Budget and Planning, Perfect Together

1. Budget and Planning, Perfect Together Or What Do They Want Anyway?

2. Henry Mauermeyer – • Sr. VP and Treasurer, NJIT • NJIT, New Jersey’s Science and Technology University with over 8000 students and a budget of about $270 million, 2.6 million sf of plant • Member of many teams and frequent financial reader of the Periodic Review Reports • Recently (1/1/08) elected to the Commission

3. The PRR is usually the mid-point of the evaluation cycle. • It is not a collection of miscellaneous data to meet some bureaucratic whim. • It provides an excellent opportunity for the college or university to reflect on itself in a more formal manner.

4. In the PRR handbook, institutions are asked to include in the PRR, among other items: A report on enrollment A description of financial trends A description of planning and budgeting processes

5. Will try to frame the discussion around three related points: • Why does Middle States Require them? • What are the PRR Readers and Financial Reviewers looking for? • How do they relate to the accreditation standards?

6. First, we—the institutions and its people, you and I—are Middle States: We have agreed to the process. • Second, The Characteristics of Excellence in Higher Education were adopted after extensive review and comment by us—the institutions—before adoption by the Commission. • Third, a well done PRR provides ongoing support and documentation that the peer review process is creditable.

7. Fourth, it is in our best interest to ensure that we have an accreditation process that is unassailable, not just a “mutual aid.”

8. The foregoing is important to remember as you prepare to complete your PRR so that the spirit, not just the letter of the PRR requirements, is followed. It is in large measure what you make it.

9. There is an old adage – “If you do not know where you are going, any road will get you there,” but is this what we want? Consider: • Planning Objectives– what do we want to be in the next 5 to 10 years – should lead to the • Tactics that are needed to get there, which should drive the • Resource Allocation to see that the needed funds and/or facilities are allocated to the institutional priorities

10. The Middle States process is not “prescriptive”— Each institution is responsible to develop its vision, mission, and plans. However, once that is done, it becomes incumbent upon the institution to demonstrate that it meets the Standards.

11. A few points/questions to consider as you write the PRR: Remember that it will be read by your colleagues from other institutions: While brevity is important, please try to include enough information so that the reader does not have to guess if you have provided evidence that your institution meets the Standard.

12. While the focus is on the specific requirements as outlined in the Handbook for Periodic Review Reports, it will be helpful to remember that in a relatively short time, the 10-year Self-Study will be due. The PRR is not an end, but part of the continuous process.

13. The PRR should describe how the institution goes about planning – Is it top down? Bottom up? Are all the relevant parties involved in the process? Who was involved? Did the results of the assessment programs help inform the plan? What is the outcome of the planning process? Another book on the shelf, or a useful tool?

14. What are specifics that a financial reader might look for?

15. Consistency: • Double check your data tables • Excel is not infallible – it usually does what you ask it to do – not what you may wish it to do. Are the numbers that are in the text supported by applicable data? Do the year-to-year changes seem reasonable? If not – what was the historical cause of apparent aberrations? Have any lessons been learned?

16. For projections: Are the assumptions clearly stated? Are they supported by the objectives developed in the planning cycle? Are any dramatic shifts explained? Are any significant new—or deleted— programs reflected in the projections?

17. Are the data in the text of the PRR reconciled with the audited financial statements? • Internal budgets may not always reflect items that appear in the audited financial statements, for example, depreciation. • Audited financial statements may not include equipment that is capitalized.

18. The Management Letters (written communication from the external auditors with comments and/or recommendations for the institution) should be included. If there are any major findings, the institution should indicate what steps they are taking to address the matter. While not in the Handbook, I would suggest that if no letter is issued, the institution include a statement to that effect so a reader knows – (a) it was not forgotten and (b) the auditors found nothing of sufficient significance to warrant a written communication.

19. Similarly, are enrollment data consistent? Does the enrollment plan reflect projected enrollment changes (new majors? a shift to greater percentage of graduate students?) or that there are no changes planned? Does the revenue projection reflect any enrollment changes?

20. Are programmatic changes reflected in the financial and facilities plans?

21. Financial projections can be more than just the projected budget with its revenues and expenses.

22. Balance sheet management can be used in the assessment process. For example – what is the expected cash position at year end? Are any of the myriad of benchmark ratios that are available from sources, including Moody’s Investor Services, used to set targets? If so, what were the results?

23. A word of caution: Ratios must be viewed in the context of the institution’s plans. While it may be “nice” to conform to benchmarks, it is more important to know why there is a variance.

24. For example, is the increase in the ratio of debt service to income “bad?” At first blush it might appear so. However, what did the institution expect (plan) to occur? If a new residence hall was to be constructed (most are debt financed) to support an enrollment growth strategy, then an increase may be good. But if a level ratio if it means a needed residence hall was not built and therefore there are no beds for the new enrollment, that may be bad.

25. Conversely, if an institution had expected to operate on a break-even basis but had to borrow to make ends meet, then that is “bad” –because it is not consistent with the institution’s plans. So, in the first case, not adding debt was “bad,” while in the latter case, adding debt was “bad”—because in each case it was not what the institution had planned.

26. The linkage between budget and planning needs to be more than just the usual picture of a circle of planning > budgeting > assessing > planning. It would be helpful if the planning process is described in sufficient – but not gory – detail so that the reader can understand the relationship between the sources of resources—new revenue and reallocations— and the allocations to expense plans.

27. If the PRR refers to the extant material, it is helpful to identify the section of the document that supports the point being made in the text, particularly if the attachment is a lengthy document.

28. Financial Reviewers: It is helpful to briefly go over the entire package of material, which can be formidable, to identify the most helpful documents. The tables of contents and executive summaries are good starting points. Read the Executive Summary of the PRR carefully to get a “flavor” of the college or university. This will help provide the context for the review of the financial information.

29. Ideally, a Facilities Master Plan should reflect: • the mission and objectives of the institution, • the allocation of resources to build and maintain the facilities, • and the coordination of the time frames in the academic, financial and facilities plans. These are “concrete” examples of the linkage between planning and budgeting, and they provide the framework for assessment.

30. Did the building get completed on time and on budget? This can be part of an assessment plan. Are the necessary facilities available? Does the institution have the resources to carry out it mission? Is there a plan to maintain the facilities? Will they be there tomorrow and in the years to come?

31. In Closing I hope you have gained some appreciation for the value of the Periodic Review Report, how the sections relate to the standards, and what Financial Reviewers might look for.