Financial Planning Process

 

 

Contents of Policy
· Policy Overview Business Elements Financial Elements Environmental Elements   · Planning Timeline Planning Calendar	· Planning Activities Rate Development Budget Rate Development Process High-level Goal Setting Process Rate Communication Corporation Budget Budget Narrative Detailed Goal Setting Process Strategic Planning Publication Year-end Forecast Vendor Savings Analysis General Ledger Close Annual Report CIO Business Review Meetings

 

 

Policy Overview

Business and financial planning is critical for successful management of information technology (IT) organizations. IT Managers must understand all the key inputs and objectives for the organization in order to understand the impact of the decisions that are made on a daily basis. The business, financial and environmental elements must be weighed carefully to ensure that all perspectives have been considered.

 

Some of the important elements of the financial planning process include:

 

Business Elements:

• Short-term and long-term goals
• Changes in customer base and volumes
• Changes in product and service offerings
• Capacity and efficiency factors
• Service level requirements
• Staff and technology skill requirements
• Operational risks and trade-offs
• Opportunities for economies of scale

 

Financial Elements:

• Capital requirements (infrastructure and equipment)
• Staffing resource requirements
• Impact of cost inflation factors on budgets and rates
• Reserve and business balance positions
• Service Center policy requirements
• Cost savings opportunities
• Project vs. on-going operating costs
• Impact of policy changes

 

Environmental Elements:

• Input from advisory groups
• Technology trends
• Customer requirement and demands

• Vendor negotiations and contracts
• Changes to the University footprint (e.g. buildings)
• Community sensitivity to rate changes

 

It is not uncommon for many of the above business elements to be in conflict with each other during the planning process. However, the weighing of alternatives followed by the application of sound decision making usually will result in the best possible outcome.

 

 

Planning Timeline

The financial planning process begins each fall with the development of high-level goals and rates for next fiscal year, and ends 26 months later with the CIO Business Review meetings. It is a rigorous and time intensive process requiring participation of most of the organizations managers. Most of the deadlines are set by the University Budget Office and the Office of the Controller in order to provide a broader consolidation of information at the University level. At any given time, the financial organization could be processing information for three fiscal years: the prior, the current and the upcoming. Below is the Financial Planning Calendar by month and fiscal year:

 

 

 

Planning Activities

Below is a brief description of the individual financial planning activities for a single fiscal year as they happen chronologically:

 

Rate Development Budget

Developed nine months before the start of the fiscal year (normally in September), the rate development budget is usually the first estimate of the anticipated income and expense for the upcoming fiscal year. The budgeting process is bottoms-up, detailed and must be as accurate as possible since this budget will be used to set rates, which (in most cases) can not be changed after they are communicated to customers.

 

Rate Development Process

All Service Centers must develop rates annually prior to the start of the University-wide Corporation Budget Process so that University departments will know what to budget for our UIS products and services. Most UIS businesses have rate models, which can calculate the projected unit costs for their products and services using estimated inputs for: operating expenses, capital investments, staff resources, business reserves, customer volumes, product/service changes, etc. Because the Harvard community is very sensitive to rate volatility, every effort should be made to ensure that rates remain stable and do not grow more than the recommended increase in salaries for Central Administration groups.

 

High-level Goal Setting Process

On an annual basis, Directors and Managers participate in the strategic planning and budgeting process, which is managed by the Financial Services Organization. This process begins with the identification of future requirements as defined by our customers, the setting of goals and priorities by group and the development of “bottoms-up” budgets, which are linked to those goals. The High-level Goal Setting process, completed annually in November, should include 4-6 high level strategic initiatives that were identified during the rate development budget process. These goals will also be used during the Corporation Budget Process.

 

Rate Communications

After the rates have been developed by each Service Center, they must be communicated to customers in a way that the information can be easily translated to their estimated total annual costs for each product and service in order to facilitate their departments budgeting process. The communication vehicle will vary for each UIS business depending on the decentralized nature of the customer base, however, the rate information recipients should ultimately be the individuals who are developing the budgets for those units.

 

Corporation Budget

The Corporation Budget is the University’s budget of record and the budget that goes before the University Corporation for approval annually. It is developed in the January/February timeframe for the upcoming fiscal year, which begins in July, and is usually due to the University Budget Office (UBO) in February or March. This budget process usually starts with the rate development budget, which was prepared in the fall, with updates and changes made based on new information that has been made available since that time. Significant budget changes (i.e. those that would have resulted in a significant rate impact) must be reviewed and approved at the highest levels of the organization. Additional financial information is also required to be submitted with the Corporation Budget including; current year-end forecast, sources and uses of reserve balances, five year capital plan and key business indicators.

 

Budget Narrative

The UBO frequently requests additional information for the budget submission beyond the actual budget figures. The type of information most often requested includes: planned goals and priorities; significant changes in products and services; impact of potential changes in customers; planned cost efficiencies; business challenges and expectations of internal and external operating environments. Although this information is usually requested for the three largest businesses, every business manager may need to contribute information to either the original budget narrative request, or to follow-up questions that are normally sent out a month after the original submission.

 

Detailed Goal Setting Process

Prior to the beginning of each fiscal year, Directors and Managers are asked to participate in the detailed goal setting process. Each participant is asked to provide his/her strategic initiatives for the upcoming fiscal year in four major business perspectives; customer, financial, internal, and learning & innovation. Through the use of standard tools, processes and timelines, the expectation is to have a more uniform way of identifying, communicating and tracking the goals across the organization.

 

Strategic Planning Publication

Before the start of the new fiscal year, the Finance and Planning group pulls together all of the planning information (e.g. Corporation budget, high level goals, rate setting) from each of the departments into one planning documents. The purpose of this publication is as follows:

• To enable a consistent planning process for the Office of the CIO
• To consolidate planning efforts across groups and to identify synergies
• To lay out the IT planning horizon and roadmap
• To communicate organization-wide goals, objectives, priorities and initiatives to the management team
• To identify risks, challenges and opportunities across the organization
• To document financial assumptions for the upcoming year around revenues, staffing, direct expenses, capital, business balance use and rates

 

Year-end Forecast

During the development of the next years Corporation Budget (usually January) directors and managers will be asked to go through the process of estimating a line-item forecast for the current fiscal year. Forecasting usually begins with an examination of the original Corporation budget (prepared the prior winter), and then moves on to accounting for prior year-end results, current year-to-date information, and other changes in the business and financial environment since the Corporation budget was submitted.

Individual businesses may decide to update their current year-end forecast more regularly to assist in evaluation of their current year operating results at key times of the year. These times may include the rate development exercise, Corporation Budget request, monthly or as needed based on other business requirements.

 

Vendor Savings Analysis

The management and negotiation of primary strategic vendor agreements maximizes our ability to leverage the University’s buying power and mitigate risk in market position and price performance in technology products and services. In order to demonstrate the financial value of these vendor relationships, UIS service units prepare a Vendor Savings Analysis Report twice a year (fall and spring), which outlines the annual volume, discounts available, benchmarking source, and annual savings by vendor.

 

General Ledger Close

Throughout the fiscal year, managers, directors and financial partners will analyze all general ledger transactions, compare them to the original estimates and make adjustments as appropriate. All unusual activities or major shifts from original budgets must be identified and communicated to the highest levels of the organization. Monthly year-to-date net positions are compared to budgets and forecasts to determine business performance. At the end of each fiscal year, all transactions must be closed out in the general ledger so that the new fiscal year can begin. The general ledger close process is involved and time consuming, and it is critical that University-wide deadlines are met. Below is a short list of major actions that must take place during the year-end general ledger close process:

• All assets to be capitalized at year-end must be processed
• Balance Sheet accounts are reconciled
• Expense accruals are recorded
• Prepaid expenses are properly classified
• Use of reserves is assessed and processed as needed
• Customer billing is finalized for all businesses

 

Annual Report

After the fiscal year is closed, it is important for our organization to document the financial and operational results of that year. Therefore, on an annual basis, the Finance and Planning group manages the process to summarize this information, both at an organization level and at a group level. Managers and Directors are asked to provide text on:

• Operating Performance and Achievements
• Financial Results
• Rates
• Capital Investments
• Business Unit Balances & Reserves

 

CIO Business Review Meetings

On an annual basis, group Directors meet with the CIO to review their respective businesses. The format of these meetings is normally to discuss a general overview of the organization, topics of special interest to the CIO, and results of annual customer surveys. The package also includes information on prior year accomplishments, current year goals, objectives, priorities, risks, challenges and opportunities, as well as long-term goals and issues. Much of this material is primarily for reference, if needed, and may not be discussed during the actual meeting. In addition, the package includes an appendix of business facts and may also contain business charts and pictures, at the Directors discretion. The meetings are informal and usually last 1½ to 2 hours.