Combat inflation in 3 data-informed steps
For K-12 schools, rising costs are a constant concern. Student-based budgeting and multi-year encumbrances can limit districts’ opportunities to improve fiscal health. Add inflation and the removal of temporary ESSER funding, and you create a perfect storm of uncertainty for school finance officers.
In our experience with school districts, we’ve identified the data visualizations that let administrators quickly and easily identify fiscal risks and build budgets that are grounded in real-time data and peer comparisons. In this post, we’ll explore the three-stage process that is your best path to building an inflation-resistant budget.
Assess financial health
Understanding your district’s recent history is a critical first step in understanding inflation effects to date and determining budget priorities for the coming year. The fiscal wellness score presented in our Finance application provides the best initial indication of how a district is weathering inflation, since it’s calculated from 10 different data points. The higher the score (1–10), the higher the financial risks to your district. Inflation may be to blame if your score has jumped to a higher risk level than last year, or if it’s gradually trended higher over several years.
Exploring the details of the wellness score will expose the specific budget areas that require attention.
- Is a structural deficit chipping away at your reserves, or is your fund balance sufficient to absorb some inflationary costs?
- Are district revenues increasing at the same rate as expenses?
- Are the spending increases most pronounced in a specific cost center?
A detailed table below this graph reveals that this district’s economies resulted in a savings of $150,000 YOY, with costs in some line items cut as much as 90% over previous years.
Identify the right spending strategies
Now that you’ve identified the high-level areas where inflation is most affecting your district, you can start to focus on defining high-impact strategies for reducing expenditures and countering the effects of inflation.
First, administrators will want to examine where there might be opportunities for cost savings among non-staff expenditures. An expense trend chart is an invaluable tool for mapping spending over time in any building or budget area. With this diagram, districts can quickly see areas where they might renegotiate or restructure their offerings to take advantage of efficiencies.
CFOs and other administrators get instant insights into spending trends and peer comparisons for a single expense area like transportation, or for all expenditures. The districts indicated in red and yellow here have managed to flatten the effects of inflation on their transportation spending. Perhaps their strategies might work for other districts as well.
Comparing your expenditures with peer districts may uncover additional insights. Each expense category can be displayed as a percentage of total expenditures to equalize the comparison for districts of varying size. (Note that peer groups can either be drawn from the geographic region or custom-selected for their similarities in other areas, such as demographics.) Districts spending more than comparable districts may want to consult with their peers: collaborating with other districts may point up savings to be found in outsourcing certain functions, hiring for a new staff position, or consolidating multiple contracts to a single service provider.
It’s also valuable to review your restricted funds. Title I, IDEA, and bilingual education funds can all be examined in isolation to understand how those programs’ expenditures compare with grants and other revenue sources. This is a key factor in program sustainability: if the funding paradigm were to change, could your district continue to offer those services with minimal interruption/loss of quality?
With so much of a district’s expenses devoted to staff salaries and other benefits, personnel costs are another area to explore for data-informed cost cutting. Evaluating salaries by experience is a great starting point.
You can review every salary in your district along a scatterplot graph, illuminating how wages correspond to each staffer’s degree or years in the field. Are outliers at the top of the chart making more money because they’re providing strong value to your schools? Narrow the chart’s focus to see salaries for each building or assignment type (such as an elementary specialist teacher).
Of course, salary should never be the only consideration in amending or reducing instructor roles. No district wants to make sensitive personnel decisions without clear data support, so we’ve made it easy to examine salary considerations from several angles.
Peer Comparison. The Average Salaries by Years in Education chart shown here can be expanded to include other districts in your service area. If your salaries are even higher than they would need to be to provide a competitive advantage in recruiting, there may be opportunities to restructure staff assignments to maximize academic ROI.
Staff Longevity. Maintain healthy proportions of experienced instructors vs. new and fresh teachers in your district and buildings.
Pupil to Staff Ratio. Pupil to staff visualizations complete the toolkit and ensure that districts don’t sacrifice classroom quality in a quest to reduce salary expenditures.
Test your hypotheses
You’ve identified the areas where expenses can best be restructured and strategized some measures to reduce those costs. Now it’s time to confirm that the proposed efficiencies will have the desired effect.
Using the Budget Projector tool, CFOs are able to forecast expenses for any number of different scenarios. Simply entering an anticipated percentage of change to your current expenditures or revenues in a secure workbook lets you monitor the effects of that general change over the next five years.
But more importantly for your inflation-fighting strategies, you can also apply these kinds of projections to individual cost centers. Say that you want to see the effects of outsourcing your grounds maintenance to a contractor.
The rolling forecast report shows what kind of savings might be applied to your fund balance, capital projects, or strategic initiatives over the next five years given your projections.
When it’s time to garner buy-in from school board members and other stakeholders, you can show that forecast side by side with the previous school year’s actual figures in the Prior Year Comparison Report.
With tools like these, finance officers can demonstrate the effects of their spending strategies over time, promoting understanding, transparency, and clear decision-making throughout their district and community.
Conclusion
Whether your financial goals include rebuilding your fund balance, responding to enrollment changes, or simply making the most efficient use of your resources, the Finance application from SchoolData.net allows you to confidently create budgets that accomplish your objectives. With data backing every step, you can not only identify areas for improvement but lead your district confidently through uncertainty.
Want to explore our Finance tools as you prepare your budgets for the next school year? Contact us for a demonstration, or request your free district report.
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