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 £800m) 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

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 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 UoM income by type

Income shown as proportions UoM income proportions As % of total

Compared to the sector UoM income proportionsSector income proportions UoM 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 UoM 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 £33m 5% would be £42m 6% would be £50m What will the actual surplus be in 2012/13?

Process Change – budgeting and planning Timetable changed Submit 5YP 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!