Budgeting Methods Discussion Trends & Best Practices

2. Budgeting Methods Discussion Trends & Best Practices Tom Reynolds, MPA, MBA, SPHR, EA, CMA Director for Budgeting Lakeland Community College And Jason Januszewski, MBA, CPA Director of Budgeting Cuyahoga Community College (Tri-C)

3. Agenda • Review of Budgeting Methods • Ohio College Budgeting Survey Research Results • Tri-C’s move away from using Excel in the Budget Build • Benefits and Costs of Budgeting System Improvements • Tri-C’s Budgeting Build and Monitoring Tools • Forecast Improvement Techniques and Tips

4. What is a Budget?

5. Why do we Budget? • Budgets help with strategic planning • Budgets put your great ideas and awesome plans into number format (don’t forget the budgets!) • Budgets are a planning tool • Budgets are a control tool • Budgets help you stick to your plan • A budget is not burden, it is an opportunity to plan and adjust • Get excited about this opportunity!

7. Review of Common Budgeting Methods

8. Different Budgeting Methods Project Budget -- budget for a particular project Activity-Based Costing (ABC) -- ID activities that drive indirect cost—use indirect cost pools Zero-Based Budgeting (ZBB) -- building a budget from the bottom up in detail; this method takes time Incremental Budgeting – when the current year’s budget is just adjusted for the previous year; most common method of budgeting Flexible or Rolling Budgeting – a budget revised on a regular basis Responsibility Center Management (RCM) – if a specific division or location must break even or make money, they have a separate budget per division; sometimes that division must make money and contribute to the entire organization Kaizen Concepts – continuous improvements and increased goals each year Hybrid Methods -- combinations of the above methods, or different methods for different parts of the organization

9. Project Budget • Revenue and/or expense budget per project • Many times will focus on the expense budget and the labor hours of project • Can isolate one individual project • One organization could have many project budgets • Useful to keep a project on track and within budget

10. ABC — Activity Based Costing • A budget is given per unit • This helps guide the operating and labor budgets • A driver is selected, like employees or parts produced or customer served • So much budget per FTE, more people more travel, more people more supply budget • So much budget per part/unit made, more units more supplies • Use internal or external benchmarks • Can be useful in manufacturing companies

11. Zero Based Budgeting ZBB • Building the budget from the ground up • Very detailed, but the detail is needed to support each expense • Takes a lot of time and skill to do • Can lead to detailed and accurate outcomes with good instructions and skill • It can be hard to accurately project expense in detail • Becoming more popular • Hard to do in a complex organization with a decentralized, bottom-up budget build • Everyone needs to follow the same methods, parameters, and assumptions to be consistent \

12. Incremental Budgeting • Start with what was budgeted last year • Then just make incremental changes • Quickest method • Most common method • May not lead to the most accurate budgets • People need to make the changes and not just keep what they got last year • Tri-C currently uses this method

13. Flexible Budgeting • Ongoing budgeting; it is a budget that never ends • Continually adjusting each month or quarter • More flexible • Timelier responses • Can be more accurate • A lot of work and updating • Can be a challenge for complex organizations to do this

14. Responsibility Center Management (RCM) Budgeting • Becoming more popular • The responsibility center budgets for itself • A specific location/division must make money or break even or limit loss • Subvention Pool at high level used to fund projects/initiatives that lose money and for institution-wide initiatives • Budget by division or location • A good method if specific locations need to break-even • Revenue and expense budget for a location/division • Many times divisions do not like having to support other divisions

15. Kaizen Budgeting • The process of continuing to improve your organization’s budget every year and reducing costs • These can be gradual improvements over many years • Examples: goals to reduce budget variances every year; or providing products or services better, quicker, and in a more cost effective manner • This could include improvements to revenue budgets, expense budgets, budget variances (reduce budget slack), and reducing costs • Can lead to better products and more efficient costs -- Great Goal

16. Hybrid Methods • Combinations of the above methods • Part incremental/part ZBB • Part incremental/part ABC • Different parts of the organization may have to do ZBB and other parts may do incremental or another method • ZBB may be required for specific accounts—like professional fees or travel

17. Ohio College Budgeting Research Yes, I am a budgeting nerd and did some a budgeting survey and research!

19. Ohio College Budgeting Survey 2016 • Brief budgeting survey sent out May 2016 • 40+ Ohio Colleges and Universities • 26 Banner schools • Additional members of OACC controller’s group • All Ohio Community Colleges were surveyed • 5 questions were asked • Offered to share results to participants

20. Ohio College Budgeting Methods Survey: What Budgeting Method do you use? Results: • 9 utilize incremental and which is the most common method; some colleges have thought about switching methods • 4 utilize zero based • 2 utilize RCM • Hybrid depending on the fund – example different methods used for different funds

21. Ohio College Budgeting Methods Survey: Budget Timelines • Various timelines for budget creation • Most common timelines are January to April/May • Most schools had budget building in winter months and Board passage in spring • Shorter timelines were 3 to 4 months, longer timelines were 7 to 9 months

22. Ohio College Budgeting Methods Survey: Survey Results Average length 5.4 months

23. Ohio College Budgeting Methods Survey: Survey Questions • What budgeting method do you use? • Discussion of pros and cons • Is your organization considering changing methods? • Did you change and then change back? • What is the length of your organization’s budget build? • Is budget discussion too long/too short/just right?

24. Questions? Any questions? The best students have the best questions.

25. This is what I do- Make Pie Charts

26. Favorite Budget Quote -- Dave Ramsey

27. Budgeting methods at tri-c The how in ‘how we do it’!

28. Description of Tri-C’s Budgeting Methods & Department • 5 member professional budget department (of MBAs and CPAs) • Budget department located at District Office in downtown Cleveland • Budget activity is year round: planning, budgeting, and strategic support NOT just during the budgeting process • Campuses and locations all over Cuyahoga County and in Brunswick • 4 campuses and multiple other educational sites • Large multi-million dollar budget — $325 Million+ • Revenue sources: state share of instruction, tuition and fees, and property tax levy • Majority of costs are labor expenses • Uses Banner 9, which is an Ellucian product, for ERP System

29. Description of Tri-C’s Budgeting Methods & Department • Uses Incremental budgeting method • Decentralized budget build with other 100 Budget Unit Leaders (BUL), many of them have their own administrative budget support staff; there is significant turnover each year in these positions. • Credit and non-credit budgeting for credit class budget, but no revenue budgeted at department level, however non-credit revenue is budgeted at department level • Capital budgeting, grant budgeting, auxiliary funds, quasi-auxiliary funds, and agency funds • Budget build for BULs in November - January, with Budget Review in February – April and Board passage in May • Multiple levels of budget review: BUL level, VP/Campus level/Senior Leadership/Budget Dept./Board

30. Tri-C’s Current Budgeting Tools During the Annual Budget Build • Banner ERP system Budget Development, which has space for detailed comments • Banner ERP system Salary Planner which has space for detailed comments • Access restricted by user and process for access authorizations • Each VP area given a specific budget allocation to come within or under • Requests above the allocations are entered into a different phase of Budget Development

31. Budget Monitoring & Training at Tri-C • My Tri-C SMART reporting based on data in Banner ERP system • Many detailed budget build trainings at multiple locations and online • 13 budget build trainings in-person • Training is very hands-on and in computer labs • Training for new users separate than regular users • Year round trainings about how to monitor and budget builds • Not during budget build, budget trainings on campus every quarter • Established budget onboarding program for new users, in person and online • Each area (VP/Campus) is assigned a budget analyst and has monthly budgets with him or her on site (at the Campus)

32. Budget Resources at tri-c On-Demand Budget Building and Reporting Tools

33. Library of Reports – Budget • Every day usage (commonly run) reports – located in the Budget folder under College-wide • Encumbrance Report • Shows the encumbrance number, user id, vendor name, account and remaining dollar amount for all open non-payroll encumbrances • Financial Analysis Database • Shows total uncommitted prior year spending vs. current year budget, current year spending and available balance • Full-Time Staffing Report • Shows positions, employees, position budget and employee salary for all full-time positions reporting to the applicable org • Part-Time Staffing Report • Shows positions, employees, hourly rate, authorized hours, hours worked, etc., for all part-time positions reporting to the applicable org • Transaction Detail Expenses • Report used to identify transaction level detail for YTD activity in Banner – Can be run for both the current year as well as for prior years

34. Library of Reports -- Budget • Budget development reports – new Budget Development folder has been created • Budget Development Trend Report • Shows historical spending, current year budget (original and adjusted), allocation, and the new proposed fiscal year budget; additionaly, comments left in Budget Development are included in the report • Salary Planner Budget Report • Shows all positions reporting to the applicable org, the current employee and salary, the current year original position budget and the new fiscal year position budget

35. Example of Financial Analysis Database: Six Key Columns

36. Budget Development Trend -- Sample

37. Historical Trend Report -- Sample Can be used any time during the year to view historical spending trends at the org level, broken out by account, and total wage vs. total non-wage

38. Example of Budget Planner Space to Add Detailed Comments!

39. Example of Salary Planner

40. Tri-c’s Move away from excel Budgeting A long and hard journey but worth it!

41. Moving Away From Excel Budgeting Disadvantages of using Excel to build budget: • A lot of manual entries -- time intensive • Great room for error • Issues of compatibility, as a home grown system may not integrate with ERP/financial systems well • Issues of access, saving, merging, and sharing documents • Can lead to very large Excel files • Some employees do not have Excel skills

42. Using Excel in Budgeting Advantages using Excel to budget: • Easy • Cheap • Many (not all) employees do know how to use Excel • Commonly used application and most organizations already have it • A lot of online and free materials to learn Excel

43. The Tri-C Experience with Excel Budgeting • Very manual budgeting process • A lot of rules and controls in the templates by account • Some accounts were budgeted in Excel that were not supposed to be! • Many errors, numerical and account errors • Very labor intensive and time consuming • A lot of frustration from budget builders • Much rework and reductions by budget office • Budget builders did a lot of work and the budget office had to redo it or reduce it anyway, which led to BUL frustration

44. Tri-C’s Move Away From Excel • Several year process • Use Banner as ERP system • Purchased budgeting modules for Banner • For operating budget use Salary Planner • For labor budget use Salary Planner • Budgeting and HR departments worked together • Completed in phases: 1st Budget Development; 2nd Salary Planner (some of the accounts); 3rd Salary Planner more accounts; 4th Salary Planner includes most of the labor accounts • Big learning curve for budget builders—got better each year • Learned from mistakes and FAQs

45. Benefits and Costs of System Improvements There Are Many

46. Benefits of System Improvements to Tri-C • Quicker and easier budget build • Easier to review • Much less rework and reductions by the budget department • Collect authorized hours in Salary Planner for HR • See detailed comments for all changes • Ability to have great on-demand reports from data in budgeting system • Cost is worth the improvements—savings in time and frustration, allows Tri-C to budget a more accurate and detailed budget

47. Cost of those System Improvements • Costly in terms of purchase and implementation • It took several years to fully implement -- costly in time • Need to have leadership and organization-wide buy in for the long term -- costly in organizational/political capital • System changes are an investment but good systems are worth it • Need to have good and detailed systems training for internal users -- this takes time and hard work • Hands on training

48. Tips for System Improvements • This process took several years to fully implement, not worth it to rush it • Test, test, test, test, and more testing: then when you are sick of testing do some more testing • Completed a lot of testing in a test environment before the College used in a production environment • Require usage: don’t have two systems doing the same thing • Need to have senior leadership buy in and support • Explain to employees how the new system benefits them and the organization • Find common ground -- how is the change a win/win? • Can the data collected also help other departments? HR, IT, procurement, etc.? • Communication and strategy • Early, often, and many training opportunities • Need good internal customer service and available reference and training materials for users • Point out when people are doing things well

49. Forecasting & Reporting Forecasting -- It’s an Art and a Science

50. The Long Range Plan • Annual forecast of expenses and revenues • Completed by Budget Department, each team member has areas that they update. • Budget Director and Senior Analyst present forecast summary document to CFO, VP of Finance, and Controller monthly • Detail provided by account type organization wide • Use different forecasting methods depending on account • 3 year average, prior year trends, changes that are already known, inflationary factors