Driven by Data

Transitioning to Departmental Budgeting

Many smaller charter schools maintain a single budget managed by the Executive Director and COO; however, as schools grow, Executive Directors often choose to empower a larger group of staff members with insight – and input – into their spending plans and activities.

When budgets are managed at the departmental level, department heads gain more authority and autonomy in budget allocation. This can lead to more accurate budgets and better forecasting during the year, as those closest to the work are accountable for the spending associated with it; eventually, it can also lead to better decision-making across the organization as department heads are encouraged to advocate for funding their priorities over others. 

Departmental budgeting has definite benefits – however, it also requires a higher level of coordination and training across the team. Adopting departmental budgets is typically a multi-year process. The “Departmental Reporting” model is used in the first year to get staff comfortable with thinking about (and tracking) the spending that happens in their department. Once school leadership is confident that department heads have the tools, processes, and training necessary to understand their individual budgets and how they fit into the school’s budget as a whole, schools are ready to move to the “Departmental Allocation” model.


Departmental Reporting (early phase):

  • Before the school year begins, school leadership communicates to each budget holder how much that department is allocated overall and the amounts within each category. In this early phase, we recommend only certain discretionary accounts be allocated to budget holders – e.g., student supplies, professional development, field trips, etc. Staffing expenses, as well as capitalized purchases (technology, furniture, equipment), are still tracked at the ED/COO level.
  • Each budget holder tracks actual spending against these pre-approved amounts during the year and reports to school leadership regularly (we recommend monthly, though some schools may prefer a quarterly schedule). When needed, the budget holder can advocate for making changes within sub-categories – for instance, applying savings in student supplies to increase field trip expenses.
  • A process is developed to ensure this department-level reporting can be easily rolled up into the school’s overall forecasting and bookkeeping functions. This often means getting department heads out of their individual Google Sheet trackers, and onto the school’s accounts payable and coding systems (e.g., Anybill, Bill.com, Concur, Expensify).
  • Budget holders are trained not only to report backward-looking expenses, but to forecast anticipated spending for the remainder of the year. In the example above, it means the budget holder would recognize that already-realized savings in student supplies will be applied to field trips, and that field trips expense will end up above budget while student supplies will end up below it. It is critical that budget holders have a clear tool or report to keep track of these forecast changes – otherwise, perceived “savings” can be mistakenly spent in multiple categories, yielding an above-budgeted spending for the department overall.

Departmental Allocation (long-term):

The activities in the departmental reporting phase continue. In addition:

  • Rather than being given a budget by school leadership, budget holders develop their own budgets annually and make a case for the allocation of certain funds. Those requests are discussed and evaluated in the context of the school’s overall priorities. Once all departmental budgets have been evaluated, they are rolled up into the larger LEA budget. Note that this process typically takes significantly longer than centrally-managed (rather than departmental) budgets. Schools should leave sufficient time for multiple iterations as departmental priorities are compared to each other. Budget holders may be asked to revise the initially-submitted budgets given other departments’ requests, overall school priorities, and funding constraints. A senior LEA staff member (e.g., Executive Director or COO) should manage the collection and revision of these iterations prior to roll-up into a final, fully approved budget.
  • In this phase, almost every dollar in the LEA is accountable to a department, and not just the discretionary accounts mentioned in the “departmental reporting” phase. Schools seeking to transition into this phase more gradually can spend a year with department heads advocating only for discretionary accounts, with salaries and capitalized purchases still determined centrally.

As noted above, transitioning to departmental budgeting almost always requires additional staff training and revisions to key processes (procurement, expense coding) and documents (financial reports). Getting departmental reporting right is critical before transitioning to departmental allocations. 

We hope this post is helpful to school leaders contemplating making the switch. If you have any additional questions or want to know how we can help your team build the needed processes and capacity for this transition, don’t hesitate to reach out to us at dan@ed-ops.com.

 

[This post contributed by Natalia V. Bovkun, Managing Principal / Consulting Director.]