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, a strategic approach is required to achieve longer-term goals and financial sustainability. From a financial perspective, this starts with a vision and an understanding of how 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. The finance team works alongside managers, supporting them in decision-making. This ensures the most effective use of available resources by helping identify and evaluate the financial implications of options and identifying the optimum solution.
The full role of finance must be understood to help meet the challenges schools face. 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 and scenario analysis. This helps us understand how the future could look under various 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, trends and data analysis 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 are key parts of managing an organisation, whether there are financial pressures or not. 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 it helps when facing budgetary pressures.
There are plenty of resources available for schools to access. Working closely with schools and sector organisations, the DfE has recently gone live with a new collection on GOV.UK, which brings together financial health and efficiency information in one place.
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 has 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 reveal new ways of doing things you did not know existed before. Suppliers of goods and services are constantly seeking better and cheaper ways of doing things and often use technological advances to help them, so tap into that.
But perhaps the most energising aspect of financial management is that leaders make the decisions on how the school’s income is spent or allocated. It is important to avoid budgets merely becoming based on “last year plus” and thus denying any opportunity to rethink priorities and re-allocate the resources available to ensure optimum educational impact. Financial plans should be integrated with educational development, staffing, IT, 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 consider the link from the money used to fund the activity 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 when thinking through the resource-to-impact stages.
Your plans rank items by priority, and the resources available should ideally match these priorities. Where resources are not available to fund all your plans, at least you can be sure that they have been allocated to those activities with the highest priority.
The matrix below can be used as a tool to help you make decisions. It 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 resource allocation can lead to greater educational impact, 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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