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Budget andFinance

Susan MalischMark Walbert

EDUCAUSE New IT Managers Program San Antonio – Connect April 2015

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 – From “Follow the Money'’ and Other Unsolicited Advice for CIOs

by Gregory A. JacksonCAUSE/EFFECT Volume 22 Number 1 1999

“Understanding and controlling money never achieves

anything in its own right, but misunderstanding money …can cripple you at key junctures.”

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Agenda

Review common budget terms and types

Conduct a financial data-analysis exercise

Leverage EDUCAUSECore Data Service and other

 benchmarking data to make a case for funding

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Where does it come from?

State General Revenue Fund (for publics)

Income fund (tuition and fees)

Endowments, gifts, grants, and contracts

Agency (self-supporting)

Bond revenue

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Where does it go?

Personnel Operating

Undergraduate financial aid

Debt servicing

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Exercise: Think - Pair -

Share

What are some of the general “sources of funds” at yourinstitution?

What are some of the general “uses of funds”…?

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Organizationa!ierarch" for

Budget

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Budgeting #s Accounting

Focus on vertical pairs in the hierarchy

– Provost has budget officer, so does the Dean, and… Budgeting is about planning

– What activities will be supported?

Accounting is about after the fact And when actuals deviate from plan…?

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O$erating #s %a$ita

Capital budgets– Long-term investments typically for new buildings

or machinery, or major renovations Operating budgets

– Typically done on an annual basis– Covers all activities, including personnel

IT has capital and operating– If investments are lumpy who is the bank?– May use reserve funds

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Encum&rance

Anencumbrance is a designation in the accounting systemthat sets money aside for a specific future use.Encumbrances may sometimes cross fiscal years.

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Fisca "ear

One-year term associated with an organization’s budget.

It often doesnot correspond to a calendar year.

Many fiscal years begin July 1 and end the next June 30and are named for the closing year, e.g., 7/1/14 -6/30/15 is FY15.

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Audit

An accounting audit provides anassessment of a financial system’s internalcontrols (how resources are directed, monitored, and measured) andevaluates the validity and reliability of the information that systemmanages and produces.

An auditor conducts tests and renders opinions based on the results of thosetests.

External audit “Findings” can beImmaterial (not too bad) or Material (bad!) Internal Auditing is your friend!

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Actua #s 'iscretionar"

Discretionary budget = Actual budget – Encumbrances

Where Encumbrances may be the costs of things youmust do (because of legislative requirements or

contractual obligations).

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Soft mone" #s !ard

mone"

Also Temporary vs Permanent or One-time vs On-going

Soft money is non-recurring (temporary)

Grants, gifts, one time appropriations

Hard money is in the base operating budget(“permanent”)

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S$onsored (esearch %osts

Costs of conducting sponsored research are in two categories:

Direct (e.g., salaries of those actually conducting theresearch)

Indirect (such as the project’s share of building-operation

costs and of the costs of operating the campus network) Indirects are generally expressed as percentages

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)ndirect %osts and

O#erhead

Indirects support costs related to:

Facilities operations (utilities, maintenance, security, etc.)

University and department libraries

Departmental administration

General administration

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Endo*ment

Money or property that has been donated to aninstitution

“Restricted” gifts have stipulations on how it can be used

“Restricted” gifts likely dominate the dollars availablefrom “unrestricted” gifts

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(eturn #s +aue on

)n#estment ROI is thetangible result of an investment– Increased productivity, reduced costs, increasedrevenue, more students, higher retention, highergraduation rates…

VOI (or ROM) is theintangible benefits of an investment– Loyalty to institution, morale, reputation effect…

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Budgeting ,ethods

Incremental (Rollover)

Responsibility Center Management (RCM)

Zero Base

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)ncrementa Budgeting

Most common

Decisions centrally-driven, top-down

Current budget is “base”

Increments are added resulting from salary adjustments,new funding source or amount, etc.

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)ncrementa Budgeting

Process1.Central officers project next year’s unrestricted income [from

tuition, investment income, indirects, unrestricted grants, andstate appropriations (for publics)]

2.Central officers set personnel costs adjusted for raises and non-salary costs

3.1 - 2 =temporary funds available4.Budgetcall for proposals sent to colleges and units

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(es$onsi&iit" %enter

,gmt

Revenue from tuition, grants, philanthropy etc. Minus tax on University overhead

= Provost/College Budget

[Also referred to as “Incentive-based Budgeting”]

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(%, Budgeting Process

1.Central officers project next year’s changes [from tuition, investmentincome, indirects, unrestricted grants, and state appropriations (forpublics)], and estimate compensation changes, allocation of revenues forcentral costs, and subsidies

2.Generally distributes tuition revenues to colleges based on their generation

3.Colleges analyze costs, raise issues, propose how they will reconcile

projected college margins4.Deans negotiate with Provost for final budget (including subsidies)

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(un .ro* Transform

Run - IT activities related to ongoing operations. To “keep our computers

working”… Grow - Strategic activities to accommodate incremental growth andimprovements (e.g., expanding the installation of instructional technologiesinto all scheduled classrooms; upgrading an existing application, or replacingan application without significantly redesigning the business processes).

Transform - Strategic activities to plan and implement transformative change(e.g., implementing a business intelligence environment for the first time).

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Baumo/s cost disease

Wage growth in most sectors of the economy tracks with productivity

Not so in higher education (or orchestras) Wages there tend upward because of rising opportunity costs (wages inother sectors)

More than 80% of higher education budget is tied to labor

Ergo higher ed suffers from a (wage) cost disease Hence the fiscal and political pressure on higher ed to cut costs*

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Baumo/s cost disease

Responses? Cut costs or increase productivity… Typically cost cutters look at facilities maintenance andtechnology…

Should pay more attention to process analysis…

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,aking a %ase for Funding

Understand the larger institutional financial context, including

the budget model in use Build relationship with budget officer for planning and analysis

VOI is particularly effective as a rationale with academic andstudent affairs

Calculate the Total Cost of Ownership to raise your credibility

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%ore 'ata Ser#iceO#er#ie*

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Exam$es

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Wh" 0se 'ata to ,ake

 1our %ase? When was the last time you heard, “I have more than

enough staff and funding to get the job done?”

Everybody on campus is understaffed and underfunded

Presidents and VPs hear the “whine” all the time and

 become callous to the requests

How can your request stand out in this environment?

Can you receive funding before something really breaks?

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Successfu (e2uests

You have to make your story very

plain and understandable Use of graphics and charts is easierto take in than paragraphs of text

Wizard of Oz Syndrome

“He or she who plans….gets”- Glen Wilde content.time.com

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Stats that Work

Show utilization over time

Increased users or number of devices

Peer comparisons

Center for Higher Education Chief Information Officer S

tudies (CHECS) Higher Ed IT Salary Survey (HEITS)

Educause Core Data Service

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https://www.educause.edu/research-and-publications/research/core-data-service

For more on benchmarking, view the video athttp://vimeo.com/56927071.

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