Budget and Planning, Perfect Together

Or

What Do They Want Anyway?

• Henry Mauermeyer –• Sr. VP and Treasurer, NJIT• NJIT, New Jersey’s Science and

Technology University with over 8000 students and a budget of about $270 million, 2.6 million sf of plant

• Member of many teams and frequent financial reader of the Periodic Review Reports

• Recently (1/1/08) elected to the Commission

• The PRR is usually the mid-point of the evaluation cycle.

• It is not a collection of miscellaneous data to meet some bureaucratic whim.

• It provides an excellent opportunity for the college or university to reflect on itself in a more formal manner.

• In the PRR handbook, institutions are asked to include in the PRR, among other items:

A report on enrollment

A description of financial trends

A description of planning and budgeting processes

Will try to frame the discussion around three related

points:

1. Why does Middle States Require them?

2. What are the PRR Readers and Financial Reviewers looking for?

3. How do they relate to the accreditation standards?

• First, we—the institutions and its people, you and I—are Middle States: We have agreed to the process.

• Second, The Characteristics of Excellence in Higher Education were adopted after extensive review and comment by us—the institutions—before adoption by the Commission.

• Third, a well done PRR provides ongoing support and documentation that the peer review process is creditable.

• Fourth, it is in our best interest to ensure that we have an accreditation process that is unassailable, not just a “mutual aid.”

The foregoing is important to remember as you prepare to complete your PRR so that the spirit, not just the letter of the PRR requirements, is followed.

It is in large measure what you make it.

There is an old adage – “If you do not know where you are going, any road will get you there,” but is

this what we want?

Consider:• Planning Objectives– what do we want to be in the

next 5 to 10 years – should lead to the• Tactics that are needed to get there, which should

drive the• Resource Allocation to see that the needed funds

and/or facilities are allocated to the institutional priorities

The Middle States process is not

“prescriptive”—

Each institution is responsible to develop its

vision, mission, and plans.

However, once that is done, it becomes

incumbent upon the institution to demonstrate

that it meets the Standards.

A few points/questions to consider as you

write the PRR:

Remember that it will be read by your

colleagues from other institutions: While

brevity is important, please try to include

enough information so that the reader does not

have to guess if you have provided evidence

that your institution meets the Standard.

While the focus is on the specific

requirements as outlined in the Handbook for

Periodic Review Reports, it will be helpful to

remember that in a relatively short time, the

10-year Self-Study will be due. The PRR is

not an end, but part of the continuous process.

The PRR should describe how the institution goes

about planning – Is it top down? Bottom up? Are all

the relevant parties involved in the process? Who

was involved? Did the results of the assessment

programs help inform the plan?

What is the outcome of the planning process?

Another book on the shelf, or a useful tool?

What are specifics that a financial reader

might look for?

Consistency: – Double check your data tables

– Excel is not infallible – it usually does what you ask it to do – not what you may wish it to do.

Are the numbers that are in the text supported by

applicable data?

Do the year-to-year changes seem reasonable?

If not – what was the historical cause of apparent

aberrations? Have any lessons been learned?

For projections:

Are the assumptions clearly stated? Are they supported by the objectives developed in the planning cycle?

Are any dramatic shifts explained?

Are any significant new—or deleted— programs reflected in the projections?

Are the data in the text of the PRR reconciled with the audited financial statements?

• Internal budgets may not always reflect items that appear in the audited financial statements, for example, depreciation.

• Audited financial statements may not include equipment that is capitalized.

The Management Letters (written communication from the external auditors with comments and/or recommendations for the institution) should be included. If there are any major findings, the institution should indicate what steps they are taking to address the matter.

While not in the Handbook, I would suggest that if no letter is issued, the institution include a statement to that effect so a reader knows – (a) it was not forgotten and (b) the auditors found nothing of sufficient significance to warrant a written communication.

Similarly, are enrollment data consistent?

Does the enrollment plan reflect projected enrollment changes (new majors? a shift to greater percentage of graduate students?) or that there are no changes planned?

Does the revenue projection reflect any enrollment changes?

Are programmatic changes reflected in the

financial and facilities plans?

Financial projections can be more than justthe projected budget with its revenues and expenses.

Balance sheet management can be used in the

assessment process. For example – what is

the expected cash position at year end? Are

any of the myriad of benchmark ratios that are

available from sources, including Moody’s

Investor Services, used to set targets?

If so, what were the results?

A word of caution:

Ratios must be viewed in

the context of the institution’s plans. While it

may be “nice” to conform to benchmarks, it is

more important to know why there is a

variance.

For example, is the increase in the ratio of debt service to income “bad?” At first blush it might appear so.

However, what did the institution expect (plan) to occur?

If a new residence hall was to be constructed (most are debt financed) to support an enrollment growth strategy, then an increase may be good.

But if a level ratio if it means a needed residence hall was not built and therefore there are no beds for the new enrollment, that may be bad.

Conversely, if an institution had expected to operate on a break-even basis but had to borrow to make ends meet, then that is “bad”–because it is not consistent with theinstitution’s plans.

So, in the first case, not adding debt was “bad,” while in the latter case, adding debt was “bad”—because in each case it was not what the institution had planned.

The linkage between budget and planningneeds to be more than just the usual picture of a circle of planning > budgeting > assessing > planning.

It would be helpful if the planning process isdescribed in sufficient – but not gory – detailso that the reader can understand therelationship between the sources ofresources—new revenue and reallocations—and the allocations to expense plans.

If the PRR refers to the extant material, it is

helpful to identify the section of the document

that supports the point being made in the text,

particularly if the attachment is a lengthy

document.

Financial Reviewers: It is helpful to brieflygo over the entire package of material, whichcan be formidable, to identify the mosthelpful documents. The tables of contents

andexecutive summaries are good starting points.

Read the Executive Summary of the PRRcarefully to get a “flavor” of the college or university. This will help provide the contextfor the review of the financial information.

Ideally, a Facilities Master Plan shouldreflect:

– the mission and objectives of the institution,– the allocation of resources to build and

maintain the facilities,– and the coordination of the time frames in the

academic, financial and facilities plans.

These are “concrete” examples of the linkage between planning and budgeting, and they provide the framework for assessment.

Did the building get completed on time and on

budget? This can be part of an assessment plan.

Are the necessary facilities available? Does the

institution have the resources to carry out it mission?

Is there a plan to maintain the facilities? Will

they be there tomorrow and in the years to

come?

In Closing

I hope you have gained some appreciation for

the value of the Periodic Review Report, how

the sections relate to the standards, and what

Financial Reviewers might look for.