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How Reliable Is Your Emergency Budget?

March 28, 2019, 10:45 GMT+1
Read in 7 minutes
  • If a sudden drop in revenue necessitates ‘breaking out the emergency budget’, what should that mean in practice? Sue Birchall takes a look…
How Reliable Is Your Emergency Budget?

Some readers may feel that the term ‘emergency budget’ is something of a misnomer, given the education system’s fortunes under a continuing state of financial austerity.

When set against the reduced real-terms funding many schools face and the need for monies to be spent within a year on current pupil cohorts, the notion of schools being able to build an ‘emergency fund’ seems more fantasy than reality.

However, as a practising SBM for more years than I care to count, I’m very conscious of the need to develop an emergency plan. The very act of spending money within schools calls for dynamic financial management skills and a good knowledge of not just the current budget, but also the landscape of the school’s future plans versus its available finances.

My own approach to devising an emergency plan has been honed over time via experience, learnt knowledge and by working through some very uncomfortable financial situations…

Tools, not wands

A key constant throughout the process of devising your emergency plan should be an awareness of your school’s strategic priorities and an appreciation of its direction of travel. By this, I mean the school’s standing in the community in terms of popularity and parental preference. You need to be aware of your school or academy’s improvement plan, any broader trust plans and the potential impact of external influences, such as government policies. Be aware that a school’s finances will also be subject to influence by any and all of its stakeholders.

At this stage, I should point out that the objective I’m outlining here isn’t necessarily for the school to be left with a hidden ‘pot of gold’, or reserves of cash significant enough to be classed as an ‘emergency budget’ (though if you’re lucky enough to have some, guard them well!)

For me, it’s more about the need for there to be an element of conservative budgeting within your financial planning. Even schools experiencing financial hardship – a very real situation for many – can make use of the concept, though it shouldn’t be seen as a magic wand. Emergency plans should be seen more as useful tools that will give you a forward thinking, realistic view of your school or academy’s particular situation.

In order to work, they require a certain degree of preparation and a form of management which recognises that it’s sometimes important to take risks.

The staffing challenge

For all of us, staffing will be the single largest area of spending we have to manage. When planning my staffing budgets, I’m always careful to cite ‘posts’, rather people in my budget predictions.

Using a staffing structure when building your initial budget will give your colleagues confidence that the in year staff plan is affordable. This, of course, won’t necessarily be the same structure that you end the year with, but costing the posts in this way allows for discussion throughout the year if the initial structure proves unaffordable or in need of change.

In many cases, you’ll find that contingencies previously put in place aren’t actually required, giving you a bit of wiggle room and perhaps creating the first element of your ‘emergency fund’. Following a set of contract management protocols and procedures helps me ensure that I never waste money by continuing a contract that’s run its course or is no longer required. Re-negotiating a contract during your financial year can create immediate savings, adding a little more to your ‘pot’.

Try to identify any opportunities for increasing funds in year through match- funding projects and activities; by keeping abreast of the funding opportunities available to you and maintaining best value, even small savings can soon add up.

A dynamic approach

Benchmarking areas of spend and the cost of your classes can sometimes result in efficiencies or alternative strategies that might not be your first choice, but which could provide alternative sources for your emergency pot. Your emergency fund could also be boosted from other areas – if you’re a maintained school needing to make redundancies, for example, your LA may well offer a fund you can apply to if there are financial factors behind the decision.

Some MATs may keep money in reserve for academies in similar circumstances. Adopting a dynamic approach to budget management means always being on the lookout for value opportunities and potential cost savings. If this can be extended to the whole school, it can have a significant impact on your ability to manage any pending financial issues.

So, having secured an element of contingency within my budget, what would trigger the decision to use it? With the best will in the world, and even the most informed level of financial planning, our schools and academies remain open to risk from numerous areas. If you’re part of a large MAT, you’ll at least have a level of security in your financial risk management from the knowledge that there’s an economy of scale model backing you.

Think long-term

Maintained schools and standalone academies, however, have historically been able to call on support from LAs and the DfE that’s increasingly no longer there. As a maintained school, for example, it’s no longer possible for us to take out a revenue loan; we now have to apply for a licensed deficit and put a recovery plan in place.

A costed school or academy improvement plan that’s regularly reviewed and updated will assist with your ongoing essential monthly monitoring and help flag up any concerns on the horizon. It’s important that any identified concerns are shared with other stakeholders, such as SLT and governors, as soon as possible. The earlier a conversation can be had, the quicker it will be for contingency plans to be put in place and for priorities to be changed, if necessary. Ideally, you’ll want to combine long-term planning with long-term financial forecasting.

That’s where the ‘emergency pot’ comes into play. This involves taking non-essential elements of your spending and using them to plan your strategy, without shying away from more unpalatable areas. Be aware that a willingness to embrace ‘risk management’ isn’t the same as being ‘being risk averse’. There are always going be occasions when a risk taken in year one delivers welcome benefits in future years. In conclusion, an ‘emergency pot’ may or may not consist of actual cash – but it will have value.

Sue Birchall is a consultant, speaker, writer, trainer and business manager at The Malling School, Kent.

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