1. The Basics of Budgeting ELPA 9451

2. 1.Fiscal Management  Decision maker  Follower of institutional policy 2.Listening Post  First line of defense for institution problems  Overseer of complex information systems  Go-between from staff to leadership Role of Budget Manager

3. 3.Resource Gatherer  Fund-raiser  External relations to outside vendors  Identification of revenue sources 4.Problem Solver  Tough answers to tough problems  Gathers support for budget decisions Role of Budget Manager

4. 1.Putting Business Strategies into Operation  Reflects the plans, priorities, goals, and aspirations of the unit.  Sometimes the goal is to meet costs 2.Allocating Resources  Needs – an essential element of unit to meet institutional expectations  Wants – Something desired by the unit Purposes of a Budget

5. 3.Providing Incentives  Ideally incentives are produced to encourage sound fiscal management 4.Giving Control  Centralized – central budgeting authority reviews all expenditures that exceed $X  Decentralized – Each units budget manager is held accountable  Responsibility Centered Management Purposes of a Budget

6. 5.Providing Means of Communication  Means of providing information to outside observers  Accountability measures to state, boards, public, etc. Purposes of a Budget

7.  Operating Budget  Core budget for an institution  Reflects all income from all sources  Shaped by rules and policies  Based on the fiscal year  University of Missouri budget calendar University of Missouri budget calendar Types of Budgets

8.  Capital Budgets  Investments that go beyond the current fiscal year  Physical plant, new construction, major equipment  Repair and renovation  Often bonds are sold to finance capital improvements Types of Budgets

9. Incremental Budgets – Assumptions: Both needs and costs vary only slightly from year to year Budget from previous year accurately reflects the expenditures of the units – Units receive the same percentage increases based on previous years budget – No strategic examination of the expenditure patterns Budget Models

10.  Redistribution  A unit gets a general budget increase, but budget manager redistributes dollars within all lines of the budget  Allows the manager to more accurately adjust money towards areas that need it  More complex and time consuming Budget Models

11.  Zero-Based Budgets  Each item in the budget must be justified  No assumptions about the budgeting process  Allows careful review  Time consuming (inefficient?) Budget Models

12.  Formula Based Budgeting  Mathematical formulas are used to allocate resources  Based on deliverables (credits, students, etc.)  Often used by states to allocate funds to institutions Budget Models

13.  Responsibility Centered Management  Each organization within an institutions is responsible for their own revenues and costs  Self-sufficient units  Provides incentives and flexibility to meet changing priorities  Encourages competition between units Budget Models

14. Q: Which budgeting models are consistent with the UM System’s allocation principles?UM System’s allocation principles  Incremental Budgeting  Redistribution Budgeting  Zero-Based Budgeting  Formula Based Budgeting  Resource Centered Management Budgeting Question

15. Understanding the Organization – Important to learn about not just your own unit, but the institution as a whole – Understand internal processes and policies Who knows the answers to problems you may face? Understand your “Inheritance” – What were the norms in your unit? – Fully understand all accounts under your care – Critical issues that must be addressed Common Issues

16.  Assessing Capabilities  What can your colleagues do? Not do?  What can you do effectively? Not do effectively?  Anticipate Problems and Solutions  Budgetary Reviews  Understanding the history of past budgets  Identify Chronic and one-time problems  Manage Change  Consensus of colleagues to implement changes Common Issues

17.  Overestimating revenues  Postponing a problem  Failing to ask for help  Failing to identify hidden costs  Failing to plan for the end  Failing to identity multiyear consequences  Failing to understand implications for others  Assuming the good times will continue Common Pitfalls

18. Questions to ask when facing budget cuts: 1.How much time is available to implement cuts? 2.How reliable is information available? 3.What is the risk tolerance within the institution? Budget Cuts

19.  Freeze  Generally, in terms of hiring of staff and faculty or of major purchases  Often an interim step as decision makers think long- term  Across-the-Board Cuts  Easiest strategy to implement  Equitable, but not strategic Strategies for Budget Cuts

20.  Targeted Reductions  Strategic reductions in specific line items or units  Good data needed to implement  Restructuring  Combine programs, new technology, new fiscal structures  Riskier strategy Strategies for Budget Cuts

21.  Choose a unit on campus and select a strategic goal to achieve.  Using Conneely’s “Five Steps to a Financially Strategic Plan” (p. 55) identify for each step:  the decisions to be made  the information needed  other important aspects Group Discussion Question