Strategic Budgeting and Financial Forecasting

Transcription

1 Strategic Budgeting and Financial Forecasting

2 Table of Contents I. Armstrong II. Challenges III. The Forecasting Platform IV. Demonstration V. Sample Screenshots VI. Benefits 2

3 Armstrong Atlantic State University Situated on the Atlantic coast in beautiful Savannah, Georgia, Part of the University System of Georgia Approximately 7,000 students 100 academic programs Tuition & Fees ~$3,000 per semester (full-time in-state undergraduate students) 260 acres 1 million square feet of buildings 1,440 beds $110 million budget 3

4 Challenges

5 Sector Challenges (2013) Moody s recently published a credit outlook for the higher education sector in 2013 Moody s revised outlook to negative for all groups in the sector, even the most diversified market leaders Moody s has maintained a negative outlook for much of the sector since 2009 but previously excluded the wealthiest and most diversified institutions The following key credit factors support the outlook in 2013: Price Sensitivity continues to suppress net tuition growth All Non-Tuition Revenues are strained Student loan burden and defaults create taint perception of value Increased public scrutiny escalates risk of regulations and accreditation sanctions Long-term sustainability depends on strong leadership 5 5

6 Sector Challenges (continued) Re-evaluate operating cost structure Many institutions implemented one-time savings initiatives during the financial crisis but did not address long-term cost structure Revenue diversification is no longer viewed as sufficient as all revenue sources are pressured Adjust to flat line revenue growth Continued political and public scrutiny on the affordability of a post-secondary degree Accrediting agencies have increased actions by almost 50% from Commonwealth of Virginia published a database with starting salary information for new college graduates broken out by university, degree, and program Growth in online learning The ability for management to weather through financial challenges and provide greater value for students is going to be critical in 2013 The sector will not receive a stable outlook from Moody s until pricing power improves through strong economic growth, including sustained improvement in the housing 6 market; the unemployment rate drops below 6.5%; and the stock market experiences multiple years of positive returns 6

7 Sector Challenges (continued) Universities must continue to develop processes to identify and evaluate risks on an ongoing basis, not simply in reaction to an event on campus or in the industry. Moody s, report dated January 16, 2013 Prospects for long-term sustainability depend upon strong leadership through better governance and management. Moody s report, dated January 16, 2013 High-profile events have highlighted the importance of an institution maintaining strong leadership, enterprise risk management, and internal controls. We believe these measures better position an institution to react to unforeseen events and develop an effective response strategy. Standard and Poor s, February 25, 2012 report 7 7

8 Review of 2012 Moody s recently released its annual median reports for public universities and private universities The report highlights the following trends experienced in 2012 Expense growth outpaced revenue growth, on average Revenues declined due to lower state appropriations and grant funding Overall flat enrollment, while graduate programs have experienced a decline Federal financial aid is funding more of the universities sticker price Debt issuance declined Balance sheets weakened as endowment returns were less than endowment draws Age of plant declined for public universities, suggesting that capital investments are being financed with operations, gifts, or capital state appropriations; while age of plant increased for private universities Liquidity remained steady and strong given continued volatility and uncertainty in the marketplace Due to these dynamics, Moody s expects to see University s experience the following: Continued cost containment Re-evaluation of existing business model, particularly in light of new delivery models that are 8 emerging Financial resources will likely grow through investment returns and giving rather than through operating surpluses going forward 8

9 Armstrong Challenges Lack of data Need to: Analyze revenue and expenses by enrollments by subgroups Colleges Part-time, full-time, in-state, out-of-state, summer, etc. Manage long- and short-term resources Capital Human Monitor ratios for our PPV Monitor ratios for bond ratings Ensure management decisions maintained financial stability Provide transparency Develop real-time forecasting tool for decision-making (including what ifs) Cash-based budget for University Cash-based P&L s for operating units GAAP-based financial statements (for third parties and System) Statement of Net Assets Statement of Revenues, Expenses, and Change in Net Assets (SRECNA) Statement of Cash Flows Track Net assets Rating agency metrics Composite Financial Index (CFI) Facilities Condition Index (FCI) 9

10 Armstrong Opportunities Operate a sustainable business model Think Ahead financial forecasting and planning Financial Policies Actively manage credit ratings Transparency and information sharing with stakeholders Results Maintain access to the capital markets Maintain flexibility for future change Maintain pricing power Confident and strong management team 10

11 The Forecasting Platform

12 The Problem At most colleges and universities, strategic forecasting is often difficult, inefficient, poorly executed and/or not even attempted Complex (multi-variable, multi-order) relationships among key variables Data is often scattered among single-focus models, accounting systems, ERP systems Difficult to project a Statement of Financial Position Difficult to track Net Assets Most institutions are resource constrained Mission-level questions from key stakeholders (Board, President, investors, rating agencies) take days, weeks, or even months to answer Answers are not comprehensively determined and are often uni-dimensional Staff is inefficient in providing the answers because there is no single institutional analytical approach Stakeholders should be able to get nearly immediate feedback on key strategic questions An institution s strategic plan should be crossed against a reliable business plan (with supporting sensitivity analysis) 12

13 The Solution Develop a comprehensive, fully-integrated, and totally customized strategic/financial forecasting and analysis that unites all campus-wide planning activities into a single institutional point of view Quantify the strategic ramifications of changing operating variables, operating initiatives, and/or capital initiatives CFO 13

14 Key Aspects of Effective Strategic Planning Establish relationships among key independent operational drivers Mimic institutional business model Develop bottom-up analysis Incorporate institutional idiosyncrasies and nuances Check veracity of projection logic (reconcile to audited financial statements) Consider multi-order relationships Consider class of restriction Operating Non-operating Investments (by type) and endowment Integrate capital assets and the funding thereof into the analysis Facilities Debt Space Maintenance backlog 14

15 Key Aspects of Effective Strategic Planning Incorporate structure that permits easy sensitivity analysis Operating initiatives Capital initiatives Customize output in consideration of different stakeholder needs GAAP-based financial statements Cash-based Budgetary (P&L) statements Cross walk between Activities and Budget Financial ratios and other metrics Rating agency ratios Moody s benchmarks Scorecard Other rating agencies Composite financial index (CFI) Department of education metrics Facilities condition index (FCI) In-house targets Create architecture that permits easy evolution of the model 15

16 Demonstration

17 Sample Screenshots

18 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 2.5% 2.5% 2.5% 2.5% 2.5% 33.5% 36.0% 37.0% 38.0% 40.0% 0.0% 2.5% 0.0% 5.0% 2.0% 5.0% 2.0% 5.0% 2.0% 5.0% 48, ,234 58, , , , , , , , , , , , ,736 62,971 User Interface #1 -- Customized Dashboard PFM customized a Dashboard to drive AASU s preferred set of independent variables Outputs Assumptions Operating surplus M Budget surplus M Change in net assets M Financial results Budget surplus 20M 15M 10M 5M 0M -5M Change in net assets 20M 15M 10M 5M 0M -5M Current = $65.50M Base 1 = $65.50M Current = $122.20M Base 1 = $122.20M In-state undergraduate Enrollment full-time students Enrollment -- (fte) SCH Fall Spring Fall Spring 3,000 70,000 60,000 2,500 50,000 2,000 40,000 1,500 30,000 1,000 20,000 10, Fall FT UG 0 0 Percentage Tuition rate change increase enrollment 10% 20% 8% 10% 6% 4% 0% 2% -10% 0% Class-specific tuition rate increase Waiver rate 12% 50% 10% 40% 8% 30% 6% 20% 4% 2% 10% 0% 0% Select primary category to control Select secondary category to control Class-specific tuition rate increase Totals: 10 future years in Current year $$ Bifurcated screen permits users to drive a customized set of assumptions while simultaneously viewing a customized set of outputs 18

19 Students Students FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Revenue totals Tuition and fees revenue $ Tuition $ Undergraduate FT - in-state $ Undergraduate FT - out-of-state $ Undergraduate PT - in-state $ Undergraduate PT - out-of-state $ Undergraduate summer $ Graduate FT - in-state $ Graduate FT - out-of-state $ Graduate PT - in-state $ Graduate PT - out-of-state $ Graduate summer $ online $ Fees $

20 Auxiliary Auxiliary enterprises FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Revenue totals Total $ Residence halls $ Bookstore $ Food services $ Parking/transportation $ Health Services $ Intercollegiate athletics $ Other organizations $

21 Employees Employees FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Full-time equivalents (FTEs) Employees FTE Faculty FTE Regular FTE Lecturer (non-tenure track full time) FTE Part-time FTE Summer FTE Staff FTE Professional and administrative FTE Staff FTE Other FTE Student employees FTE

22 Articulated Financial Statements Fully-projected Statement of Net Assets, Statement of Revenues, Expenses and Change in Net Assets (SRECNA), and Cash Flows ensure trustworthy projections 22

23 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 Graphical Representation of Financials/Budget Budget FY13 FY14 FY15 FY16 FY17 Aggregate Sources Net student revenues 225, , , , ,228 Tuition & fees 242, , , , ,444 Room 18,310 18,768 19,498 20,181 20,948 Board 11,436 11,722 12,141 12,479 12,854 less: Student financial aid (47,469) (48,704) (45,166) (47,394) (50,018) Gifts 15,489 11,500 11,615 11,731 11,848 Grants 1,000 1,023 1,209 1,248 1,291 Government appropriations 3,173 3,125 3,170 3,211 3,247 Other program revenue 1,592 1,630 1,679 1,729 1,781 Investment and endowment income 29,577 29,165 32,192 36,280 40,878 Other sources 4,498 4,604 4,743 4,885 5,031 Other auxiliary 9,528 9,766 10,142 10,555 10,962 Total budget sources 289, , , , , % 0.9% 5.5% 4.0% 4.1% Uses Staff salaries and wages 127, , , , ,462 Benefits 42,380 45,537 48,834 52,406 55,983 Student salaries 2,655 2,737 2,860 2,988 3,123 Operations (non-personnel) 87,246 89,165 91,858 94,892 98,294 Debt service 11,904 11,967 11,978 13,231 13,350 Principal 4,578 4,759 4,945 6,433 6,820 Interest 7,326 7,208 7,033 6,798 6,531 Budget surplus from Budget Budget surplus M Change in net assets M Budget surplus 50M 40M 30M 20M Financial results Current = $285.44M Base 1 = $248.21M Budg Chan Total budget uses 271, , , , , % 3.4% 3.6% 4.1% 3.8% 10M Budget surplus 18,317 11,945 18,040 18,208 20,055 0M Change in net assets 110M Current = $763.58M Base 1 = $694.16M 90M 70M 50M 30M 10M Change in net assets from SNA/SRECNA -10M -30M -50M Current Year Used = Original Totals: 10 future years in Current year $$ 23

24 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 3.0% 3.0% 3.0% 3.0% -5.0% -1.0% 0.0% 0.0% 1.0% 3.0% 3.0% 2.0% 3.0% 2.0% 45,248 48,995 48,995 55,234 55,234 58,732 58,213 57,724 57,147 57,147 58,861 58,732 58,213 53,745 51,058 51,058 51,568 60,627 52,342 58,802 62,446 53,389 64,319 54,456 66,249 55,546 68,236 56,657 70,283 57,790 58,945 72,392 Enrollment impacts AASU is evaluating a projected near-term flattening of enrollment growth Income (loss) before other M University M Change in net assets M Income (loss) before other 10M Marginal 8Mimpact on GAAP financials 6M (3 scenarios) 4M 2M 0M -2M Change in net assets 10M 8M 6M 4M 2M 0M -2M Financial results (GAAP) Current = $23.25M Base 1 = $30.66M Base 2 = $17.77M Current = $23.25M Base 1 = $30.66M Base 2 = $17.77M 80,000 70,000 70,000 60,000 60,000 50,000 50,000 40,000 40,000 30,000 30,000 20,000 10,000 Select primary category to control Select secondary category to control Enrollment Enrollment -- SCH Fall Spring Enrollment dip 0 Percentage Percentage change change in in enrollment enrollment 20% 20% 10% 10% 0% 0% -10% -10% 12% 10% 12% 10% 8% 6% 8% 4% 6% 2% 4% 0% 2% 0% Class-specific tuition rate increase Class-specific tuition rate increase Class-specific tuition rate increase Class-specific tuition rate increase Current Year Used = Original Totals: 10 future years in Current year $$ 24

25 SRECNA Impact Base Case Enrollment Dip SRECNA Operating revenues FY14 FY15 FY16 FY17 FY18 Net tuition and fees Student tuition & fees less tuition discount Government grants and contracts Private grants and contracts Sales and services of educational activities Auxiliary enterprises Other revenues SRECNA Operating revenues FY14 FY15 FY16 FY17 FY18 Net tuition and fees Student tuition & fees less tuition discount Government grants and contracts Private grants and contracts Sales and services of educational activities Auxiliary enterprises Other revenues Operating revenues Operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% Salaries Benefits Non-personnel expense Scholarships and fellowships Depreciation Operating revenues Operating expenses 0.0% 0.0% 0.0% 0.0% 0.0% Salaries Benefits Non-personnel expense Scholarships and fellowships Depreciation Operating expenses % 0.0% 0.0% 0.0% 0.0% Operating surplus Operating expenses % 0.0% 0.0% 0.0% 0.0% Operating surplus

26 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY Staffing impacts Considering organic impact(s) on staffing levels and attendant salaries and benefits Income (loss) before other M University M Change in net assets M Salaries by type % allocation of salaries Faculty Staff Students 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% $ allocation of salaries Faculty Staff Students 60M 50M 40M 30M 20M 10M 0M Marginal impact on salaries and benefits Income (loss) before other M University M Change in net assets M Faculty and staff Faculty/staff changes (cumulative) Student/faculty ratio Student/staff ratio Facultystaff ratio Additional faculty/staff Faculty FTE change Staff FTE change Income (lo University Change in n 26

27 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 2.5% 3.0% 3.0% 3.0% 3.0% -1.0% 0.0% 3.0% 3.0% 3.0% 45,248 48,995 55,234 58,732 58,213 57,724 57,147 57,147 58,861 60,627 62,446 64,319 66,249 68,236 70,283 72,392 Space impacts Considering organic impact(s) on space needs, by type of space. Income (loss) before other M University M Change in net assets M Space surplus/deficit ( 000s sf) Marginal 50 impact on space (by type) Space Student services Public Administrative Research Residence halls Academic 70,000 60,000 Select primary category to control Select secondary category to control Enrollment Enrollment -- SCH Fall Spring 80,000 Enrollment dip 0 50,000 40,000 30, ,000 10,000 0 Percentage change in enrollment 20% % 0% -10% 12% 10% 8% 6% 4% 2% 0% Class-specific tuition rate increase Class-specific tuition rate increase 27

28 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Capital planning In addition to the operating initiatives, AASU is analyzing the marginal impact of various capital projects Building projects Health professions building -- Best guess on + Elements of Project Cost 35,000 3,500 15,750 15,750 - Project costs $ ,000 - Land $ Design costs $ 3,500 Building costs $ 31,500 Building renewal $ Property improvements $ New equipment $ Change in Construction in progress $ 3,500 15,750 (19,250) - Construction-related CIP $ 3,500 15,750 (19,250) Capitalized interest CIP (Facilities) $ Capitalized interest (Debt) $ New capital funding sources 35,000 3,500 15,750 15,750 - Cash $ Use of unrestricted operating reserves $ Gifts $ - 1,500 1,500 - Receipt of capital gifts $ 1,500 1,500 Receive capital gift pledge $ Pledge payments $ Appropriations $ 3,500 14,250 14,250 - State capital appropriations $ 3,500 14,250 14,250 Capital funds used 35,000 3,500 15,750 15,750 - Reserves and other assets $ 3,500 15,750 15,750 - Use of unrestricted operating reserves $ 3,500 14,250 14,250 Reimbursement of unrestricted resources $ Use of temporarily restricted reserves (accumulated gifts) $ 1,500 1,500 Use of unrestricted endowment $ Operating costs & revenues Additional operating revenues Utilities reimbursement $ Maintenance and reimbursement allocation $ $2.00 per sf State operating appropriation $ General expense reimbursement $ Maintenance and reimbursement allocation $ $3.85 per sf State operating appropriation $ Additional operating expenses Additional operating expenses $ Additional utilities expense $ Plant operations personnel Cost, $ funding, Maintenance and reimbursement allocation $ 1 State operating appropriation spending, $ and 25 Custodial personnel $ operating variables Maintenance and reimbursement allocation $ 1 State operating appropriation $ 18 Other Additional housing space sf 100,000 Income (loss) before other M University M Change in net assets M Income (loss) before other 10M 8M 6M 4M 2M 0M -2M -4M -6M Change in net assets 10M 8M 6M 4M 2M 0M -2M -4M -6M Financial results (GAAP) Marginal impact(s) of project on debt capacity, cash budget, and GAAP financials Current Year Used = Original Current = $12.22M Base 1 = $23.25M Current = $47.22M Base 1 = $23.25M Totals: 10 future years in Current year $$ Incom Unive Chan 28

29 Benefits

30 Benefits of Strategic Forecasting Better decision-making Ground conversations Provide feedback Better capital budgeting Consider timing, cost, and funding on an integrated multi-year basis Better assessment of affordability Better allocation of scarce resources Better communication Within the institution With Trustees With outside stakeholders (contributors, rating agencies, accreditation bodies, lenders) Better oversight and control 30

31 Armstrong Advancements (Budgeting, Where We Came From) Historically Lack of Tools for Measuring Performance Lack of Forecasting Lack of data Today Able to predictively model Evaluate trends Analyze performance Budget with more accuracy Better strategic planning Better compliance Real time (on the fly) budget modeling 31 31

32 Armstrong Advancements (Effects of Budgeting) Historically Poor cash flow Inadequate fund balances Inadequate financial ratios Untimely receipts Lack of management reports Not linking strategic priorities to budgets Today Increase in cash on hand by over 900% Decrease in receivables by 50% Increase in revenues Able to link strategic priorities to budgeting process Fund balances increasing Tuition payments on time Management reports and tools to evaluate performance 32 32