2017 PAEA Workshops New Program Directors Retreat Financial

2017 PAEA Workshops New Program Directors Retreat Financial

2017 PAEA Workshops New Program Directors Retreat Financial Management and Budgeting Sandra Banas Meredith Davison Objectives Define: budget, accrual, capital expense, direct expense, indirect expense, discount rate, encumbered,

FTE, fixed expense, variable expense, variance & YTD Describe the purpose of budgeting List, compare and analyze different budget systems List and describe the three types of budgets Explain the budget cycle and its relationship with planning Identify internal and external resources to designing office / classroom space 2 Initial Considerations

Expectations of the middle manager Limitations Control Resources Variability: institutional 3 Definitions Budget Financial plan of expenses & revenue used for planning & control purposes

Developed using goals, objectives and priorities 4 Definitions Accrual Expense or revenue that increases with the passage of time Accrual-based accounting Income posted when earned Expenses posted when they occur

Cash-based accounting Expense recognized when money actually spent Income credited when it is received 5 Definitions Capital expense Investment that is useful for more than one accounting period Depreciation

Direct expense Expenses which are completely related to core business operations Controlled by the program director 6 Definitions Discount rate Average percentage of tuition amount decreased by inhouse scholarship awards

Encumbered Outstanding financial obligation not yet dispersed FTE Full time equivalent. Example: 1.0, 0.5 etc. 7 Purpose of the Budget Planning Tool Monitoring Tool Evaluation Tool

Control Tool Quality Improvement Tool 8 Budget Systems Incremental Zero-Based Prior years budget serves as a base

Each cycle starts with clean slate Based on Previous years budget performance % increase or decrease Based on Justification of

activities Objectives 9 Budget Systems Line-item Divided into: Organizational units Cost centers or academic departments

Formula budgeting Formulas for allocation Workload formula Student enrollment or credit hours x $ = $$ budgeted Expenditure categories 10

Questions to Think About What are the major issues and challenges faced by the Program? What are the major opportunities for the Program in the next 3 to 5 years? What are possible areas for cost reduction for the Program? What are the possible areas for revenue generation for the Program? 11

Components of a Budget Revenue Allocated for maintenance and growth Tuition, grants and other revenue projections State appropriations Revenue

Based on Past performance New factors Class size changes External circumstances Reported in student head count or cash Should be realistic Avoid high and low estimates 12

Components of a Budget Operating Expense Daily operational expenses Salary Phone Supplies Capital Expense Large investments Equipment

Renovations Usually centralized Depreciation What Are Some Other Components of Your Budget ? Budget Cycle Fiscal year Academic year Calendar year Continuous loop

Plan Allocate Assess Implement 15 Budget Roles

Authority to create, change & approve expenditures Role: Spender: PD Cutter: Dean Controller: CFO 16 Is Your Budget Cycle & Planning Similar or Different ? Developing a Budget

Program mission, goals and objectives Use goals and objectives to when creating budget Strategic Planning / Scenario Planning Budget Assumptions Anatomy of a Budget Representation of: Past: Spending history (usually 1-2 years) Present: Current YTD spending Future: Projections Spreadsheet format quantitative Detailed breakdown of costs

Assumptions Justifications (the narrative) 19 Preparing the Budget Request Understand your system & follow the format New (3-4 year) vs. existing (1 year) Tools: Policies (guidelines) Spreadsheet Last 1-3 years budget reports

Revenue expectations (Admissions) University objectives, strategic plan. Put first things first Stephen Covey Benchmarking data (PAEA report) 20 Benchmarking Total Budget: $1,899,411 (mean) Range: $563K $3.7m Approximately 50% salaries (faculty & staff)

Class Size Average: Total- 110, 1st Year- 46 Mean Program Length: 26 months Faculty/Student Ratio: (15.3 students/faculty academic year) Source: 31st Annual Report on Physician Assistant Educational Programs in the Untied States, 2014-2015; PAEA, 2016 21 Preparing the Budget Request Setting Priorities Expenditure categories

Salaries, Natural , Functional , Matrix Justifications/ narrative Summary Negotiation 22 Budget Expenditure Categories Salaries Benefits (various lines) Honorarium Student assistants

Telephone Postage Subscriptions Membership dues Travel Accreditation Entertainment Professional development Office supplies Instructional supplies Photocopying

Equipment repair, maintenance, & service contracts Minor equipment Contractual services Housekeeping 23 Increased Costs Benefits Facilities & deferred maintenance

Technology & IT Journals Security 24 Increased Costs Clinical Sites !! Budget Negotiation PREPARATION, PREPARATION, PREPARATION !!

Collection & lobbying are year-round activities Frequent contact with the Dean Be persistent not annoying Review the presentation Question your assumptions 26 Budget Negotiation Respect the chain of command Establish credibility with the Dean by avoiding budget padding and wish lists

Use institutional & industry benchmarks Dont be P in the A Prioritize !! 27 Budget Negotiation Have clear justifications & communication Anticipate questions: Why is an expense needed? What are the consequences if not funded? How will a new expense be funded?

What are the departments contribution to the University? Accreditation use this card wisely 28 Budget Approval Process Program Director Dean VPAA/Provost VP-Finance President

Board of Trustees or Directors State: Executive & legislative 29 Budget Evaluation Performance/Variance reports Evaluate minimally monthly Explain variance & unexpected costs Shift money if permitted Adjust money or behavior Use in developing next years request

30 Budget Evaluation Monthly reports Budgeted YTD spent YTD encumbered Variance (favorable, unfavorable) Available Prior year closeout

31 Potential Budgeting Problems Program Director ignores budget All levels of organization not involved or invested in budget process Continued unfavorable variances that remain uncorrected Budget & financial managers that dont understand the daily operations Budget does not take into account macroeconomic issues

32 Potential Budgeting Problems Program Director does not understand budget or how allowances were determined No improvement action from process Budget measures not reviewed or analyzed on a timely basis Budget etched in stone 33

Budget Games Cut everything by ___% Padded budget End of Budget Year syndrome The President wants it The ARC requires it Do what you want Its not in the budget Its in their budget (ex. brochures) 34

New Program 3-5 year cost & revenue budget Start-up costs Front load vs. incremental Break even analysis 35 Important Take-Aways Do not be afraid of budgeting Always ask questions; do not assume!

Do not ignore the budget Make friends with people in the financial offices at your university Basic Finances 101 for managers in your institution Acknowledgements Special thanks to the following colleague for his contributions to this presentation: Robert Philpot PhD, PA-C References College & University Budgeting: An Introduction for

Faculty and Academic Administrators. Larry Goldstein. NACUBO Budgets and Financial Management in Higher Education. Margaret J. Barr. George S. McClellan. 2011. Jossey-Bass 38

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