Five key ways to make sure the books really do balance

1st July 2016 at 00:00
Believing in and committing to a budget is key, warns one principal who has overseen three restructures

Twenty years ago when I first became a principal, it wasn’t deemed crucial for the CEO or principal to be financially literate. Indeed, there were some colleagues who would make clear their disdain for finance.

I had an acute awareness of the importance of linking strategic planning to resource management. Previously, as a director at a large FE college, I had led curriculum planning and preparing the annual strategic plan. The principal insisted on what was then quite a new approach of zero-based budgeting. Instead of just taking the current budget as the starting point and talking about growth (it was always growth in the early 1990s) he made directors justify every aspect of their current budget. It was hard going but it fostered a climate where the senior team regularly challenged existing provision and practice. It meant strategic planning encompassed everything we did, rather than just focusing on the margins.

I will retire in a couple of months and I leave a college that has outstanding financial health, strong reserves, state-of-the-art campuses and zero debt. Sadly, we have slipped to the Ofsted “requires improvement” grade and the current principal is grateful to leverage our financial strength, tackling the English and maths tsunami that has hit FE. The financial climate is now tougher than it has ever been and despite the increase in direct advice, not least from the FE commissioner, there is little to suggest the next few years will be better.

For me, focusing on the bottom line has always been consistent with my commitment to improving the life chances of our students. As the leader of a college I want the best staff possible, I want industry-standard equipment and a learning environment that is welcoming and attractive. This means generating surpluses to allow investment. It is vital that the senior team has a shared responsibility for the college’s financial health. That means they need the financial skills to provide challenge.

My approach is simple but disciplined. It isn’t a prescriptive guide for would-be principals and I am the first to acknowledge that some other approaches work equally well. It is imperative that the budget is something that you believe in and are committed to. Organisations frequently over-inflate growth projections or new sources of income to help make the budget balance. Resist this at all costs. Likewise, ensure the expenditure budget is rigorously constructed and prudent. If there are expenditure lines that are high-risk make a sensible contingency.

Have a laser-like focus on pay costs

In most FE colleges this will account for 60 per cent of total expenditure. My preference is to pay salaries above the sector norm but employ fewer people, especially middle and senior managers. In the three restructures I have led in 11 years, it has been the same: the further you are away from the core business of teaching, learning and supporting learners, the more you are at risk.

Review aspects of your provision annually

There is real value in doing this. Does your provision still fit against the strategic priorities? If so, is it possible to do it more efficiently with the same outcomes? Sometimes you’re too close to make accurate judgements, so benchmark with a similar-sized college. When you identify opportunities, be bold and take them.

Avoid vanity projects

The routines of FE can become tedious and many principals have their heads turned by an exciting project, especially if it involves new sources of income, foreign travel or the potential of a higher profile for the college. Remember, enthusiastic managers rarely achieve the revenue that they predict: the costs are always higher and bad things happen. Stay disciplined, scrutinise properly and consider carefully the opportunity cost of new projects.

Be careful with investments

In the current climate, there is little money for capital investment. Hence it is really important that you are careful about where to invest and that you achieve a return on capital. When considering new capital projects it is easy to be overly optimistic about future additional revenues while not giving enough thought to the one-off costs and the ongoing running costs. Many construction projects run over time and/or over budget. Do everything possible to avoid this while factoring in some contingency to your budget.

Assess the risk profile of your income streams

I deliberately focused on 16-18 learners as it was crystal clear that successive governments were not committed to adult funding. I avoided trying to build income through externally funded projects where I judged that the administrative burden was unrealistic and/or margins were too tight. I also resisted pressure from politicians and the funding council to rush at untested new initiatives that might jeopardise the financial health of the college. Right now, I would caution too rapid an expansion of apprenticeship provision, given the uncertainties and challenges associated with the new levy system.

Being the college’s accountable officer was something I took very seriously – I never forgot that if the senior team aren’t concentrating on the balancing the books, the staff and students are the first to suffer.

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