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Budget Theory

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Two Questions
1. Why Do We Budget and Forecast?
1. Budget and Forecast Timeline

2. How Do We Budget and Forecast?
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Why Do We Budget and Forecast?
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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
departments financial results for a fiscal year.

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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.


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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.

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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
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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
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Budget and Forecast Timeline
Financial Review

Review financial position
Operating budget surplus / deficit
Research update
Future commitments
Capital project requests
Deficit review
Other issues






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How Do We Budget and Forecast?
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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




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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




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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?


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How to Budget and Forecast
Review of Operating Statement and Funding Source Detail
Statement



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General Operating Funding Sources
Represents your departments 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.




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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.


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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.


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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.


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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.




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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.


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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.



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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




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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.


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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






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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
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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.







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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.







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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.



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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.



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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
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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.



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Agency Funding Sources
Agencies - Funding Sources 900000 - 910000

Not included on the operating statement.

Represents a group outside of the university that uses the universitys
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.






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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.







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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.







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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.









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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
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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