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How to Craft a Budget in the Absence of Key Information

November 11, 2019, 11:31 GMT+1
Read in 8 minutes
  • Every SBL is expected to make financial projections based on accurate information, but what if that information simply isn’t available? Hayley Dunn takes a closer look...
How to Craft a Budget in the Absence of Key Information

The available evidence currently suggests that the DfE intends to require all schools to produce 3-year budget plans, at a time when those schools’ reserves continue to be stretched.

What that means in practice is that school leaders will be expected to take a more forensic approach to their strategic financial planning, while at the same time having to make decisions based on insufficient and/or incomplete information.

The processes of securing sufficient school funding, balancing budgets and rinsing resources for maximum efficiency are therefore all set to becoming increasingly challenging.

Risk appetite

Academy trusts are presently required to produce annual three-year Budget Forecast Returns, without being provided with any guidance from central government on what their future funding and cost pressures will look like. We now see in the DfE’s recent ‘Financial transparency of local authority maintained schools and academy trusts’ consultation a suggested proposal ‘requiring maintained schools to provide local authorities with 3-year budget forecasts.’

Should that proposal come to pass, then it’s vitally important that the resulting projections are as accurate as possible. After all, they’ll be used to inform numerous decisions and assumptions as to how financially healthy a school is, or will be, in future, as assessed by either an LA or the DfE itself.

So what should be the practical response? My own suggestion would be to adopt a risk-based approach to your budgetary projections. Everyone’s risk appetite will be different, of course. Mine, for example, could be described as a ‘low-risk appetite’, since I look to make decisions based on evidence and hard facts. Some school situations, however, may call for a balancing act between the risk appetites of different leadership types – the low risk appetite of a business leader, versus the high risk appetite of a headteacher, for example. Balancing the two can be a challenge, but the budget ultimately needs to be realistic in order to prevent bigger issues later down the line.

I’d always recommend annotating the budget plan and carefully monitoring the assumptions made, i.e. any staffing structure changes, pay award percentages, employers’ National Insurance rate, employers’ pensions rates and inflationary rises. If any of those change, add a note with the date and make sure that said notes are clearly articulated. Making these assumptions shouldn’t be the responsibility of any one individual; accountability for such vital decision-making should always be a shared leadership responsibility.

Focus points

When the time comes to review the projections, there are some key areas I’ll always look to focus my attention on first:

Pupil numbers
Pupil number forecasts are important in many ways, for reasons relating to funding forecasts, timetabling and decisions around staffing, so it’s critical that these forecasts be realistic, rather than overly optimistic. There can be the temptation, even for growing schools, to overstate these numbers. Every school needs to put in place a measured approach to forecasting pupil numbers for two and three years hence, and incorporating this into their financial planning. Carefully observing trends, and carrying out your analysis based on the best evidence available to you is the surest route to obtaining the information you need.

Funding projections
Primary schools can get a better sense of wider pupil numbers in their area from their LA and local early years providers, and use this information to make reasonable and fair funding forecasts. Basic delegated revenue funding – based on school demographics and driven by funding formulas – is provided to maintained schools by LAs. The equivalent for academies, the General Annual Grant allocation, is provided by ESFA.

Yet with no clear indications from the government as to what the school funding model will look like beyond 2020, any future budget planning you do will have to be heavily caveated with all manner of assumptions. We do know that the soft formula implementation period has been extended, with the local funding formula essentially continuing to determine allocations until 2020/21. It’s worth noting that the per-pupil funding rate for 16- to 19-year-olds has been frozen until 2020; it’s currently set at £4,000 per full-time pupil in Years 12 and 13, and £3,300 for those in Year 14.

Staffing costs
Assumptions made regarding your staffing structure, pay awards, employer National Insurance rates and employer pension contribution rates are perhaps the most important elements of your budget, given that combined gross staffing costs typically amount to circa 80% of a school’s total spend.

Information on teacher staffing costs can be sourced by keeping abreast of STRB recommendations and identifying potential pay award increases as soon as possible. You can use your own internal data to forecast incremental movement, and refer to DfE-published information in relation to grant funding for pay awards. In 2019/20, for example, the government committed to providing funds for teacher pay increases above the first 1%.

It’s often difficult to know in advance of setting budgets whether certain grants will continue. If you decide to assume a given grant will continue, then be very clear in showing the value that you’ve assumed, and outline the resulting impact should that funding not transpire. What’s the value of taking a risk and assuming it will continue?

Test, test, test

I’d also recommend testing your assumptions by keeping in touch with other schools and observing what their assumptions consist of. This can be done via local SBP networks, by consulting with your LA and obtaining information from professional associations.

The key thing to bear in mind when testing your assumptions is that if you’re making a different decision, what are you basing it on? When analysing trends in income and expenditure over time, I find it useful to refer to the previous year’s budget and outturn figures, alongside the current and future years. This allows me to review each budget line, looking at patterns and trends, and helps flag up potential areas for further investigation when significant differences can’t be immediately explained.

A strategy I use when casting a critical eye over a school budget is to apply two tests:

1. Does this cost fulfil a statutory requirement?
2. Does this cost have a positive impact on outcomes for pupils?

Be explicitly clear with your SLT and governing body about what assumptions have been made. Senior leaders and governing bodies alike should be effective, critical friends during the strategic financial planning process.

Leaders can sometimes feel extremely vulnerable when involved in strategic financial planning, and fearful of the consequences of getting something wrong. If you spot an issue, raise it at the earliest opportunity and seek support. Don’t feel that it’s your problem to solve on your own. Leaders work best with delegated autonomy and shared responsibility; not by feeling isolated with a challenging problem to solve on their own.

Hayley Dunn is school business leadership specialist for the Association of School and College Leaders and author of The School Business Manager’s Handbook, published by John Catt

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