1. Carnegie Mellon Budget Theory

2. Carnegie Mellon 2 Two Questions 1.Why Do We Budget and Forecast? 1.Budget and Forecast Timeline 2.How Do We Budget and Forecast?

3. Carnegie Mellon Why Do We Budget and Forecast?

4. Carnegie Mellon 4 Why Budget and Forecast? Budgets and Forecasts A budget is a formal expression of the plans for the operation for a specific period. This agreed upon plan is then frozen. A forecast is a projection of activity based upon the latest information. A budget or forecast is your best estimate of the department’s financial results for a fiscal year.

5. Carnegie Mellon 5 Why Budget and Forecast? Budgets and Forecasts Measure actuals and forecasts against the budget throughout the planning process. Analyze anticipated versus actual results. Predict future performance and anticipate changes. Assist in monitoring control of current performance. Provide early warning of deviations from plans.

6. Carnegie Mellon 6 Why Budget and Forecast? Internal financial control by department Impacts decisions at higher levels of the University Reporting responsibility to University management Deans, VPs, President, Provost Reporting responsibility to Board of Trustees Three meetings per year plus executive sessions Reporting responsibility to bond holders Importance of good budgets and good forecasts.

7. Carnegie Mellon 7 Budget and Forecast Timeline Late August – Guidelines sent to campus for the fall financial review Late October – Formal financial review with the Provost and CFO of the current year forecast and the proposed budget for the next three years Mid November – Review of projections with university management Late November – Revised guidelines sent to campus for the winter financial review

8. Carnegie Mellon 8 Budget and Forecast Timeline Mid January - Formal financial review with the Provost and CFO of the current year forecast and the proposed budget for the next three years Mid February – Review of projections with university management and the Board of Trustees Mid February – Revised guidelines sent to campus for the final changes to budgets that will go the Board of Trustees in May Mid May – Board of Trustees review and approval of next fiscal year budget End of June – Budgets finalized in Oracle

9. Carnegie Mellon 9 Budget and Forecast Timeline Financial Review Review financial position Operating budget surplus / deficit Research update Future commitments Capital project requests Deficit review Other issues

10. Carnegie Mellon How Do We Budget and Forecast?

11. Carnegie Mellon 11 How to Budget and Forecast Information Needed to Start Your Budget or Forecast Input is required from many sources Department management Key personnel in the department (PIs, systems support, faculty that control significant funding from any source including discretionary funds, etc.) Financial assumptions from university management (salary pool, benefits rates, sponsored projects F&A rates, tuition growth, etc.) Most Important -- Your knowledge of your organization and business, including its current financial status

12. Carnegie Mellon 12 How to Budget and Forecast Information Needed to Start Your Budget or Forecast Financial Reports Operating Statement Funding Source Detail Financial Review Reports Allocation Letter Salary Information Planning Assumptions Application Desktop Integrator (ADI) Budget Development Integrator (BDI) Most Important -- Your knowledge of your organization and business, including its current financial status

13. Carnegie Mellon 13 How to Budget and Forecast First Steps Depend Upon Your Organization What is the largest part of your budget? By funding type? By expense type? Does one portion of your budget depend upon another portion of the budget?

14. Carnegie Mellon 14 How to Budget and Forecast Review of Operating Statement and Funding Source Detail Statement

15. Carnegie Mellon 15

16. Carnegie Mellon 16 General Operating Funding Sources Represents your department’s operating budget -- university allocation, summer programming, executive education, INI masters program, Heinz, GSIA, unrestricted contributions Allocation Budget Base Allocation - Funding Source 000002 - Revenue code 71100 One-Time Allocation - Funding Source 000003 - Revenue code 71200 In many cases, salaries and benefits are the largest part of the budget.

17. Carnegie Mellon 17 General Operating Funding Sources Allocation Budget continued Can segregate revenues, expenses, and transfers by activity codes for analysis purposes. First budget the monthly expense and transfer portion of the budget as these will be incurred, ensuring that the total equals the allocation, then match allocation revenue monthly to net to zero. The actual allocation revenue each month will equal the budget.

18. Carnegie Mellon 18 General Operating Funding Sources General Unrestricted - Funding Source 000001 (GL) or 000005 (GM) Note: Very few organizations on campus use funding source 000005 Budget revenues and expenses monthly as they will be incurred. Budget transfers to / from the operating reserve as needed. Allocations revenue can be budgeted / forecasted as follows: One Time Allocation Revenue DIVISION – revenue object code 71210 – revenue allocated to the department by the division. Central Allocation Adjustments – Revenue code 71250 (Used for current year forecasts only for central funding approved during the current fiscal year) NOTE: When forecasting general operating, you may use only one funding source. Be sure not to double count budget and forecast dollars.

19. Carnegie Mellon 19 General Operating Funding Sources Other Issues to Consider Tuition that is split between colleges or departments – use the IC tuition object codes to record the tuition transfer in both units (65100 for IC UG tuition transfer, 61502 IC graduate tuition transfer) Financial aid can be paid by the university (financial aid) or paid by the students from their university wages (graduate student wages). The first is a reduction in revenue, the second is an expense. Split financial aid between undergraduate (75100) and graduate (75102). Budget tuition revenue and financial aid as they will be incurred, including an estimate of the quarterly deferral for revenue recognition.

20. Carnegie Mellon 20 General Institutional Funding Source Represents general university expenses -- Insurance, legal expenses, general banking fees, external audit services, commencement, diplomas, etc. Allocation Budget Base Allocation - Funding Source 000004 - Revenue code 71100 Budget expenses monthly as they will be incurred. Budget allocation revenue monthly to net budget to zero. Other General Institutional - Funding Source 000004 Budget revenues, expenses, and transfers monthly as they will be incurred.

21. Carnegie Mellon 21 Designated Operating Funding Sources Operating Reserve - Funding Source 060000 Budget transfers to / from other funding sources as they will be incurred. Ensure that transfers match. Cost Sharing - Funding Source 063000 Any costs incurred and funded by the university that can be directly attributable as support to an existing sponsored project. Expenses are budgeted in grants by project, task and cost sharing award. Transfers to fund cost sharing and expenses are budgeted in summary in the GL. The university funds Facilities & Administration expense in cost sharing. Either the department or the university can fund the direct cost sharing expense per agreement.

22. Carnegie Mellon 22 Designated Operating Funding Sources Other Designated Operating Funding Sources Faculty Discretionary Funds - Funding Source 061000 Internally Funded Projects - Funding Source 062000 Faculty Development Grants - Funding Source 064000 SURG - Funding Source 065000 Affiliate Programs - Funding Sources 066000-069999 Technology Transfer - Funding Sources 800000-809999 Royalties are transferred to the departments and colleges. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals.

23. Carnegie Mellon 23 Sponsored Projects Funding Sources Federal Sponsors - Funding Sources 071000 - 075000 Army, Air Force, Navy, Department of Energy Non-Federal Sponsors - Funding Sources 081000 - 083020 Industry, State Government, Affiliate Sponsors Future Funding - Funding Source 089000

24. Carnegie Mellon 24 Sponsored Projects Funding Sources Sponsored projects are budgeted in detail in the Grants Management module of Oracle. Award identifies the type of funding or revenue source. Project and task define the work to be done -- budget expenses as they will be incurred. Salary budgeting and balancing is important.

25. Carnegie Mellon 25 Sponsored Projects Funding Sources Sponsored projects then need to be summarized and budgeted in GL by funding source. Revenues, expenses, and transfers should be budgeted as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Issues to be considered Use of Budget Management Spreadsheet (BMS) for actuals, budgets, GL funding sources, etc. Budgeting / forecasting in future funding

26. Carnegie Mellon 26 Sponsored Projects Funding Sources Other Issues to Consider Status of current contracts in hand Status of open proposals Department trends in win / loss on proposals Historical sponsored projects trends for the department Current information of the status of the funding from your major sponsors Timing of revenue recognition (revenue, transfers) Required cost sharing and funding

27. Carnegie Mellon 27 Auxiliary Funding Source Auxiliary - Funding Source 050000 Auxiliaries include operations such as Dining, Housing, Parking, Printing, Retail, Telecom Identified as a unique entity in Oracle to allow it to be analyzed as a stand-alone business -- operating statement, balance sheet, cash flow. Auxiliaries are expected to cover all of their costs, so university overhead is charged to each auxiliary. Revenues are based on business generated by the auxiliary. Expenses will often be directly related to revenues. Many auxiliaries carry inventories.

28. Carnegie Mellon 28 Auxiliary Funding Source Budget revenues, expenses, and transfers monthly as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Capital is charged to the balance sheet, not the operating budget Depreciation expense is charged to all auxiliaries. Consider items that will become fully depreciated during the planning cycle, as well as new capital that will need to be depreciated. For internal loans, interest is expensed; principal payments are charged to the balance sheet. Any surplus or deficit falls to the bottom line (net assets) and is carried forward to the next fiscal year. Business is evaluated on cash flow.

29. Carnegie Mellon 29 Recharge Center Funding Source Recharge Centers - Funding Source 055000 Charge services to other parts of the campus. Budget revenues, expenses, and transfers monthly as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Any surplus or deficit falls to the bottom line (net assets) and is carried forward to the next fiscal year (Note: surpluses cannot be used by other parts of the department or university). The recharge center is expected to build prior year balances into future pricing.

30. Carnegie Mellon 30 Unrestricted Endowment Funding Sources Unrestricted Endowment - Funding Sources 000100 - 049999 The endowment is much like a mutual fund. The gift buys shares in the endowment, and a yearly distribution of income is made based on shares. Budget endowment revenue at the beginning of each quarter; budget expenses as they will be incurred. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Balances carry forward into the next fiscal year.

31. Carnegie Mellon 31 Temporarily Restricted Funding Sources Temporarily Restricted Endowment - Funding Sources 100000 -199999 Temporarily Restricted Contributions - Funding Sources 200000 - 299999 Revenue must be spent per donor specifications. Budget endowment revenue at the beginning of each quarter; budget gift revenue as it will be realized; budget expenses as they will be incurred. DO NOT BUDGET TRANSFERS. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals. Balances carry forward into the next fiscal year

32. Carnegie Mellon 32 Capital Reserve Funding Source Capital Reserves - Funding Source 090100 Budget transfers to / from other funding sources as they will be incurred. Ensure that transfers match. Do not budget beginning net assets. These are generated yearly by the University based on prior year ending net asset actuals.

33. Carnegie Mellon 33 Agency Funding Sources Agencies - Funding Sources 900000 - 910000 Not included on the operating statement. Represents a group outside of the university that uses the university’s services and then either repays the university or is funded by the university. Unique object code for university funding -- 85802 - Agency Funding Examples include student organizations, clubs, etc. May have university phone service, copy service, etc.

34. Carnegie Mellon 34 How to Budget and Forecast Other Issues to Consider When forecasting gifts, consider past trends plus any knowledge that you have on future prospects. When forecasting salaries, consider the following: Source of funding for faculty, staff, and students – salaries and benefits need to be budgeted in the proper funding source. Include new employees with the best estimate of where their time will be charged. Graduate wages must be split into stipends and tuition.

35. Carnegie Mellon 35 How to Budget and Forecast Other Issues to Consider When forecasting other operating expenses, consider any extraordinary spending in the current year that will not be required in future years, as well as any new initiatives that will require funding for the first time. When forecasting capital expenditures, consider any extraordinary spending in the current year that will not be required in future years, as well as any new initiatives that will require funding for the first time.

36. Carnegie Mellon 36 How to Budget and Forecast Other Issues to Consider Balance transfers within your organization – i.e. to fund a deficit in operations, reflect the debit in the designated operating reserve and the credit in general operating. Include transfers to fund capital projects. Coordinate all transfers, IC graduate tuition transfers, IC undergraduate tuition transfers, IC educational program transfers, and IC other income for Portugal transfers with the organization that is forecasting the other side of the entry to ensure that all your numbers agree and will balance across the university.

37. Carnegie Mellon 37 How to Budget and Forecast Funding Source Mapping – Operating Statement to Financial Review Financial Review – General Operating General Operating General Institutional Financial Review – Sponsored Projects Sponsored Projects Financial Review – Auxiliary / Recharge Auxiliary Recharge Financial Review – Designated Designated Unrestricted Endowment Capital Reserve Financial Review – Temporarily Restricted Temporarily Restricted

38. Carnegie Mellon 38 How to Budget and Forecast Verify your budgets and forecasts in Oracle. Run Financial Review Reports report set Run Budget Reports report set Review yearly historical trends versus future yearly growth