Financial Planning in an Uncertain Environment

Transcription

1 Financial Planning in an Uncertain Environment Business Officers of Nursing Schools Annual Meeting, April 26, 2012 Christine Ash VP for University Planning & Institutional Research Case Western Reserve University 1

2 C. Ash (CASH) Bio 2 BA & MBA from Case Western Reserve University (CWRU) Higher education career spans 40 years in a major private research university (CWRU) 32 of those years spent at the school level Last position in a school was as Associate Dean for Administration & Finance in the School of Engineering responsible for planning, budgeting, forecasting, research administration, human resources, facilities, communications Moved to central administration (the dark side ) in 2004 Initially as VP for Planning & Budget responsible for financial planning & management ($890M budget) Currently VP for University Planning & Institutional Research responsible for mplementing the strategic plan Most familiar with a decentralized budget model

3 There Are No Silver Bullets or Magic Spells YOU WILL NEVER HAVE ENOUGH RESOURCES TO MAKE EVERYONE HAPPY THIS IS WHY YOU NEED A PLAN 3

4 Outline Terminology The New Normal The Case for Integrated Planning The Budget Process 4

5 Terminology Types of Institutions The Products Revenues Expenses Structure/Budget Models Governance 5

6 Types of Institutions Public Community Colleges Private Four Year For-Profit Comprehensive Universities Bricks & Clicks Research Universities 6

7 7 The Products

8 Revenue Sources Unrestricted Tuition & Fees undergraduate, graduate, professional Endowment general support for operations Gifts annual funds Indirect Cost Recovery from grants & contracts State Support Auxiliaries food service, student housing Restricted Endowment professorships, scholarships Gifts discretionary support for a faculty member Research & Training federal, state, private support for specific projects that involve deliverables Royalty/Licensing Income 8

9 Expense Categories Unrestricted Direct Expense Salary & non-salary costs incurred for administration, instruction, unsupported research/scholarship & student aid Restricted Direct Expense Salary & non-salary costs incurred for research projects, special programs & activities supported by research grants/contracts, restricted endowment or restricted gifts Indirect Expense University administration, information technology, student services, libraries, facilities Auxiliaries Food service, student housing Restricted Direct Expense = Restricted Income 9

10 Structure/Budget Models Roles of Central Administration & Academic Units in Budget Management Centralized All income flows to central administration Central works with each academic unit to develop its unrestricted direct expense budget The academic unit develops its restricted direct expense budget Central administration develops the indirect expense budget Decentralized (Every-Tub-On-Its-Own-Bottom (ETOB) or Responsibility Center Management (RC) Each academic unit receives all of the income it generates Each academic unit is responsible for covering its unrestricted & restricted direct expenses It must also cover a share of indirect expenses allocated by central administration based on a set of rules/formulas Frequently central also assesses a tax to fund university-wide initiatives/priorities (subvention) 10

11 Governance Board of Trustees (volunteers) Administration Central School Faculty Staff Students Alumni How strong is the shared governance tradition at your institution? 11

12 The New Normal Higher education is facing transformational change and striving to predict/understand what is being called the new normal. The challenges posed by this set of circumstances reinforce the need for an integrated plan. 12

13 What is the New Normal? The decline in the economy three years ago and the subsequent slow recovery has affected operations and academic programs at all colleges and universities. Accordingly, now is the time for institutions of higher learning to evaluate their financial strengths and weaknesses, access unique market opportunities for new students and revenue streams, align programmatic costs with available funding sources, and focus endowment resources in areas that will create the most stable budgetary environment. The new norms that emerged after the economic downturn require more modeling and forecasting of financial results and a quicker reaction to negative indicators and trends. Managing through the economic recovery period, Grant Thornton, On Course, March

14 Challenges & Opportunities Student demographics Increased demands for accountability Increased demands for accessibility Technology Economics Globalization Competition for students and faculty Reduced federal/state funding Regulatory issues Aging infrastructure Aging faculty Specific to Nursing Schools 14

15 Integrated Planning YOU NEED A PLAN TO PLAN Integrated planning (IP) is the process whereby all planning and resource allocation activities throughout every level of the organization are effectively linked and coordinated, and driven by the institution s vision, mission, and academic priorities. (SCUP 2007) 15

16 The Case for Integrated Planning In a rapidly changing world, postsecondary institutions must be able to act quickly when encountering opportunities and threats, demonstrating a commitment to accountability and improvement, and work jointly toward dedicated, specific, and measurable goals. Today s institutions must operate strategically, designate resources effectively, and share a common vision across multiple academic and administrative units. More than ever, success requires a wellconsidered and rigorous integrated planning and budgeting framework. Integrated Resource and Budget Planning at Colleges and Universities, Society for College and University Planning (SCUP),

17 Integrated Planning Starts with the Strategic Plan The Annual Budget Should be Aligned with the Strategic Plan Mission Purpose Vision - Future Goals How Objectives Actions Core Values Culture SWOT Analysis Gap Analysis Assessment (Dashboard/Scorecard) Success 17

18 How It Should Work Budget Vehicle by which Resources are Allocated to the Priorities of Achieving the Mission Monitoring of Plans in Progress Forecast Variances Institutional Plans (Annual) Multi Year - start with Mission What If Analysis of Future Plans - Dynamic Rolls into Annual Budget School/Administrative Plans (5 Years) Aligned with Strategic Plan Need the Political Will to Look at Programs Strategic Plan (5-10 Years) Mission - Purpose Vision - Future Core Values - Culture Goals - How 18

19 What Gets In the Way? The Strategic Plan is Missing or is Sitting On a Shelf (no implementation plan) Leadership Culture/Politics Failure to Make Hard Decisions About Programs 19

20 The Budget Process Assumes There is a Strategic Plan Top Two Tiers of Pyramid Budget 20

21 Multi-Year Financial Plans Fiscal Year (FY) Begins July 1 st 5 Years is Fairly Standard FY-1 Year Just Completed FY0 Current Year FY+1 Projection-Rolls into Next Year s Budget FY+2 Projection FY+3 Projection Dynamic Process 21

22 Which Year Are We In? Past (FY-1) Historical Trends Present (FY0) Forecast Against Budget Future (FY+1, FY+2, FY+3) Planning 22

23 The Budget Planning Document The budget planning document should contain an overview of the integrated planning process, a summary of the institutional goals and academic priorities, the key budget driver assumptions, and the core institutional assumptions used in preparing unit plans and budget submissions. Wherever possible, key budget drivers should be developed by the institutions internal experts but tested through an external review process. The budget planning document is a key input in the preparation of faculty and unit plans as it gets all units to use the same core planning and budget assumptions. It is important for these plans to be reviewed by some form of executive committee to ensure integration across the institution. Integrated Resource and Budget Planning at Colleges and Universities, Society for College and University Planning (SCUP),

24 The Process Support of senior leadership is mandatory Process is important Need to create a regular cycle that includes planning, budgeting & forecasting Transparency is important More than just publishing the numbers Stakeholders want to have input Budget Committee can help validate the process Working Groups these are your experts Communication is important Electronic newsletters, forums Don t forget the politics The culture of the institution is important Intuition & experience also count 24

25 25 SCUP 2011

26 The Process 1 st Quarter (Forget Summer) July August Close FY-1 Start of FY0 Refresh Institutional Plans FY+1-FY+3 Update Historical Data (5-10 years) Update Metrics (dashboard, score card) Conduct Post Mortem on FY-1 Assess New Initiatives Started in FY-1 Develop Business Plans for New Initiatives Anticipated for FY+1 Develop Rationale for Reducing or Eliminating Support for Programs no Longer Aligned with the Mission/Vision 26

27 The Process 1 st Quarter Working Groups Prepare Area Specific 3 Year (FY+1-FY+3) Projections Local/national/international trends, demographics, risks Plans for Undergraduate Enrollment, Graduate/Professional Enrollment, Research, Facilities, Development Verify Alignment with Strategic Plan Prepare What-If Analyses Draft Institutional Planning Document September Discuss Institutional Planning Document with School Budget Committee Complete Final Draft and Share with Faculty Central Begins to Engage Schools on Institutional Level Plans 27

28 The Process 2 nd Quarter October 1 st Quarter FY0 Budget Forecast Review with Budget Committee Guidelines for FY+1-FY+3 Released by Central Salary, Fringe, Tuition Rates/Allocations, Endowment Payout, Indirect Costs Begin Preparation of 3 Year Financial Plans Incorporate 1 st Quarter FY0 Forecast Results Consult with Working Group Experts Create Contingency Plans Based on What-If Analyses November Complete 3 Year Financial Plans Final Step in Institutional Plan December Review 3 Year Plans with Budget Committee 28

29 The Process 3 rd Quarter January 2 nd Quarter FY0 Budget Forecast Review with Budget Committee 3 Year Plans Submitted to Central February 3 Year Plans Discussed with Central March Central Releases Guidelines for FY+1 Budget 29

30 The Process 4 th Quarter April 3 rd Quarter FY0 Budget Forecast Review with Budget Committee Submit Final FY+1 Budget to Central May Central Reviews Final FY+1 Budget June Close FY0 FY+1 Budget Approved by Governing Board 30

31 Financial Planning Cycle Fourth Quarter First Quarter May June July August April September March October February January December November Third Quarter Second Quarter

32 Institutional Planning Document/Budget Document Fill in at meeting 32

33 33 Plans are only good intentions unless they immediately degenerate into hard work. Peter Drucker

34 References Responsibility Management, Lessons from 25 Years of Decentralized Management, Jon C. Strauss & John R. Curry, NACUBO Publication, 2002 Responsibility Center Budgeting, An Approach to Decentralized Management for Institutions of Higher Education, Edward L. Whalen, 1991 Encouraging Accountability through Hybrid Budget Models, The Advisory Board Company Custom Research Brief, October 2008 Top 10 imperatives facing higher education institutions in 2012, Grant Thornton, December 2011 Integrated Resource and Budget Planning at Colleges and Universities Society for College and University Planning (SCUP), 2011 Society for College & University Business Officers (SCUP), National Association of College & University Business Officers (NACUBO), 34