Managing the complexities of a salary budget with confidence

Tuition fees and changes to funding featured prominently across all parties’ manifestos in this year’s election around further and higher education.
Whichever way you voted, finance departments in higher education will have to manage the changes that will be brought in with the new government, as a lengthy process of budget planning gets underway in universities and colleges across the length and breadth of the country. One area of financial planning and management that need not contribute to the financial director’s headache, however, is the salary bill.

Finance departments face a complex task of managing salary budgets that include not only teaching and academic staff but also professional services and other support staff. When bonuses, pensions and other benefits are brought into the equation, the task of keeping track of the salaries budget and forecasting what it might look like in the future is no mean feat. When you add to this the multiple spine points that sit within individual salary bands, conducting ‘what-if’ analyses to model inflation-linked government pay rises can become a highly complex and time-consuming task.

For many institutions, this translates into hours of creating and tweaking Excel spreadsheets by finance departments to try and predict what the impact of a small change, such as a 1% increase for a specific pay band, will have on the budget in five or ten years time. When this is rolled out across multiple departments with tens or hundreds of employees, the opportunities for human error to creep in significantly increase and the limitations of using spreadsheets become apparent.

However, finance directors should not approach planning and forecasting with a sense of impending doom; a number of tools are now available that have been specifically designed to take over when spreadsheets become overly complex and the risk of making inaccurate predictions – especially with budgets that can stretch into hundreds of thousands or millions – becomes too great. These tools are not only able to process large quantities of data, they are also able to do so in a multi-dimensional way, allowing for multiple variables to be considered and ‘what-if’ scenarios to be quickly and accurately modelled.

While some of these tools come from a traditional business analytics and performance management background, others have been designed specifically to allow access to a single platform and collaboration from any device, anywhere, anytime using a secure, cloud computing approach.
By drawing data from across the business, these tools enable finance departments to easily test scenarios before choosing a plan. This then allows a consistent story to be told using accurate and real-time forecasts from across the organisation. This, in turn can drive further changes to the plan.
All this analysis can be done by business people, without technical skills, and can be applied not only in HR departments but also across all departments. So while the complexities of pay increases and benefit adjustments are being applied to an institution’s salary budget, the impact of funding changes to revenue forecasts can also be considered, giving finance departments a complete and accurate view of their entire plan. This ability to see across all financial planning means that organisations can also be more proactive.
What makes these tools particularly appealing is that end users can quickly and easily build their own applications without consuming valuable IT resources. Being cloud-based they are also very cost effective as they are based on a subscription, scale-as-you-go model and require no IT, hardware, software or infrastructure. The fact that they are based on a single platform means that collaboration can take place in real time with finance and other departments taking collective ownership of the final model.
As these tools are based on a familiar interface that looks like Excel it means that they can deliver a return to the organisation very quickly. Some consultancy support may be needed to set up or transfer data from existing systems, but they should not need specialist support in order for them to start delivering tangible results.
Data can be easily and accurately integrated across operational departments, while updates are instant, producing immediate results and allowing all of those involved in finance decisions, to see exactly where finances are being spent. While this kind of implementation may start around planning the salary budget, it can be easily extended to include interrelated applications and connect processes on a single platform across the organisation. A good example of this is when fee forecasts based on the number of students are connected into Incomes and Expenditure. Unlike Excel, these integrated analytics plans benefit from in-memory computing that can update complex models, across billions of cells, in just seconds.
Whatever the new government throws at further and higher education during its term, finance departments can determine the outcome and implication on their budgets, knowing that their predictions are accurate and based on real data, not just assumptions. Let’s hope the new government can do the same!
Nick Patrick is co-founder of Sempre Analytics, organisations improve performance by getting more out of their data