R116 – A GUIDE TO LINKING YOUR SCHOOL DEVELOPMENT AND ...

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R116 – A GUIDE TO LINKING YOUR SCHOOL DEVELOPMENT AND ...

  1. 1. R116 – A GUIDE TO LINKING YOUR SCHOOL DEVELOPMENT AND FINANCIAL PLANNING April 2008 IPF Web: Web: www.ipf.co.uk HYPERLINK http://www.fmsis.info www.fmsis.info Email: info@ipf.co.uk
  2. 2. Are your Financial Projections reflecting your School Development/Improvement Plan? One of the most difficult challenges for schools in terms of financial management has been in driving the creation of the school budget from the objectives as set out in the School Development Plan (SDP) or School Improvement Plan. For many years since the introduction of School Development/Improvement Plans, schools have created their school budget and determined what should be allocated to school development planning priorities from what ever budget was remaining, after allocating costs against what are perceived to be ‘fixed costs’. Schools are really starting to recognise the benefits of producing longer term financial plans in-line with the Departments strategy of issuing multi year budgets to schools to enable them to plan more effectively. It is also recognised as effective financial management to ensure that the priorities, as determined in the SDP, are costed accurately and built into the budgeting process. The Financial Management Standard requires that ‘The School improvement / development plan has sufficient scope and depth of the financial implications and it is reflected in the school’s three- year budget plans.’ One of the difficulties in matching the schools priorities to the budget has been in the timing of each of the separate requirements, budgeting has always been in financial years (April to March) and is likely to continue on this timetable into the foreseeable future, whilst School Development Planning clearly needs to be determined by the needs and priorities of the school in academic years (September to August), therefore the planning and funding cycles are not always aligned. How can I do it? The skill in creating a budget driven by the SDP is to clearly recognise the financial implication of each objective and to clearly recognise the point in which the costs will be incurred to meet each objective. It makes sense to at least recognise the term in which the costs are likely to be incurred and therefore recognise the financial year when the budget provision is needed. It is therefore recognising the costs of the SDP and placing them into the appropriate financial year i.e. summer term and autumn term costs would be in one financial year whilst spring term costs would be in the next financial year. In linking the resources to meet the objectives in the School’s Development Plan the school should ensure that: • Resources are targeted on improving standards and the quality of provision • Resources are used to support the varied educational needs of all pupils
  3. 3. The school also needs to ensure that financial decisions made have been effective, to do this it needs to continually: • Monitor the implementation of the School Development Plan; • Evaluate how effective the school has been in achieving targets set out in its Development Plan; • Evaluate the cost-effectiveness of decisions by weighing the resource inputs against the outcomes and benefits • Ensure that the allocation of resources promotes the aims and values of the school • Examine the ‘Opportunity Cost’ of each activity within the SDP objectives. A Tried and Tested Strategy Ensuring best fit is part of the process of driving the school budget from the SDP, obviously the school has to ensure ‘best value’ and there are many ways in which that can be done, set out below is just one strategy for budgeting which ensures best fit and certainly focuses the schools management on ensuring ‘value for money’. Stage 1. Identify school development plan resources requirements; ensure that budget provision has been recognised in the correct financial year although the SDP is in an academic year format. This exercise obviously needs to be performed well in advance of the start of the financial year. Decisions made in the autumn term i.e. the start of a new academic year need to be the first consideration when creating the budget for the following financial year. Stage 2. Examine all fixed costs, do they represent ‘best value’? apply the 4 ‘C’s (see toolkit R37 Document) criteria to ensure that absolute best value is achieved on every purchase as well as on all other costs (staffing included) This becomes extremely critical if the school cannot afford all the objectives in the SDP. The greatest error in this exercise would be to have to cut out elements of the SDP because some of the other budget areas were not as prudent as they could be. Stage 3. Ensure that your planned expenditure matches your projected income? i.e. after constructing your budget from both the SDP resource requirements and then adding in all the additional costs not determined by the SDP. If at this stage you have achieved a balanced budget then you are certainly amongst the minority of schools, often the budget is exceeded by the financial resource requirements of the SDP. It could be argued that if your school budget balances at this stage then as mentioned above, perhaps the SDP is not ambitious enough! If like the vast majority of schools you cannot make the budget balance then a workable strategy is set out below in stages 4-6
  4. 4. Stage 4. Re-examine priorities; what are the short, medium and longer term implications? Look at the value of each of the objectives to the school. Place in strict priority order every item in the SDP that needs a resource allocation, number 1 is the most important and most critical part of the SDP the last item is the least critical to the school. Stage 5. Start at the end (lowest priorities) and work backwards, decide what the options are? Downscale the objective, defer the objective or abolish that particular strategy completely! You continue with this process until you have worked your way up the list far enough to be able to balance the resource requirements with the funds available. This strategy ensures that the objectives remaining are the most critical to the school and to prove that you go through the analysis in stage 6. What you have achieved here is a balanced budget with as many of the elements of the SDP built in and in strict priority order ensuring that the most important objectives within the SDP receive the limited resources available as a first consideration. Stage 6. Option appraisal, looking at opportunity costs and performing cost/benefit analysis, i.e. what value have we lost with cutting an item from the SDP because we cannot afford it, compared with the benefits that the remaining items left in the SDP will bring to the school. The school needs to ask itself do the benefits retained outweigh the benefits lost. If not go back to stage 4 and ensure that the school’s priorities are in the correct order. Below are some financial reflections that need to be considered during the process of matching the SDP to the financial year budget: • Always start the annual budgeting from the development plan agreed priorities • More is not always better; examine the redeployment of existing resources; • Zero base budgeting versus incrementalism; examine existing spending patterns, do not accept that because ‘its always been done like that’ it is the most effective way forward for the school (challenge previous practices) • Plan for problems now; think at least two or three years ahead, further if possible albeit less likely to be as detailed in the latter years • Review the SDP for whole school issues; external constraints and opportunities; • Share budgeting with key people in your team
  5. 5. Linking budget planning to School Development Plans is not always easy and of course there are many, many reasons why schools do not plan in this way very effectively; set out below are some of the reasons why schools have poor linkage between their SDP and their longer term financial plan: • Doing what they can afford rather than prioritising outcomes • Finalising the development plan after setting the annual budget • Not costing developments in time or sufficient detail • Not challenging assumptions • Not using benchmarking tools to assess their cost effectiveness • Not identifying expenditure against actions, with smart success criteria • Not using available software to model the financial requirements of the SDP or not being able to change assumptions and immediately recognise the financial implications Obviously the ultimate management tool to enable this function to be performed successfully would be in some form of automated process, where the building of the SDP recognises the costs of each of the objectives (and the associated activities) in the appropriate term and creates a longer term financial plan based on this data in financial years. This resource requirement would then match the period in which the school receives its budget allocation, without having to perform a separate manual process of creating an SDP and then manually inputting the data into your longer term financial/budget plan. Opportunity costing (everything in the SDP has a cost?) Opportunity costing measures the value of a benefit sacrificed in favour of an alternative course of action. This could be in the use of actual tangible resources or in deciding on a particular course of action using staff time which is the most valuable resource that any school has. The school has to make opportunity cost decisions regularly and in particular during its School Development Planning process. Many schools believe that if a member of staff is performing a particular task or fulfilling an activity linked to an SDP objective, then there are no costs associated with that activity, because the employee is being paid a salary anyway regardless of whether or not they are involved in that activity. What schools need to consider is the lost opportunity of that member of staff doing something else, the school has to ensure that the benefits of the objective undertaken outweigh the benefits of the lost opportunity if the school made a decision to pursue a different strategy. This is particularly valuable when assessing whether or not the priorities in the SDP are in fact in the best interest of the school or would other strategies be more beneficial. There is also the likelihood that every activity with the SDP cannot be funded from the limited resources available and therefore prioritising the objectives and activities of the SDP is critical to ensure that all the highest priority objectives are funded first. Inevitably the school cannot afford all its ‘wish list’ and therefore sacrifices have to be made.
  6. 6. There could be an argument to suggest that if a school can afford everything in its first attempt to construct its SDP then the SDP is not ambitious enough! It is more likely that it cannot and therefore priorities have to be set and opportunity costs are a factor that needs to be considered. One of the main benefits of employing this kind of strategy in your school is the greater emphasis placed on the School Development Plan determining the priorities within the budget, not just looking at what is left after all the perceived fixed costs have been considered. Schools that already use this methodology have commented on how it certainly focuses the mind on all costs incurred within the school and ensuring that they represent the absolute ‘best value’ possible, especially when going through the exercise of having to cut out objectives from the SDP because clearly they cannot be afforded from the limited budget available to the school. Another benefit to this methodology is to ‘question and challenge’ all that has gone before, no longer is it acceptable to do things because “its always been done like that”, perhaps it still is the best methodology but going through the exercise above will ensure that you get to the right answer for the right reasons!

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