Developing and Controlling Budgets

As leaders in K-12 education, we are often called to develop budgets for schools, districts, or special projects. Having had some experience with this as well as cost control techniques, I thought I’d share my thinking regarding a strategic approach to budgeting, forecasting, and financial management. Of course I won’t get into any nitty-gritty elements of budgets (e.g. object classification) but focus more on the big picture.

Any educational organization has to engage in effective financial planning to prioritize the use of its resources. Once a budget is planned and finalized, we must closely monitor how the organization is doing in relation to its strategic plans and to adjust our budgets accordingly. Moreover, it’s the role of the CTO (or principal or director or CBO) to ensure that resources are being used for their intended purposes and that decisions regarding the budget are based on reliable information. This often requires a governance solution to certify that the planning, monitoring, and operational elements of financial management are in direct alignment with the educational organization’s mission and goals.

The best way to get started is simply to assemble a budget development team. Use collaborators to define goals, allocate resources and monitor the progress of you budget use. Team decision making is a great way to empower your staff and provide them the skills and tools necessary for them to contribute in a significant manner. Of course your team will be composed of players that have varied titles depending on your level of leadership as well as the size and structure of your organization but a typical configuration may include:

• A supervisor-level representative from the CBO’s office

• Your program or department managers

• A supervisor-level representative from HR

In most school districts, it’s the Chief Business Officer that will lead the budget development process which generally includes the development of a budget calendar and a budget template, provides any historical financial data necessary, kicks off the budget preparation process, etc. But in case the task of leading the process fall on you, creating a budget calendar is a crucial step to take care of. This calendar should include meeting dates and development process deadlines.

Typically, a budget development process should begin about six months before the upcoming fiscal year. There are many steps to the process and each one takes about a month. They include:

1. Preparing a mid-year budget report for the current fiscal year.

2. Identifying a development timetable, gathering expense and revenue information for the upcoming year.

3. Brainstorming a draft budget with your team members.

4. Revising your draft budget narrative and information based on input provided from other stakeholders.

5. Allowing time for executive team or BOE approval.

6. Incorporating the approved budget into the accounting system.

As for preparing the budget itself, the first step is to simply set your goals. Generally, I think about anticipated increases or decreases in program activities (e.g. need more field technicians to support CAASPP). I also take into consideration how we did with the current year’s budget (i.e. surplus vs. deficit). Above all, the budget goals should be based on the strategic plan of your branch and the organization as a whole. Of course you will need some materials including program/department historical budgets (e.g. year-to-date actuals, prior year’s actuals, etc.).

Convening a kick-off meeting for the budget development process is also an important move. It gives you an opportunity to introduce the budget development process and raise its importance beyond just a matter of business. A districts or branches’ budget reflects its priorities and philosophies. It should be valued as a seminal aspect of the organization’s mission. At your kick off meeting, you distribute the materials required to develop the budget and answer your team’s questions (of which there’ll probably be many).

So now, the work begins. Your department heads or unit leads forecast remaining expenses for the rest of the current year (e.g. where will their unit be at the end of the year as related to budget numbers?). This prepares them to project expenses and activities for the next year. Their initial expense budgets should reflect best estimates of what things truly cost (you can make adjustments later).

Once you’ve presented your budget and gotten approval from executive management, it’s time to operationalize your budget. At the district or COE level, it’s a good idea to have your staff (or better yet, the CBO’s office) produce monthly budget reports for you to monitor. This will give you and your team an opportunity to analyze variances between budgeted and actual revenue/expenses. It’s also a good idea to hold quarterly meetings with your program managers to analyze variances and create action plans to deal with them.

Although I am by no means an accounting expert, I have had some project management training and can report that there are a number of strong techniques for cost control. Now I already mentioned one wherein cost variances are monitored. A cost variance is the earned value of a budget item minus its actual cost. Variances will occur throughout the course of the year. What a leader’s job is includes determining the magnitude of the variance and deciding if the variance requires corrective action.

The last thing I would express on the matter of budget management is that I am an advocate of zero-based budgeting (as opposed to incremental budgeting). Yes, historical information can be very useful in the development of an annual budget but too often, we assume that the baseline budgets from yesteryear are accurate enough and only take into account variances in developing a new budget. I believe this can cause inaccuracies (particularly in the fast-paced world of IT) and can bloat your budget over a period. That is, a budgeting process should cause your system to evaluate EVERY expenditure line based on the evolving values and goals of the organization. It’s a bit more time consuming but can lead to significant savings or stark observations in the end.