Presentation at the NACUBO Budgeting Forum Budget Balancing Strategies for Multi Year Plans: Case Study of the University of Michigan Rowan Miranda,

Transcription

1 Presentation at the NACUBO Budgeting Forum Budget Balancing Strategies for Multi Year Plans: Case Study of the University of Michigan Rowan Miranda, Ph.D. AVP for Finance September 24,

2 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 2

3 What is Multi-Year Financial Planning? A combination of budgeting, strategy and forecasting over a multi year period What is the right number of out years? A collaborative, visionary and visible process Top Down, Bottoms Up or Both? Who should be involved? Is the Financial Plan public or internal to management? An anchor for financial sustainability Institutionalize long term thinking Changing mindsets from local to enterprise level concerns 3

4 What is a Multi-Year Financial Plan (MYFP)? Why plan now? Key Components Mission & Vision The Base Budget Revenue Forecast Expense Forecast Capital Plan & Debt Capacity Analysis Gap Closing Actions Why plan now? Tuition Constraints State Appropriation Cuts Volatility in Other Funding Sources Taking a strategic rather than seat of the pants approach 4

5 A Summary of MYFP Strategic vision for the College/University Built on a foundation of sound financial principles In depth understanding of drivers for revenues and expenses Must be a collaborative and participative process Buy In from Board and Executive Leadership Even Broader Buy In for Gap Closing Actions Strong linkages to other plans Requires an investment of time and money Formal approach in place to track progress (e.g., benefits realization) 5

6 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 6

7 Taxonomy of Budget Balancing Strategies Impact of the Strategy Transitory or Sustainable Type of Strategy Revenue Raising Strategies Recent Emphasis on Non Traditional Sources Expense Reduction Strategies Routine or Incremental Transformational Process or Productivity Improvement Strategies BPR & Lean Management Information System Investments 7

8 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 8

9 Profile Organization 3 campuses (Ann Arbor, Dearborn, & Flint) 19 Schools & Colleges in Ann Arbor 42,000 faculty and staff Students 59,000 students Academic and Research Excellence Academic Programs Ranked in Top 10: 95 Times World University Rankings:18 out of 400 ( ) Research Spending: $1.2B Financial Strength Operating Revenue $5.6B (includes health system) (FY2011) Endowment Size $7.8B Bond Ratings S&P(AAA), Moody s (Aaa) 9

10 Core Financial Principles Disciplined operating budget strategy Sustained focus on cost control Continued diversification of revenue streams Adherence to long range capital plans, with emphasis on infrastructure renewal Manage endowment distributions over time Conservative utilization of debt 10

11 Budget Model Goals Encourage schools/units to set priorities and develop new activities Create incentives at the unit level to make efficient use of resources Provide sufficient discretionary resources to the Provost to support cross unit collaboration and fund highest priorities of President and Board of Regents Assure that central administrative and service units have sufficient resources to carry out their missions 11

12 The Financial Big Picture at UM FY 2011 Budgeted Revenue (in Millions), Total = $5,582M $339 Health System $817 Other Auxiliary $116 $212 $315 $2,508 Tuition and Fees State Appropriations Sponsored Programs (ICR) Other Sponsored Programs (Direct) $1,016 $259 Gifts and Endowment Distribution 12

13 Challenges to Budget Development Future Liabilities Deferred maintenance of buildings Post retirement health benefits Increasing future debt service Other Major Threats Volatility of capital markets Economic climate for Michigan & the nation Rising health care costs Continued energy cost pressure Competitive pressures Faculty recruitment/retention Financial aid/student access External research funding in light of federal deficits 13

14 Opportunities Financial challenges also pose opportunities Central and Unit Level Reserves to Cushion Volatility Slack Resources provide breathing room to innovate an invest Challenges facing peers are often more significant which can motivate action on your campus Forces prioritization of resources and challenges the wisdom of old habits New buildings and the allocation of existing space Organic staffing growth Sunset organizations that no longer serve mission Emphasis and investments in environmental sustainability Coping with deferred maintenance Renewed emphasis on All Funds budgeting 14

15 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 15

16 Guidelines for Budget Balance Protect core educational and research missions/quality Remain competitive for faculty/staff/students Maintain high quality essential services Leverage UM s size and scale (e.g., procurement) Eliminate duplicate and lower priority activities Shift costs off the general fund, where appropriate Avoid short term reductions with long term cost and/or quality implications Seek out opportunities for Shared Services Outsource (and even in source), where appropriate Take advantage of technology enablement Examine public private partnership opportunities to enhance revenue 16

17 Cost Containment in 3-Year Model Recurring budget reductions for General Fund: $157M (FY04 to FY10) In anticipation of a sharp drop off in State appropriation, the 3 Year modeling intensified cuts after FY10 Reductions and reallocation within the 3 Year model total $100M in recurring funds We have a plan in place to achieve the $100M: Initiatives put in place (~$21M) Efforts in progress (~$70M $80M) Provost s task forces (~$5M $10M) 17 17

18 Major Sustainable & Transformational Balancing Strategies Shared Services for Finance & HR/ Other Restructuring Strategic Sourcing IT Rationalization Energy Efficiency, Facilities & Space Allocation Health Benefits Cost Containment Non-Traditional Revenues 18 18

19 Average Annual GF Growth (FY99 to FY11) 19

20 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 20

21 Tips and Traps Sponsorship Alignment on messaging between President, CFO, Provost, Deans (and their staff) Why are we implementing specific cost reduction strategies? What is the impact on the financial plan? What is the impact on your unit? etc. Project Management Progress tracking on Gap Closing Actions need to be run like a real project (PMO staff, stakeholder engagement, communications, timeline, etc.) UM Academic Program Group (APG) Budget and Operations Committees Financial Futures Working Group Communications repeated need to communicate why we are doing this? and frequent project status updates to unit level budget administrators and managers Need for Outside Support be realistic! Utilize consultants for expertise and skills you don t have in house. Relying on them for staff augmentation or expecting them to drive an efficiency agenda for you, simply won t work. Costs are Important But So Is Service!!! many cost reduction strategies can reduce service; some strategies can also improve service. Be honest about impact. 21

22 Agenda Overview of Mulit-Year Financial Planning Taxonomy of Budget Balancing Strategies Budgeting Context, Challenges & Opportunities at UM Effectiveness of Budget Balancing Strategies at UM Tips and Traps for Budget Balancing Plans Question & Answer 22

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