Developing an Operating Budget

You are the administrator of the Adult Education Department at Blooming Park University, the largest university in the Twin Cities metro area. You will be creating the budget for your department. To prepare, you have to go to a budget meeting for the overall university, where you'll hear about the current fiscal year — and how reality is corresponding to the assumptions in the budget.

Owen Welch, CFO: Hi, everyone. Thanks for coming. We've got some important numbers to go through and a big challenge to respond to, so I think we better get started.

Carla Neustadt, Vice Chancellor of Operations: That sounds ominous.

Owen Welch: Not really, Carla. Well…let's get started. Okay, everybody take a look at the budget for the current year. We'll get to the year-to-date numbers in a minute, but for now I want to focus on the whole-year budget.

Christopher Hewitt, Vice Chancellor of Student Support: Well, can we at least get an idea of how we're doing year-to-date before you go to the 40,000-foot level?

Owen Welch: I think you might need to hear this first. Here's the situation: The university has to cut operating expenses by 5 percent for next fiscal year.

George Fink, Director of Operations: I'm sorry, did you say 5 percent? Operating expenses?

Owen Welch: That's right.

George Fink: That's a big ask. We're already operating awfully lean.

Owen Welch: Agreed. But it's the situation we're in. I'll get to the reasons, but based on what I'm going to go over, I just want everyone to keep in mind that we can't make assumptions we were making before. So let me give you an overview of the budget and the year-to-date numbers, and I think you'll see why we're going to have to make those cuts. Now, last year, for the entire university, we assumed that we would see $62,852,000 in student tuition. But as you can see, for half the year, we've only hit $29,275,000. By this point in the year, we should be at $31,175,000. So already in terms of total tuition, we've got a deficit of $8,519 that we didn't expect. The problem is made worse when we see that state operating revenue is also under budget by $1,100,000. Our operating expenses are fairly close to target so far this year, but given the situation with declining revenue, we will need to try to find some additional cost savings opportunities.

Christopher Hewitt: Wow. Well, okay, so that's the reality. What's the timeline? How long do we have to make these cuts?

Owen Welch: Well, implementation is obviously by June 30 since the next fiscal year starts July 1. The board will approve the new budget probably by mid-June, but all the negotiation at the unit and department level will be going on in April. Our first official budget committee meeting is in February. So I'd suggest getting your ducks in a row by then.