, publishing and retail companies

• Adviser and part-time FD to small & medium sized businesses

• Financial trainer & coach

• Managing Director of Business Finance Training


Budgeting for Schools

IS THIS YOU?

BAFFLED BY BUDGETING?

CAN’T SEE THE POINT?

CRYSTAL BALL GAZING?

WASTE OF TIME?

NECESSARY EVIL?

IT ‘DOES MY HEAD IN’



WHAT’S BEEN YOUR EXPERIENCE?



LET’S SEE IF WE CAN MAKE IT CLEARER

WHAT IS BUDGETING ABOUT?


What is Budgeting About?

PEOPLEPLANNING

MEASURING CONTROLLING


Planning

“With careful and detailed planning one can win;with careless less detailed planning one cannot win.

How much more certain is defeat if one does not plan at all”

Sun Tzu: “The Art of War” written in 400BC

In other words:

Failing to plan is planning to fail


Planning

• What is planning about?

– Looking at where we are now

– Deciding what we want to achieve

– Working out how we will achieve it

– Taking stock of resources available or needed

– Anticipating problems

– Deciding what will need to be done


Planning

• Types of planning

– Operational = detailed day to day planning

– Tactical = annual planning and budgeting

– Strategic planning


• What is strategic planning about?

– Deciding long term objectives and goals

– Based on a vision for the organisation

– Identifying various strategies for achieving your objectives

– Selecting the strategy that is most likely to succeed

– Giving the organisation direction

– And a plan by which it can measure its progress

Planning


Planning

• Strategic planning in education

– Values

• Ethos and sense of purpose

• Culture and beliefs

• A shared vision for the future


Planning


– Values

– Objectives

• Goals based on the values which shape decisions

• Time assigned targets based on goals

• Targets which can be measured and monitored

• And provide direction for the organisation


Planning


– How would you describe your own school’s Values?

– What are its long term Objectives and goals?


Planning


– Values

– Objectives

– Resources

• Teaching and administrative staff

• Buildings and facilities

• Funding


Planning


– Values

– Objectives

– Resources

– Risks

• “The effect of uncertainty on objectives”


Planning

Uncertainty

Government policy

Funding problems

Opportunities? Threats?

RISKS

Resource shortages?

ANTICIPATING AND MANAGING RISK


Planning


– Values

– Objectives

– Resources

– Risks

– Strategy


Planning

• Strategy

Is a plan that matches

the resources available and

the strengths and weaknesses of the organisation

with

the threats and opportunities it faces

in order to meet

the organisation’s objectives over 3 – 5 years


Planning


– Values

– Objectives

– Resources

– Risks

– Strategy


Planning


– Values

– Objectives

– Resources =

– Risks

– Strategy

THE SCHOOL DEVELOPMENT PLAN


Planning

• Budgeting

– Uses the strategic plan : the School Development Plan

– To identify short term goals and objectives

– To match the cost of achieving these goals with funding

– To produce an annual operating plan

– That will allow the school to remain financially viable



PEOPLEPLANNING



People

• Budgeting and People

– Responsibility

• Objectives should be set at departmental level

• Department manager is responsible for delivery


People


– Responsibility

– Integration

• Individual efforts focussed on common goals

• Managers and staff “pull in the same direction”

• Avoids managers following their ‘own agenda’


People


– Responsibility

– Integration

– Motivation

• Results measured and reported against budget

• Interest and commitment of staff maintained


People


– Responsibility

– Integration

– Motivation

– Evaluation

• Performance of budget holders can be measured



PLANNING


PEOPLE


Measurement

• Actual performance must be measured

– Income and spending must be recorded and monitored

– Accounted for in sufficient detail with FMS6 or similar

– Monthly and year to date report at department level

– Other non-financial KPI’s also calculated monthly

Jargon Buster : KPI’s = Key Performance Indicators



PLANNINGPEOPLE



Controlling

• Control – one of the main purposes of budgeting

– Actual monthly performance must be measured

– And compared to monthly phased budget

– Feedback reporting to budget holder is key

– Actual results should be compared to budget

– Variances shown for investigation

Variance is the difference between budget and actual


Controlling

• Best practice for feedback reporting

– Reports should be clear and comprehensive

– Reports should be timely to allow prompt action to be taken

– Information must be accurate but without superfluous detail

– Reports go to the responsible manager with authority to act


Controlling

LAUREL GROVE SCHOOL BUDGET REPORT: FEBRUARY 2009 YEAR TO DATE

SUMMARY Actual Budget Variance Comments and Action

Salaries and Wages 5,098,329 5,100,000 1,671 Unfilled posts from previous term

Premises Related Expense 846,300 845,000 (1,300) Heating bills due in March will offset saving

Curriculum Resources 102,350 103,000 650

Other Expenditure 356,760 358,000 1,240 Savings in IT costs and admin suppies

Grants:Standards, EIC, General 621,320 622,000 680

TOTAL EXPENDITURE 7,025,059 7,028,000 2,941

TOTAL INCOME 7,028,000 7,028,000

TOTAL 2,941 - 2,941


Controlling

LAUREL GROVE SCHOOL BUDGET REPORT: FEBRUARY 2009 YEAR TO DATE

OTHER EXPENDITURE Actual Budget Variance Comments and Action

Telephones 30,372 30,000 (372)

Postage 15,368 15,000 (368)

Student Free School Meals 89,600 90,000 400

Examinations & Assessments 111,372 112,000 628

Network ICT (Hardware) 61,493 60,000 (1,493) Unplanned replacement of library server

Network Management Consulting 23,327 25,000 1,673 Consultants changed to reduce costs

Administrative Supplies 25,228 26,000 772

OTHER EXPENDITURE 356,760 358,000 1,240


Controlling

• Control – one of the main purpose of budgeting

– Actual monthly performance must be measured

– And compared to monthly phased budget

– Feedback reporting to budget holder is key

– Actual results compared to budget

– Variances investigated and appropriate action taken



PEOPLEPLANNING




LET’S SEE IF WE CAN MAKE IT CLEARER

SO HOW DOES BUDGETING WORK IN SCHOOLS?



For further information visit: www.fmsis.info



• Aim of school budgeting

– Ensure resource allocation matches school priorities

– Priorities should reflect School Development Plan

– Budget ensures there are sufficient funds to do this

– And so confirms the budget can be ‘balanced’



• Why accurate budgeting is important

– The budget must be as realistic as possible

– And school must have satisfactory systems

• To help set the budget

• And to measure, report and control the budget



• Why accurate budgeting is important

– The budget must be as realistic as possible

– And school must have satisfactory systems

– Because small errors can cause big problems

In a typical secondary school the teaching staff budget could be well in excess of £3m per year. A budget error of just 3% could leave the school with an end of year shortfall of over £100,000 and could result in drastic spending cuts in other non-staff priority areas of school spending.



• Planning the annual budget

– Income

• Over 90% of income for typical school comes from

– LEA Resource Budget

and if there is a sixth form

– Learning Skills Council Post 16 Budget

• So income is fairly easy to predict



• Planning the annual budget

– Expenditure

• Staffing costs typically 75%-80% of total expenditure

• Premises costs typically 10%-12% of total expenditure

• Profiling attempts to spread budget costs over year



• Practical approach to budgeting expenditure

– Staff costs must be estimated as accurately as possible

• Use curriculum timetable to establish staffing needs

• Identify non-teaching staff requirements

• Factor in appropriate pay scale increase

• Use salary calculator to get a good estimate

• Remember to build in a contingency





– Estimate other key expenditure items

Utilities Cleaning Contract Business Rates Repairs and Maintenance Insurance Postage Telephones Examinations and Assessments






– Staff and other key items = 85% to 90% of expenditure

– So that takes care of most of the costs

– Use the unallocated income to cover the other costs




– Estimate staff costs as accurately as possible


Examinations and Assessments

Just hold on a minute. Tell me more about how I can estimate the examination costs for the budget!



• Budgeting for examination costs

– Several components to examination costs

For some helpful examination planning tools visit:

www.qcda.gov.uk/qualifications/exams/579.aspx



• Budgeting for examination costs

– Several components to examination costs

• Examination entry fees

• Invigilation costs

• Other costs



Using Microsoft Office Excel™ software for budgeting



The blue numbers are typed in to cells B5 and C5The formula multiplies the contents of the two cells



That completes the exam fee calculation



‘Insert Worksheet’ to add new sheet to the workbook

Type in the rows for the summary sheet



Enter the sheet and cell reference from the exam estimate worksheet to enter the total



Fees can be difficult to estimate

One approach might be to ‘sensitivity test’ your assumptions



• To summarise

– Budgeting is part of the planning process

– Budgeting is about

• Planning

• People

• Measuring

• Control



• To summarise

– The School Development Plan is the 3 year strategic plan

– The budget identifies short term goals and objectives

– Matches the cost of achieving these goals with funding

– To produce an annual operating plan

– That will allow the school to remain financially viable



• To summarise

– The budget assigns responsibility to the relevant manager

– Actual spending is measured during the year

– Feedback reporting is used to inform managers

– Managers take appropriate action to correct variances

– This maintains the financial viability of the school



• To summarise

– Preparing the budgets requires managers to estimate costs

– Examination costs can be problematical

– But there are a number of tools to help with the job

• QCDA website

• Simple Excel worksheets



• To summarise

– Preparing the budgets requires managers to estimate costs

– Examination costs can be problematical

– But there are a number of tools to help with the job

– ‘Sensitivity testing’ will give a range of estimates

Good luck with your own budget!


BUDGETING FOR SCHOOLS

Budgeting for schools

Business

Transcript of Budgeting for schools