Realistic budget forecasting in times of uncertainty

Stephen Mitchell, CEO Keystone Knowledge, discusses how you can ensure your budget forecasting is realistic despite the uncertainties we are currently facing

A crystal ball?

Sticking it all on red?

Rock, paper, scissors?

Sometimes school finance can feel like any of these situations – fraught with risk and chance. How can we possibly make realistic and sensible budgets when we live in such a time of uncertainty? Over the last couple of years, it has just felt like the roundabout of school life has sped up. Yet, the requirement on schools and trusts to manage finances efficiently is as fundamental as ever.

Whenever I work with schools on reviewing their financial efficiency, it never ceases to amaze me the detail that SBMs know, their passion for working out every expense to the last penny. It’s humbling to see this focus on taxpayers’ money, and we should be rightfully proud of it. I share the pain and the frustration you have with the way the world is, but we have to live within our means. We do it at home, we cut our cloth accordingly, and we make tough decisions.

How do we budget effectively when the world is as uncertain as it is? I believe there are three fundamentals that we must get right:

  • Sound underpinning principles of how we work.
  • Balance the long- and short-term focus.
  • Know what you need to run your school.

Sound underpinning principles

There is a concept in accounting called ‘prudence’. This is all about making sure that we’re not overly optimistic, perhaps erring on the side of caution. There is nothing worse than budgeting for the equivalent of hitting the jackpot on the lottery and then dealing with the black hole when you end up disappointed in the numbers drawn.

However, it’s a terrible impact for children if we are so pessimistic in our budgeting that we end the year with a significant surplus and haven’t invested in things that support their education. We should be viewing our budgeting with level-headedness about what we believe to be the most likely outcome – not the worst.

When we have those budgets, we should be running scenario analysis on them and identifying our responses if X happened or Y. This could go up and down; we may need to make tough decisions, know our priorities, and maybe choose to invest more.

One of the questions I always ask schools is, “What three things didn’t make it into your budget this year that you would have loved to have put in?” and “What would have to come out of your budget to fund those activities?” These questions give great insight into where priorities lie and what SBMs want to achieve with the next budget iteration.

Balancing long and short-term focus

A short-term focus on budgeting is necessary; we understand that every child is different and that they learn at different speeds. We need to ensure our budgeting is reactive enough to address emergent needs as they arise and ensure the children in our schools are receiving the best education now.  

However, a longer-term focus is also needed so that spend can be optimised for the future. I have observed schools that have repurposed the same space every summer for three years at great expense whereas, with some more strategic thinking, better value for money could undoubtedly have been achieved.

In the longer term, we have, as a system, a moral imperative to plan for the future of our children entering our schools at EYFS. We will still be educating these children in 2034, so what are we doing to build our educational provision over this time? We know the world will have changed – what financial strategies are we putting in place to adapt? 

Know what you need to run your school

As basic as this sounds, it is so important. It is easy when doing budgets to take this year’s outturn and then add or minus a bit for next year, but this ignores the conversation with school leaders about what they need to deliver the curriculum they want for next year. This is all about integrated curriculum financial planning (ICFP). ICFP is budgeting from the ground up, or, in other sectors speak, ‘zero-based budgeting’.

Start with a blank sheet of paper and allocate resources to deliver what you need next year. This will show you where you have under or over capacity and does not assume the same spending level as previous years. You can then flex the budgets to build-in extra activities to meet strategic plans.

There is a considerable amount of information on the GOV.UK pages (here); the SRMA programme is free to schools to use and puts great practitioners at your disposal to work with you on reviewing your finances. It doesn’t need to feel like an audit – use it positively.

Life happens, and that’s okay

By getting these fundamentals right, your budgeting should be effective, within your means, feasible, and the best value for money obtainable. However, budgets aren’t put together at one point in time, and you can’t expect to get it right to the penny straightaway. Things change over time; adjusting is perfectly normal.

It is, however, essential to forecast what the yearend outturn is likely to be and to discuss with your SLT and governors/trustees any necessary changes to budgets.

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