Financial pressures and uncertainty on school budgets
There is little doubt that school funding should be high on the priority list of school leaders.
Pressure on school budgets will bring real challenges and the next stages of national funding reform will bring a degree of uncertainty, all at a time when expectations on educational standards are increasing.
Despite the government stating it will protect the national school budget, schools will still have to manage pressures from:
- Increases in pay costs (e.g. annual pay increases and incremental rises);
- Increases in non-pay inflation (e.g. energy costs);
- Increases in employer pension contributions;
- Increases in employer national insurance contributions from April 2016;
- Any changes in funding resulting from the new National Funding Formula;
- Reductions in the Education Service Grant rate and removal of the general funding rate.
It is crucial therefore that school leaders engage with these challenges now.
Where to start?
As with many courses of action, there has to be a strategic approach if longer terms goals and financial sustainability are to be achieved. From a financial perspective, this starts with a vision and an understanding of how the role of finance can help support school leaders.
The role of finance is to enable the delivery of educational objectives in an efficient and effective way. I call these the three E’s and they should drive every aspect of financial services.
The role of Finance
Finance has moved on from its traditional back-office “bean counting” roots and now encompasses more of a “business partnering” approach where the finance team work alongside managers supporting them in decision making. This ensures the most effective use of available resources through helping identify and evaluate the financial implications of options and identifying the optimum solution.
The full role of finance has to be understood if it is to help meet the challenges schools are facing. Accounting and Compliance are the bread and butter of finance and whilst these activities are largely transaction based and historical, they have to be correct and well controlled because the data they generate provides the information used in decision making. These are the foundations of financial management so regardless of the financial pressures, these activities must be maintained to a high standard.
Management accounting activities build on these solid foundations by looking more to the future. These activities include long term financial planning, including scenario analysis. This helps understand how the future could look under a range of different assumptions so that action can be taken now to shape that future. It also means that the organisation is ready and able to adapt as the future unfolds.
Other management accounting activities include resource allocation, budgetary planning and control, analysis of trends and data to bring insight, financial modelling and decision making support. These areas are crucial when facing financial pressures and future uncertainties as they help manage limited resources on strategic, tactical and operational levels. The above can be summarised in the following chart.
Value for money and efficiency
Providing value for money and being efficient is a key part of managing an organisation whether there are financial pressures or otherwise. It is good practice and should run through every aspect of school management. Efficiency releases more resources to front line activities, such as teaching, books, classroom materials and classroom technology so really helps when facing budgetary pressures.
There are plenty of resources available for schools to access. Working closely with schools and sector organisation, the DfE has recently gone live with a new collection on GOV.UK which brings together financial health and efficiency information in one place [LINK].
I am encouraged by the introduction of this Financial Health and Efficiency programme which includes practical tools and guidance for head teachers and business managers to use in support of their strategic financial planning. The DFE have also outlined key elements that support efficiency and good financial health and these are summarised below:
- Education-based financial planning – financial planning is based on delivering educational outcomes, not a separate bolt-on consideration;
- Strategic financial planning – setting a 3-5 year budget based on a clear vision for delivering school improvement;
- Prioritising the most effective and efficient deployment of staff;
- Limiting spend on back office and procurement; the DfE believe schools could find circa £1bn of efficiency savings in this area;
- Robust challenge by financially skilled governors and headteachers;
- Staff managing school finances, such as finance directors and school business managers, have the correct skills to do this effectively;
- Financial systems and processes are in place across the school that are transparent and encourage constructive challenge.
Whilst the drive for efficiency is one of the more obvious aspects of managing school finance, resource allocation is an area of financial management that can add real value when managing school resources. We will consider this next.
Resource allocation for impact
It is important to stay positive in the face of budget pressures and financial challenges; not least because it opens the mind to new options and opportunities.
An efficiency review might open up entirely new ways of doing things that you did not know existed before. Suppliers of goods and services are constantly seeking better and cheaper ways of doing things and often use advances in technology to help them, so tap into that.
But perhaps the most energising aspect of financial management is that leaders hold the decisions on how the school’s income is spent, or allocated. It is important to avoid budgets merely becoming based on “last years plus” and thus denying any opportunity to re-think priorities and re-allocate the resources available to ensure optimum educational impact. Financial plans should be integrated with educational development plans, staffing plans, IT plans and building plans and must never become disconnected from these. Finance is not a bolt-on.
When thinking about activities and impact, it is helpful to think about the link from the money used to fund the activity through to the final educational impact. This is not easy but the better you see the links, the better you will be able to decide how to allocate your limited resources. You may find the below a useful tool to when thinking through the resource to impact stages.
There is a priority ranking of items in your plans and the resources available should ideally be matched to these priorities. Where resources are not available to fund all your plans then at least you can be sure that the resources have been allocated to those activities with the highest priority.
The matrix below can be used as a tool to help you in decision making. This is simply a guide to provoke thought and discussion.
It can be seen therefore that basic allocation decisions consider:
- The choice of which items to fund in the plan;
- What level of funding it should receive;
- Which to leave unfunded;
- The resources are allocated to some items, not to others.
If you accept that better allocation of resources can lead to more educational impact, then you realise that more money is not the whole answer. When faced with financial pressures and challenges, this can be quite liberating.
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Paul Leigh is a Chartered Accountant and works as Chief Financial Officer with Focus-Trust. He qualified in public practice and has worked in education for a number of years. He is passionate about how the role of finance can support school leaders in delivering higher levels of educational impact.