How Will You Manage Budget Cuts 5.23.13 FINAL.ppt › training › webinar-materials › How... ·...

How Will You Manage Budget Cuts? 1

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How Will You Manage Budget Cuts?

Trainer: Janet S. Johnson, CPA, CMA, Senior Manager

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Why are we here?

Budget cuts for federal awards are a reality:• Head Start and Early Head Start announced

5.27% cuts to all grants

Your challenge: how to maintain quality services and cut costs while staying mission-focusedOur goal: to provide you with methods and ideas for determining how to manage budget cuts

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Agenda

• Approaches to analyzing programs and operations

• Creating a Funding and Expense Management Strategy

– Creating Your Strategies and Actions

– Strategy 1 – Manage Your Vendors and Operational Expenses

– Strategy 2 – Manage Your People Expenses

– Strategy 3 – Manage Your Programs and Funding Sources

• Understanding How to Manage with Uncertainty

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Goals Strategies Actions

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One Possible Approach

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Another Approach

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The Reality

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Mission-Driven Decision-Making

Your mission must drive your decisions• Your mission should be the touchstone for the

very difficult decisions you will be making

• Minimize the impact on direct client services by cutting as much as you can from other areas

• It may come down to cutting a position, a group, salaries, or a benefit so you can serve more people

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Thoughtful Approach

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Community Needs

FundingSources

ChangingNeeds

Changing Funding

PAST PRESENT FUTURE

Plan

Do

Assess

Do

Assess

Plan

Do

Assess

Plan

Do

Assess

Plan

Do

Assess

Plan


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Transition

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Relief

Possible starting points

Ending Transition Beginning

Excitement

Anticipation

ConfusionFrustration

ReservationDenial Anger

Uncertainty/ Uninformed Optimism

Skepticism

Creativity

Innovation

Anxiety

1Resistance

Confusion

Exploration

Ownership

Accomplishment

Learning

Ambivalence

High Energy

1Despair

Testing

AcceptanceCommitment

Adapted from William Bridges’ “Managing Transitions”

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Leadership’s Job

1010

Individuals

Why are we doing this?

What’s in it for me/us?

How is my job changing?

Do I have the skills and support

to succeed?

What are the issues?

What does the solution look like?

What is theplan to

implement?Do we havethe right

resources? Engagement.

Organization


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Plan for Action

1. Analyze your programs using the Action Matrix

2. Analyze administrative functions using the Action Matrix

3. Identify money-saving opportunities through:a. Process streamlining

b. Technology efficiencies

c. Staffing reviews

d. Funding source analysis

4. Last, make strategic program cuts

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1. Action Matrix - Programs

Analyze your programs:• How do they fit into this matrix?

• What will be the impact on clients if you drop a program?

• Do other organizations do these programs?– E.g., you have a food bank and there are other

organizations that collect and distribute food. Can you combine or shift resources?

• Where do you excel?

• Where are you most efficient?

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First Step: Program Action Matrix

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x

Least Critical to Clients or Available from Others

Most Critical to Clients or Not Available from Others

We Are Most

Capable to Deliver

1. Protect/Reduce 1. Protect/Expand

We Are Least

Capable to Deliver

1. Reduce/Remove 1. Build/Improve

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2. Action Matrix – Functions

Each administrative function should fill out a matrix for its main functions:

• Plot major functions on the grid:– IT

– Accounting

– Human Resources

– Facilities Management

– Others?

• Then drill down to major processes in each function

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Administrative Action Matrix

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xLeast critical to manage in-house Most critical to manage in-house

We Are Most

Capable to Deliver

1. Protect/Reduce 1. Protect/Expand

We Are Least

Capable to Deliver

1. Reduce/Remove 1. Build/Improve

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Strategy 1

Understanding and Managing Your Processes and Technology

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What is waste?

Waste: Anything other than the minimum amount of equipment, materials, parts, space, and employees’ time, which are absolutely essential to add value to the service.

You (everyone) has to learn to see waste in order to remove it!

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Process walks to process mapping

Two approaches to uncovering process efficiency opportunities – process walks and process mapping

• Process walks: Walking through a process, especially where the work is being completed, can reveal “low hanging fruit” that may not need to be mapped to begin improvement.

• Process mapping: Mapping out process steps can reveal redundant steps or waste.

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Process walks

Assemble a cross-functional group, some note pads, and a camera.

Walk through 4 or 5 administrative and client service (e.g. intake?) processes with the staff performing the work.

Quickly eliminate or change unnecessary steps (i.e. the one’s where everyone goes, “Why do we do that again? “Oh, it’s always been that way.” or “We don’t really know.”)

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Questions to ask in/after process walk

How many hand-offs? How long do they take?

How many “waits” in general? Why?

How many “quality checks”?

How much effort on proofing and perfecting?

Who represents the clients’ needs? Are they accurate?

Who talks directly to their internal customers?

Where does the incorrect or incomplete work get fixed/finalized? …

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Process Mapping

• Process flow diagram– Non-detailed look at a process

– Illustrated in 5 or 6 steps

– Gives a starting point for more detailed analysis

• Detailed flowcharts– Various shapes and paths to show complexities,

redundancies

– Effective method for analyzing internal controls

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Process flow diagram

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Improving the use of technology

Assessing current technologies in use• Gaps?

• Cost breakdown

• Efficiency and effectiveness – how well are things working?

• Do you have technology that is not being used?

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Improving the use of technology

Investigate cost reductions• Use of hosted systems

• Renegotiating service contracts and fees

• Technologies to extend the life of the current investments

• Managing risk and maintaining information security

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Hosted information technology

• Presents an opportunity for some organizations to reduce costs dramatically

• Organizations have been using this since the 1970’s – “the Cloud” is not new

• Some “Cloud” services:– SaaS

• As applications move to a hosted, Software as a Service (SaaS) environment, less and less data is stored locally

– IaaS

• Infrastructure as a Service (IaaS) offerings move file storage and other requirements off-site

– BCDR

• Business Continuity and Disaster Recovery (BCDR) changes. Data and applications are backed up and stored remotely

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Shifting to hosted technologies

Today Tomorrow

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Extend the life of technology

• Current server virtualization technologies allow the agency to get more out of their server hardware investment by reducing the total number of servers owned

• Newer desktop virtualization technologies can extend the life of current desktop and laptop fleets by removing the processing requirements from the client

• Both can allow the agency to do more with less

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Technology cost cutting

• Always maintain your information security and data protection – these are not areas to cut costs– Good perimeter security

– A tested, thorough backup and disaster recovery plan

– Security awareness training for all staff and volunteers

• Look for opportunities to renegotiate costs with current vendors, especially:– Telecommunications

– Internet service providers

– Web site hosting companies

• Stress that you are a nonprofit, and any discounts in fees, or additional services they can provide will help you remain with them. Ask them for ideas to reduce costs. 29

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• Simplify– Whenever possible, reduce the number of systems

– Implement what you will use, it is okay to leave modules or features for later

– Purchase hardware with as few “bells and whistles” as possible – it will last longer

– Keep computers as clean as possible – reduce or eliminate unnecessary programs and data

• Remain current on software versions– While this may cost money initially, many

organizations spend more later for critical updates

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• Leverage nonprofit technology discounts– www.techsoup.com

– http://www.microsoft.com/licensing/licensing-options/for-industries.aspx#tab=4

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Strategy 2

Manage Your People Expenses

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People Expense Framework

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1. ASSESS: What are the people-related savings needs/drivers?

2. PLAN: Define your strategy and approach for workforce transition decisions based on scenarios

3. PREPARE: Help ready all parts of the organization for change

4. IMPLEMENT: Support the organization as the transition plan is implemented

Assess Plan Prepare Implement

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Decision checklist

Culture and values

Strategy and goals

Ability to implement and timely

o Laws and regulations

o Contract terms

Short-term vs. long-term impacts

o Origination / replacement costs

o Performance

Meets the economic/budget needs

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Before you cut staff…

Expense Reduction options to consider:• Benefit reductions

• Compensation reductions

• Shorter work weeks

• Furloughs

• Employee status changes

Include staff in these discussions. They will have good ideas and need a stake in the outcome.

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Sample personnel choices scorecard

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Cost Reduction Approach Culturally Acceptable? Strategically Aligned? Speed of Realization? Lasting Change?High Economic

Impact?

Performance/ Potential/Skil ls Assessment

Medium Medium Medium Medium ?

Early Retirement/Voluntary Leave Plan

High Low Medium Low ?

Across the Board Reduction in Force

Low Low High Low ?

Hiring Freeze/Across the Board Salary Reduction

Medium Low High Low ?

Analytical Based Reduction (Benchmarking,

organizational design, value analysis)

High High Medium High ?

Other Approach? ? ? ? ?

Decision criteriaScenarios/approaches


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Opportunities for Savings

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Objective: Employ a fact-based process to identify organization structure opportunities that improve business process efficiency and effectiveness, and achieve significant cost benefits.

Assessment approach Explanation

1. Span of control Ratio of direct reports to each manager

2. Layers Decision making and other processes slowed by extra layers of reporting

3. Leverage Mix of levels within an area relative to an optimal mix

4. Fragmentation Duplicated functions positioned in ‘fragments’ across programs/dept’s

5. Strategic Gaps Functions that are not required as core competencies (i.e., not aligned with strategy)

6. Redundancy Unnecessary duplication of roles and activities

7. Productivity Underutilized resources based on benchmarking

8. Value Perceived value of resources to mission/vision

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Key legal considerations

Legal disclaimer: This webinar is not intended to be legal advice but is a guide to help you understand associated regulations.

• It’s critical to have professional legal support when laying off employees

• Every potential or planned layoff creates a number of critical, and possibly expensive, legal issues, including:– WARN Act for timing of notices

– ADEA and other laws for protected classes

– FMLA for employees on official leave

– USERRA for military service leaves

– COBRA for continuing health care coverage

– Other federal, state and local regulations

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COBRA, EEOC and General HR Issues

• Other issues employers need to consider during a layoff:– Retaliation

– Worker's compensation claims

– EEOC claims

– Poor documentation

– Inadequate document retention

– Employees protected by whistleblower laws

– Badly crafted severance agreements and waivers

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Assess/Planning Checklist

Determine the people-related savings needs/drivers:o Across the board, discretionary, program-specific, contract-

specific, vision or performance related?o How certain are the needs? What scenarios are possible or

likely?o What decision factors are most important to your organization

and people?

Define your strategy and approach for:o Making decisions: Culture, values, strategy, competencies,

performance, short-term, long-term, and budgeto Implementing decisions: Vision, business case, leadership

commitment, communication plan, legal support

Help ready the organization and individuals for change:o Communication plan, training plan, transition support, role and

organization changeso Listening and being flexible to unforeseen results

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Reductions/Lay off ChecklistA checklist for individual position eliminations

Review the employee handbook to ensure that all procedures and requirements outlined there have been properly followed;

Examine any recent past action taken with other employees for similar approach. Employees similarly situated must be treated alike or discrimination may be perceived.

Review the employee’s personnel folder for past performance and possible mitigating factors. In unsatisfactory performance cases, be sure to look at past evaluations.

If possible, have an objective review of the process done by someone not previously involved (a legal professional is preferable).

Witness: At least two agency representative should be present for notification. One should document what was communicated.

Reasons: Come right to the point, being brief, professional, and very clear as to the reason for and effective date of the termination.

Reactions: Don’t try to console the employee, but do give the employee an opportunity to respond. Don’t argue the reasons for the termination with the employee.

References: Agree in advance to a reference statement, write it up, and provide to the employee for their approval.

Written statement: Should be clear and specific; could become part of a legal record.

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Strategy 3

Manage Your Programs and Funding Sources

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Understanding Funding Sources

Key to Survival –

• Everyone (Board, Management, and Staff) should truly understand your programs and how you are funded:– Use your Schedule of Expenditures of Federal

Awards

– Know how where funding comes from i.e. Federal, State, Contributions, CSBG, Program Income, etc.

– What does truly it cost to operate each program?

• Cost allocation is key to truly know how much each program costs

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Use your Schedule Expenditures of Federal Awards

• A tool to analyze each of your contracts– Which programs are federally funded?

– Which are state funded?

– How much is local?

– Which programs are not grant or contract-funded?

• Evaluate cost reimbursement vs. fee for service– Are there ways to increase fee for service?

– Can we expand what we are doing to more areas to generate more unrestricted reserves?

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Look at Cash Flow• Trending cash flow from operations

– Where do funds come from:

• Operations – OK

• Investments – Less OK

• Financing – Not OK. Interest is unallowable. Where will the funds come from to repay?

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Unrestricted Net Assets

Guideline: Available unrestricted net assets should be equal to 5-10% of annual revenue

Example:

• NPO’S 2012 Revenue: $19.2 Million

• NPO’S 2012 Unrestricted Net Assets are $2,801,987 less property and equipment of $2,118,395 and loans receivable of $503,629 equal an available net assets balance of $179,963

• Recommended balance should be between $960,000 and $1,920,000, net of property, equipment and loans receivable

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Budgets for Management

A management planning tool:• A plan for revenue and expenditures

organization-wide– Demonstrates management’s commitment to

present and future organizational activities that will ensure survival.

– Allows management to examine programs and activities in light of available resources.

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Steps in the Budget Process

1. Look at history

2. Determine programs and activities

3. Budget revenues

4. Budget expenses

5. Assemble draft budget

6. Review and modify

7. Present to the Board

8. Monitor progress and amend as needed, and know when amendments are needed from funding sources

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Budgets and Forecasting

Analyze where you are now and where you will be• Create a spreadsheet with columns for:

– Current year

– Next full year with expected funding changes

– 3 years out?

• Incorporate changes in the Finance, HR and program departments

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Program Reductions

1. Summarize savings from all other areas

2. Use the Program Action Matrix as a starting point to identify areas to cut

3. Use your community assessment to strategically identify potential program cuts

4. Work with other community organizations to minimize the effects on clients and community members

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Transition

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Relief

Possible starting points

Ending Transition Beginning

Excitement

Anticipation

ConfusionFrustration

ReservationDenial Anger

Uncertainty/ Uninformed Optimism

Skepticism

Creativity

Innovation

Anxiety

1Resistance

Confusion

Exploration

Ownership

Accomplishment

Learning

Ambivalence

High Energy

1Despair

Testing

AcceptanceCommitment

Adapted from William Bridges’ “Managing Transitions”

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Focus On Mission

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Materials/Disclaimer

• How will you manage budget cuts? PowerPoint*• Technical Information

* Please note that these materials are incomplete without the accompanying oral comments by Janet S. Johnson of Wipfli LLP. These materials are informational and educational in nature and represent the

speaker’s own views.

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Thank You!

Thank you for your participation. We hope today’s webinar met your expectations.

If you would like to receive CPE credit, you must complete the CPE Request Form.

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We appreciate your time completing and returning the survey.

For further assistance, please contact us at 888.876.4992 or e-mail us at [email protected].

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How Will You Manage Budget Cuts 5.23.13 FINAL.ppt › training › webinar-materials › How... ·...

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