Strategic budgeting planning and prioritising in uncertain times

Strategic budgeting: planning and prioritising in uncertain times January 2013

Financial results 2010/11 and 2011/12 • Income was about the same in each year (circa £ 800 m) • Why did these variances arise?

Variances against budget

Underlying reasons • Poor budgeting? • Pessimism? • Padding? • Contingencies held at too many levels? • Lack of challenge at the appropriate time?

Specific issues • ‘Other income’ is consistently understated in forecasts and budgets • Many potential costs are identified, including those which may not happen • Posts are often assumed to be filled - earlier than is actually feasible -when they are probably not likely to be filled at all • Managers hold local contingencies, even if they’re not called that!

Why does accurate forecasting matter? • Allows for longer-term planning and a more strategic use of resources • Avoids ‘knee-jerk’ spending decisions • Ensures credibility when dealing with external funders • If the University wants to realise our ambitious plans for the estate, then it will be vital! • Borrowing more is a viable option

Financial objectives set for 2011/12 • Delivering a surplus • Year on year income growth • Cash generation and conservation X

Our place in the sector • HEFCE’s report on the financial health of the sector (published November 2012) stated that: • The financial results projected to 2014 -15 are sound • But are is heavily dependent upon achieving student recruitment targets • Tuition fee income from overseas students is forecast to increase • but applications may be affected by the new UK Border Agency visa rules, undermining this assumption • There will be a greater need for institutions to fund capital expenditure (typically new buildings and long-term maintenance) from their surpluses • as capital funding has been reduced drastically

The University’s position • 2012/13 UG/PGT student numbers below target • Capital funding continues to be restricted hence need for own cash generation • Still uncertainty over future years model – ABB in 2013/14 replacing AAB • Action to diversify income streams and reduce dependence on UK Government sources – enabling strategy supporting Manchester 2020 • Concern over future PGT demand - funding

Other financial risks • Direct benefit pension schemes potential deficits and pressure on contribution rates • The impact of the reduced interest rate on deposit income and pension deficits • Other governmental changes – VAT, NI rates, CRC “tax”

Changes in income over forecast period Income in £ millions Uo. M income by type

As % of total Income shown as proportions Uo. M income proportions

Compared to the sector Uo. M income proportions Sector income proportions • Uo. M less reliant upon Home/EU tuition fees and HEFCE funding than whole sector • But more dependent upon overseas tuition fees and research grants and contracts • Other income for Uo. M in 2010/11 and 2011/12 same as sector, understated in forecast years?

Supporting Manchester 2020 Key Performance Indicator 11: Financial outcome To increase underlying financial outcome as a percentage of income to 7% by 2015, in order to provide cash for investment in strategic priorities • How does this outcome (surplus) compare to the sector? • How will this be achieved?

How does this outcome (surplus) compare to the sector? • What do you think?

Financial outcome (surplus) compared to sector

How will the higher level of surplus of 7% be achieved? • What do you think? • Is this realistic?

What Manchester 2020 says… • Increase research funding from EU and international agencies • Internationalise the student experience • Increase industry and commercial collaborations • Develop substantial fundraising activities • Support the commercialisation of intellectual property through licensing, technology transfer and the creation of spin-out companies

What this really means… • Identifying short-term and longer term financial priorities in a more strategic way • How can these be compared against each other? • How do we communicate the need for these priorities and convince people to prioritise?

Where we are in 2012/13 • • Budgeted surplus is 1. 8% of income 4% would be £ 33 m 5% would be £ 42 m 6% would be £ 50 m • What will the actual surplus be in 2012/13?

Process Change – budgeting and planning • Timetable changed • Submit 5 YP to HEFCE in July • Combined process – budget and plans done at same time • More consistent review across faculties, PSS etc • Forecast for 2012/13 being prepared in January • Vital that this is accurate – will form basis of budget and plans

How can PSS Directorates and offices support the overall financial strategy? • Be more transparent in budgeting and planning process • Be more realistic about priorities • Budget based on real need, not historical assumptions • Be less pessimistic! • Use income streams instead of keeping them for a ‘rainy day’ • Identify potential for increased income as well as increased costs • Include contingencies either locally, or centrally, but not both!