finance pt.3: budgets and dashboards
TRANSCRIPT
Finance – Budgets and Dashboards
Presented By: Janet Gibbs
President & CEO
Mission Accomplished
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Session Focus
• Best practices for better budgets
– for organizations and programs/projects
• In this session, participants will learn:
– How to create budgets that capture the real costs of programs
– How to use dashboards to track progress
– How to talk with funders about budgets
What is a Budget?
• An estimate, often itemized, of expected income and expense for a given period in the future.
• A plan of operations based on such an estimate.
• A benchmark against which to measure performance
• The total sum of money set aside or needed for a purpose: the construction budget.
Purpose of the Budget?
• Fiscal roadmap
• Fiscal control
• Align with plans or Align with past?
• Balance revenues and expenses
• Save for future plans
– Debt repayment, construction project, endowment
A Budget is: An itemized estimate of expected income and expense for a given period
• Typically begins with a high level estimate of each revenue line item – Program fees, state support, gifts and grants,
auxiliary income, investment income
– Targeted organization-wide input
• Expense budget is an organization-wide PROCESS
• Report actuals against the plan
A Budget is: A plan of operations
• Certain programs and service levels are assumed in the budget
• Programs/services provided regardless (almost) of actual revenue and expense
– Auxiliary operations
– Membership activities
• Report budget variances along with program/service levels
A Budget is: A benchmark against which to measure performance
• Budget is set and never changes, even if revenues and expenses change
• If actual revenues or expenses differ, that’s OK
• Report variances and explanations – Budget was not correct
– More/less revenue due to?
– Expenses over/under due to?
A Budget is: The total sum of money set aside
or needed for a purpose
• Budget of $10 million to upgrade student
activity center
• Line item detail required
• Control project through expense budget
• Hands-on progress monitoring required
Your Role in Budgeting
• It depends!
• Does budgeting report to CEO, COO, CFO?
• How involved is the Board, leadership team, staff, members?
– Don’t forget funders, government, clients,
community
Your Role in Budgeting
• Since CFO must manage and report on the budget, the CFO must fully understand it and the goals it is expected to achieve
• What is your/CFO role in controlling the budget?
• What is your/CFO role in setting funding priorities for programs and administration?
A Variety of Budget Processes
• Incremental
• Zero-based
• Planning, Programming, and Budgeting Systems (PPBS)
• Performance based
• Formula budgeting
• Responsibility center (RCB)
• Initiative-based
Can the Budget Process Drive Change?
• In spite of the various means, change is difficult
• Most all budgets are truly incremental in spite of the road taken
• Is this good or bad?
Why Incremental Budgeting?
• Why, in spite of dozens of strategic plans and budgeting processes, do we most often end up with incremental budgeting?
– A little addition here, a little reduction there
“Fixed” Budget Roadblock
• 70%+ of all operating budgets consist of “fixed” costs – Salary and benefits
– Debt service
– Rent/lease agreements
• “Tenured” staff – Founder
– Former superstar
– Untouchables
Service Level Roadblock
• Most budget reductions come from non-program, central support functions
• Service levels naturally change
• How long can you do more with less?
• Who wants a colleague to lose their job?
Incremental Revenue Roadblock
• Revenue increases go primarily to support cost increases in personnel, operations
– Usually for programs
– Indirect costs are limited and don’t cover overhead
• Little left over for new initiatives
From Planning to Budgeting
• How do we implement all of the great new initiatives in an incremental financial world?
• Where does the money come from?
• Everything we do looks like it fits into the plan
Planning Drives the Budget
• Or does it?
• Once there is a plan, the budget should be easy, right?
• How to implement the plan’s priorities
– Fully fund 1 or 2 at a time?
– A little bit of everything each year?
– What about multi-year commitments?
For real change to occur, there needs to be a burning platform.
Otherwise, what’s the hurry?
There’s nothing like a good financial crisis to stimulate change
How to Change Resource Allocations and Program/Service Support
• Gain buy-in up front
– we want to implement this plan, don’t we?
• Focus everyone on the long-term goals
• Don’t reinvent the plan!
• Involve all levels of the organizational community
How to Change Resource Allocations and Program/Service Support
• Have a plan
• Decide to use it and develop budget process that supports inclusion of plan attributes
• Create incentives for change
• Think long term
• Show the possibilities
• Be tough!
How is the Budget Built?
• Guidelines?
• Inflation factors?
• Cuts needed?
• Revenue growth?
• Compensation increases?
• Use of reserves or budget carry-forwards?
How is the Budget Built?
• Based upon current year budget?
• Based on prior year(s’) budget(s)?
• Last year’s actuals?
• Average of past x years’ actuals?
• Incentive or new program opportunities?
Who is Ultimately Responsible?
• Budgeting by Committee
• Input from multiple constituencies inside and outside the organization
• Rank the program additions and reductions proposals
• Draw the proverbial “red line”
• What to do with multi-year commitments?
Budget Review Process
• Who is involved?
• What level of detail is reviewed?
– Line item detail
– Comparisons to prior years
• What level of detail is presented to the Board?
• Who reviews central budgets?
Budget Questions
• Should budgets be balanced?
– Conservative or aggressive estimates?
• Should budgets be cash or accrual?
• Should budgets include non-cash expenses like depreciation and accounts payable?
• Budget use of reserves?
• Budget receipt and use of grants, gifts?
Budget Monitoring and Reporting
• Monthly reports of budget versus actual
• Monthly, quarterly or annual budgets?
• Does the budget change during the year?
– If so, know what you are reviewing
– Budget variances are not necessarily bad
• KPI’s?
• Trend analysis is important
Monthly and Annual Financial Reports
• Actuals should be substantially the same – Create and present reconciliation
• Operating versus non-operating – Unrealized investment gains and losses
– Depreciation
– Use of reserves
• Educate the Leadership and the Board
Talking with Funders about Budgets
• Be knowledgeable
• Be honest and transparent
• Know what’s in the budget and what’s not
• Don’t be afraid to discuss importance of funding for infrastructure
• Understand and present impact of donor funds on your success
Tracking Progress through Dashboards
• Dashboard is a visual progress report
• Progress at a glance
• Focus on key performance indicators
• Suggest action required
• Cover the entire organization, not just budgets
Finance Dashboard
Adapted from Blue Avocado (http://www.blueavocado.org) A Nonprofit Dashboard and Signal Light for Boards
Target 6 months ago Now
Days of unrestricted cash on hand 45 days 85 days 18 days
Net surplus or deficit YTD
compared with YTD budget
Within 25k
or better
$42,500
worse than
YTD budget
$28,000
worse that
YTD budget
Government funding YTD Within 3%
5% worse
than budget
3.1% worse
than budget
Days from end of month to
financial reports 15 days 45 days 30 days
Finance
Program and Impact
Target 6 months ago Now
Number of first-time clients
enrolled 360 this year 160 205
Certifications obtained 90% 70% 82%
Paid seats per theatre
performance
90% of
available
seats 75% 85%
Presentations to churches,
companies, neighborhood groups 15 per year 7 YTD 7YTD
Program and Impact
Human Resources
Target 6 months ago Now
Performance evaluations
completed on time 90%
No data
available 82%
Truck accidents per year 0% 3 1
% diverse staff in exempt
positions 55% 20% 32%
Open workers compensation
claims
No more
than 8 15 6
Human Resources
Board of Directors
Target 6 months ago Now
Attendance at Board meetings 75% 75% 85%
CEO performance evaluation
completed 15-Feb
Not
applicable
Completed
February 13
New Board members
4 new
members by
September
30
2 new by
June 30
No change
since June
% of Board members making
personal charitable contribution 100% 35% 65%
Board of Directors
Fundraising
Target 6 months ago Now
New foundations or corporations 10 this year 3 7
New individual donors 9-Apr 11 82
Average gift size $200 $95 $150
% of unrestricted donations 30% 5% 18%
Fundraising
Compliance and Risk Management
Target 6 months ago Now
Form 990 filed on time
By
November
15
Not
applicable
Applied for
extension
Annua safety drill conducted By March 31
Not
applicable
Completed
March 15
Complete review and evaluation
of insurance coverage By June 30
Completed 4
of 7 policies
Completed
and new
policies in
place
Audit grant compliance Quarterly
Completed
25% of
grants
Completed
75% of
grants
Compliance and Risk Management
Dashboards Have Limitations
• May not be helpful on complex matters
– Consider a merger?
– Program evaluation
– Environmental scan
• Color choice is subjective
• Too many line items leads to lack of focus
Dashboard Summary
• Board members can readily focus on matters needing their attention
• Multiple data points is best
– Show trends over time
• Understand what you expect form your Board when Yellow and Red is reflected
Thanks So Much!
• For more information, please contact:
– Janet Gibbs
– President & CEO
– Mission Accomplished
– www.linkedin.com/in/janetgibbs/