Budgeting in times of Economic Decline: How to stay in control

Edgar de Wit

Budgeting is challenging even in times of economic growth, but it becomes even more critical when your organization faces financial uncertainty. Preparing a budget is not only a legal obligation for an educational institution, but also an essential tool for good financial management. Many educational institutions in the Netherlands are required by the government to prepare a balanced budget for the next 4 years.

How do you ensure that your budgets remain realistic and actionable during an economic downturn? In this article, we share practical strategies to help you maintain control over your finances.

In many cases, budgets are drawn up based on annual amounts, with the government contribution depending on the number of students. In The Netherlands, this number is measured on 1 October of the previous year and based on this, is rolled over into a growth scenario. This approach works well as long as student numbers remain stable.

But what if there is a decline in number of students - how to manage labour costs?

However, if student numbers are expected to decline, it is crucial to pay extra attention to your budget. Wage costs make up about 80% of total costs, which means it is essential to adjust your staffing levels in line with student numbers.

When adjusting the formation, you should not only look at permanent staff, but also at hiring external staff. For effective planning of external staff, it is wise to use a fixed average headcount (GPL). This makes it possible to convert the number of FTEs into euros, which gives more control over costs.

In addition, the development of wage costs remains a key concern. It is of great importance to ensure that wage costs remain below budget at the beginning of the year, as periodicities are awarded in August, which can significantly increase wage costs in the final months of the year.

How can you improve your formation scenarios?

When estimating your expected government funding for the financial year, it is important to include not only the student numbers as of 1 October of the previous year, but also the expected number of students as of 1 October in the current financial year. This foresight gives you a more accurate picture of future funding.

Online tools such as Scenario Model PO and Scenario Model VO help you predict how your educational institution will grow or shrink in the coming years. These tools provide insight into the expected pupil numbers and the corresponding impact on government contributions.

It is also advisable to calculate various staffing scenarios. Think of variations in staffing (both permanent and temporary staff) and external hiring. This way, you can anticipate changing circumstances and prevent your budget from becoming unbalanced due to fluctuations in student numbers.

By regularly evaluating and adjusting these scenarios, you ensure that your staffing is optimally geared to the financial reality and the needs of your organisation.

Essential elements for an accurate budget and forecast

The best results are achieved with a budgeting tool that gives you a clear overview of staffing trends through the months. This tool should be able to distinguish between permanent staff and hired staff, so that you are well prepared for the beginning of the year.

The following components are essential for a reliable forecast and budget:

• Student numbers: Both current student numbers from 1 October of the previous year and projected numbers for the financial year.
• State contributions: Calculations based on student numbers and growth scenarios for the coming years.
• Staffing: Insight into the formation for both permanent staff and external hiring, aligned with expected student numbers.
• Average personnel cost (APC): Use of a fixed APC to convert external personnel costs to euros, so you keep full control over wage costs.
• Wage cost planning: Distribution of wage costs over the year, considering periodicities in August that may cause extra costs.
• External hiring: Clear planning and control of external hiring, making these costs predictable and manageable.
• Management reports: Transparent reports to continuously compare realisation with the original budget.
• Scenario analysis: Calculating various scenarios, such as shrinkage in student numbers, to understand the impact on the budget and staffing levels and anticipate them in time.

An integrated tool such as XLReporting is indispensable to bring all these elements together in one clear system. This allows you not only to make accurate forecasts, but also to easily compare the realisation with your budget. This keeps your organisation on track financially, even in times of contraction.

Want to learn more what XLReporting can do for your educational institution? Book a no-strings-attached demo and discover how our tool can strengthen your budgeting process.

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