Budgeting for Knowledge

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Budgeting for Knowledge

• New Jersey Library Trustee Institute
• October 1, 2005
• Pam Rollo

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Why Budget?

• Morbid Curiosity
• Gain Control
• Enhance Productivity
• Gain Knowledge about the Organization
• Align with the Strategic Plan
• Reveals the Expertise of the Organization

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The Strategic Plan

• The Budget serves the strategic plan
• The Strategic Plan engenders the Budget not the
  other way around

4
Budgets arePolitical

• Budgets are created for a specific entity to
  cover a specific length of time and are expressed
  in quantitative means

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Role of the Trustee regarding budgeting

• Understand the librarys financial needs
• Collaborate with the librarys director and
  become knowledgeable about the librarys goals
• Be aware of the librarys previous financial
  performance
• Have knowledge of the librarys opportunities for
  local, state and federal funding
• Become knowledgeable of supplementary source of
  revenue
• Understand the basics of legal and reporting
  requirements for funding

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Why do People Hate Budgeting?

• Budgeting by most is seen as an impediment
• Viewed as what prevents one from accomplishing
  ones dreams
• Seen as revealing weaknesses

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Budgets Should

• Be oriented to help an organization accomplish
  goals and objectives
• Be realistic plans of action
• Provide a framework for evaluating performance
  improving budget planning
• Be participatory
• Not block opportunities
• Modify the behavior of employees allowing the
  means to accomplish organizational goals

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Policy Hunting and Data Gathering

• Collaborative understanding of the Human Resource
  Policy (Job sharing, Benefits Costs. Training
  Costs)
• Provide good job descriptions
• Clear understanding of what the library does and
  with whom
• Clear understanding of current staff capability
• Facility Planning (cost per square foot fully
  loaded)
• Square footage devoted to Collection, People and
  Equipment

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Getting information from the Community

• What does the community want from the Library
• What does the Librarian want to accomplish?
• How is your Library interpreting the Vision of
  the Community?
• How is the Library performing against that Vision?

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Benchmarking and Measuring

• Competitive resource
• Fosters innovation
• Supports viability
• Reveals Core competencies
• Should be embedded within the strategic plan
• Defines Value

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Why Dont We Measure?

• Suspect that we wont learn anything that we
  dont already know
• Afraid that results will be used against us
• Afraid that we will be judged by unfair standards
• Confused by what system to use
• Expensive and time consuming
• Confusion as to where value lies

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Just the facts please

• Ensure that the audience sees the big picture
• Dont present the same way to every audience
• Champions are no replacement for good numbers
• Leave the anecdotal information in your office
  and run a sample instead

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Budget Types

• Formula Budget
• Function Budget
• Program Budget
• PPBS (planning, programming,budgeting system)
• MBO (management by objective)
• Zero based

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Budgets Quick Guide
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Traditional Fixed Budgeting

• Increase or reduce by some set percentage
• Dont ask dont tell
• Do the same with less or more with less
• Reactive and expensive if business conditions are
  guessed at incorrectly
• Political and not financial
• Characterized by Competition
• Difficulty in linking benefits of costs to
  quality of investment
• Drops costs in equal amounts over the 12 month
  period (Seasonality vs. Equal Distribution
• Scrutinizes monthly variance

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Zero based budgeting

• Defines, lists and ranks activities
• Determines the point at which programs can not be
  supported
• Creates all-inclusive decision packets which
  contain 1) measurable performance objectives 2)
  appropriate activates to achieve performance
  objectives 3) resource allocations and 4) methods
  for carrying out the activities

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Management by Objective

• Sets tangible, verifiable and measurable goals
• Lists and links the activities necessary to
  meeting those goals- high tactics
• Analyzes the activities in a step by step
  progression
• Costs the activities
• Links the activities to the calendar
• Encourages participatory management
• Provides motivational benefits

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Benefits to MBO

• Motivates teams
• Strengthens relationships
• Provides a framework for coaching
• Eliminates weak appraisals
• Provides knowledge of what is expected
• Increases satisfaction

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Activity Based Budgeting

• Shifts from detailed plans to trend analysis and
  rolling forecasts
• Takes into consideration real financial position
• Based on performance
• Performance is documented by KPIs
• Monitored by Flashes against Rolling Forecasts

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Ramifications of Activity Based

• Goals are met in real time
• Act while resources are available
• Consistent execution of plan
• Effective use of investment- clear linking of
  tactics to success
• Links service to expectations of users

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Activity Based Budgeting

• Measure
• Monitor
• Manage
• Maximize

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Success is Measured

• How happy are the clients
• Does something new and remarkable happen
• Works better than the competition
• Works as well or better than other like libraries
• Meets and sticks to the Plan
• Flexibly meets new challenges

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Remember When Preparing

• Know your audience
• Avoid surprises
• Quantify Everything
• Concise and Polished
• Ample Supporting Documentation
• Rehearse those answers

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Appendix 1 Balanced ScorecardRobert Kaplan and
David Norton

• Qualitative and Quantitative
• Concentrates on Customer Satisfaction
• Provides a complement to financial measurement
• Management system and a measurement system
• Employees themselves decide what to manage

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Key Performance Indicators

• Closer to the top /standards are financial
  closer to the bottom/standards are operational
• Standards supports the Librarys initiatives and
  link to customer performance standards
• Standards should initially be performance based
  (link to quality and not cost)
• Cost services as best of breed and deduct
  performance and expense accordingly
• Know what success looks like- Metrics

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Targets of the Scorecard

• How do customers see us?
• What Must we excel at?
• Can we continue to improve and create value?
• How do we look to stakeholders?

• Customer Perspective
• Internal Perspective
• Innovation and Learning Perspective
• Financial Perspective

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What are the Variables?

• Strategy is expressed through the definition of
  KPIs or key performance indicators
• Define Critical Success Factors

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Benefits to using BSC

• Focuses on the whole organization
• Integrates various organizational programs
• Breaks down strategic measures to local levels
  enabling unit managers, operators and employees
  to experience excellent performance