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Welcome
Remarks
I am pleased to share with you the most recent issue of the Best
Practices in Church Management Newsletter of Villanova University’s
Center for the Study of Church Management. In this issue, we cover a
number of topics, including budgeting, civil law and parish
administration, and the impact of the recession on parishes.
Michael Castrilli delivers the second installation of his three-part
series on the budget process. In our previous issue, he wrote about
transparency, now he will discuss budget formulation. The series will
conclude in our next issue with Michael’s presentation of budget
execution and control.
An often overlooked, yet potentially critical, component of church
management is the impact of civil law. In this issue, we present a
summary of the section from a book chapter written by Sr. Mary Angela
Shaughnessy, SCN, JD, PhD, which discusses negligence. Sr. Mary Angela
presents factors that comprise negligence, but also offers some
recommendations on how to avoid it.
Finally, in the “And The Survey Says” section, we reveal the findings of
a national survey concerning the impact of the recession on parishes.
The survey examined Catholic parishes and how the recession has affected
their budget and the services they are being asked to provide to
parishioners. We invite readers of this newsletter to contact us
concerning their experiences in these matters.
I would like to remind you of the educational opportunities available
through the Center for the Study of Church Management. In addition to
our very successful on-line masters degree in
church
management
awarded through the nationally-ranked Villanova School of Business, we
also, in partnership with Our Sunday Visitor and AmericanChurch, offer a
series of webinars on church management topics. This series presents the
opportunity for an individual to earn a certificate in church management
through the Villanova School of Business. The series has already begun;
however, previous sessions are available to view by individuals who
register before December 21, 2011. Individuals interested in particular
topics may participate in one or more of the specific webinars without
earning the certificate. Click
here for more details.
We hope that you find the information in this newsletter helpful. We
appreciate your previous feedback and are happy to hear your feedback
about the topics covered in this issue as well as topics that you would
like to see covered in future issues.
Chuck Zech
Director
Center for the Study of Church Management
The Budget
Assistant: Budget Formulation and Improving Forecast Accuracy
By Michael J. Castrilli
Effective budgeting is critical for providing resources to priorities
and for achieving program objectives and goals. “The Budget Assistant”
is a series of articles on best practices related to budget process,
formulation, execution, and control. In the first article, we
focused on practical techniques to develop an open, collaborative, and
transparent budget process. Now that the budget process is established,
this article will discuss the next phase of budget formulation and will
compare and contrast the methods of top-down and bottom-up (or
zero-based budgeting) for application within your organization. To help
you gain insight on where to focus your efforts to improve forecast
accuracy, we will also construct an easy-to-use variance report. This
report will provide a snapshot to help you visualize the differences
between your budget and the actual expenditures for a given category.
Budget formulation is the process organizations use to develop
resource planning estimates for income and spending categories for a
given time period. For Church organizations, budget formulation can span
a few months or a few weeks. Formulation can also occur on multiple
levels. For example, as the Diocese prepares the overall Diocesan
budget, parishes within that Diocese also undergo their own budget
formulation processes to compile the data and information needed for
their operating and capital budget submissions to the Pastor, Finance
Council, and the community at large.
In the previous article, we established that the budget is a tool to
help manage and ultimately achieve the priorities for the organization.
Now think about developing a budget as building a house. In order to
complete the house, you need to lay the foundation, put the walls in
place, and install the roof before you can start decorating. Like
building a house, the architecture plans are established when you
develop your budget process. The foundation and walls may already be
established (Archdiocesan/Diocesan policies), and you may already be
aware of what it will take to bring the house up to code (Canon Law).
You are ready now for budget formulation, which is the process of
performing the detailed work of putting in new floors, painting walls,
and buying appliances.
There are multiple methods to develop a budget. Since we are now
going to forecast resources that we expect to come in (income) and spend
(expenses), there is always going to be a level of uncertainty no matter
how we approach the topic. Webster’s Dictionary
defines forecasting as “calculating or predicting
(some future event or condition) usually as a result of study and
analysis of available pertinent data.” Whenever we predict anything it
involves our best estimate, or guesstimate, of what will
happen. The good news is that we typically have some level of
information or data that can help guide us, but that is not all. We also
have people around us who have experience and can help provide their
insights on what they believe will happen. If you feel like you
have not been 100 percent accurate in forecasting at your organization,
remind yourself of the age-old adage that “perfect is the enemy of the
good.” Instead, aim for 95 percent accurate, and remember that
forecasting improves over time and with experience.
To determine the overall methods we will use to
develop estimates, it is important to begin with understanding at a
high-level two approaches to budgeting, top-down and bottom-up
budget formulation. Whether the budgets are either method or a hybrid,
there are inherent advantages and disadvantages to each method, and
understanding these approaches can help you determine how you might put
these in place at your organization.
Top-Down Budgeting
A top-down approach to budgeting is when resources are allocated at a
high-level and the details are worked out based on this amount of
funding. To use a simple example, think about your salary. Each month,
your employer gives you a salary, but does not dictate how you spend
that money. Unless a pay raise is on the horizon, you know how much
money you have available to spend, and you work out your budget based on
that amount of money. The same method applies to organizations. At
certain organizations, a leader will establish the allocation of monies
for a given project and then create a budget from that level of funding.
On the other hand, maybe you receive a donation from a benefactor, and
you are going to budget those resources using this method.
The advantage of top-down budgeting is that the method is relatively
simple. It does not necessarily require labor-intensive cost estimating
because the overall amount of money that will be budgeted is already
established. Using this method, money is then allocated to categories of
spending. One disadvantage to top-down budgeting is that you may be
forcing or form fitting various cost elements to meet your target. For
example, if you are using the top-down budgeting method, you may decide
in the next fiscal year that you would like to spend $8,500 on a faith
formation program. The director of faith formation may then be expected
to divide the funding into established categories. Table 1 is an
illustrative example of how the director might divide the budget he/she
has been given.
Table 1: Top-Down Sample
|
Allocated Budget |
$8,500 |
|
Speaker Stipends |
-$3,000 |
|
Food and Beverage |
-$4,000 |
|
Publicity |
-$500 |
In this particular example, it is best practice that the director is
involved in determining a plan for the money to be spent. A disadvantage
to this budgeting method is that the director may feel as if this budget
has been forced upon him/her. Note this may also cause challenges
related to future budget execution and control (more on this in the
third article). If a top-down method is applied to an organization
without the collaboration of those responsible for managing the budget,
ownership by the director for meeting spending goals may not be as
strong. As an example, if the parish treasurer notices that spending is
high for publicity at midyear, the director may say, “Well, I was given
a budget and I made it work.”
Top-down budgeting can work well when you know the amount of money
you are willing to allocate or you have a set amount of funding provided
by an external source. The key is to involve and empower others who will
help you manage the budget early on. As a general rule, if the top-down
method is applied to budget formulation, it is important for those who
are given responsibility for managing the budget to propose and justify
enhancements or reductions for the budget they have been allocated. A
simple method involves asking the director to detail how he/she plans to
spend the money AND allowing him/her an opportunity to propose changes
to the amount allocated. You may now be thinking, “Ok, but staff will
always seek more resources, right?” Again, this is why collaboration is
so critical in budget matters. When staff members are empowered and know
they have input into budget formulation, it is much less likely
unreasonable requests are proposed. Budgets developed secretly or
through closed-door methods serve no one well and actually diminish
staff morale. Therefore, top-down budgeting works well when those who
manage the budget are involved in the process.
Bottom-Up Budgeting or Zero-Based Budgeting (ZBB)
The other formulation method is a bottom-up approach, which is
sometimes referred to as zero-based budgeting (ZBB). This method
involves building a budget from the lowest income/expense elements and
then rolling them up into the total budget request. Some professionals
will use the method of ZBB, which has the budget of a particular program
built from zero dollars. From zero, each cost element is developed and
justified; therefore, when the budget is complete, the manager or leader
has a thorough understanding of the activity under their management. The
advantage to this type of budgeting is that one can scrutinize and
justify each cost element in order to develop the budget. The challenge
is that it can be time consuming due to the comprehensive nature of
building up from zero. Therefore, if using a ZBB approach, the leader
may only consider this method for one department at a time or take the
ZBB approach every other year, so that the process is not overwhelming
for those involved in building the budget. When developing a budget
using the bottom-up approach or ZBB methods, the insight into a
program/department is typically very good.
Continuing with our faith formation example above, if the Parish was
using a bottom-up approach to budgeting, the director of faith formation
may be tasked with building the budget from the lowest level and
developing estimates per category, which roll up to the larger budget
request. Below is a sample for how this may look when preparing the
budget for a faith formation program.
Table 2: Faith Formation Program Sample – Bottom-Up Approach
|
Speaker Stipends |
#
of Speakers multiplied by $ Stipend per Speaker |
|
|
Speaker Stipends = 6 Speakers x $600 Stipend |
|
Speaker Stipends Subtotal |
$3,600 |
|
Food and Beverage for Participants |
#
of Events
multiplied by $ Food estimate per Event |
|
|
6 Events
x $500 |
|
Food and Beverage Subtotal |
$3,000 |
|
Publicity |
$.05 per copy of advertisement multiplied by (# of copies
multiplied by # of Events) |
|
|
($.05 per copy) x (750 of copies x 6 Events) |
|
Publicity Subtotal |
$225 |
|
Budget Request |
Speaker Stipends + Food and Beverage + Publicity |
|
|
$3,600 + $3,000 + $225 |
|
Faith Formation Budget Request |
$6,825 |
As noted previously, budgeting is about helping to achieve your
priorities. A key advantage to involving others in the formulation phase
is that the staff you involve will then have additional insight into
their program’s funding and will be able to help meet their program
goals. As you can see from the sample budget in Table 2, one key
advantage to developing a budget using the bottom-up approach is that
both the director and the Pastor understand what is included and what is
not included. If you are the leader responsible for approving the
budget, even though you may find that the director’s proposal is too
high or low, it is easier for both the Pastor and the director to decide
where and what to reduce or enhance because the work for an effective
budget is available. This also empowers the director to have broader
buy-in. The director then manages an approved budget that she/he creates
and understands.
Let’s develop a realistic example to further my point that
collaboration creates efficiency in budgeting. Consider this: when
inevitable budget reductions are necessary, if the budget is prepared
well, both the Pastor and the director understand the constraints and
flexibility that exist within their budget. For example, if the director
must cut the budget by five percent ($341), it is easier to look at the
budget in Table 2 and make reductions. The director may propose 500
copies per event (saving $75) and decide not to have food at one event
(saving $500). The director has now proposed a total savings of $575 and
a budget reduction of 8.4 percent. Think about how many leaders would
love to have staff propose additional savings because they have better
information! When staff have the information to make strategic budget
recommendations, all parties benefit. Even though we are working with a
simple example in this article, think of the magnitude of this type of
decision making when it comes to larger, more complex budgets.
Now that we have established the high-level approaches to budget
formulation, ask yourself the question, “How accurate were your budget
estimates for a given period last year?” The answer to this
question will help you focus on those areas in your budget that you are
estimating well and other places you may need additional help.
Variance Reporting to Improving Budget Forecasts
A simple variance analysis can help answer this question. By using a
spreadsheet program, you can calculate the variance between actual and
budgeted amounts for a given time period. The period could be a year, a
quarter, or six months, but the key is that you have data available.
Table 3 provides a sample of how you may set this up for your
organization and includes the data and formulas you will need.
Column A is the category of spending you would like to analyze.
Column B is the total amount of money you spent for a given period.
Column C is the amount of money you budgeted for this category. Column D
is the amount of money you spent subtracted from the budgeted amount.
Column E calculates the percentage over- or under-spent given the budget
you created for a given category (in Column E, multiplying times 100
makes the percentage easy to read).
Table 3: Sample Variance Calculations
|
A |
B |
C |
D |
E |
|
Category |
$ Actual Amount
(End of Period) |
$ Budgeted Amount
(Beginning of Period) |
$ Over/Under Budget |
% Over/Under Spent |
|
Enter Category |
$0,000 |
$0,000 |
= Column B – Column C |
= (Column D / Column C) * 100 |
Now that this spreadsheet is created, take a few spending categories
and calculate the variance that exists between what you thought you
would spend and what you actually spent. For example, a Church may take
expense categories like office and technology, utilities, and liturgical
and sacramental spending and place them in Column A. Then, take a prior
year period where you have data available and place the actual amount of
money spent in Column B and the amount you budgeted in Column C.
Finally, utilize the calculations in Columns D and E to report the
variance.
Table 4: Sample Variance Report for Church
|
A |
B |
C |
D |
E |
|
Category |
$ Actual Amount
(June 2011) |
$ Budgeted Amount
(July 2010) |
$ Over/Under Budget |
% Over/Under Spent |
|
|
|
|
= Column B – Column C |
= (Column D / Column C) * 100 |
|
Office and Technology |
$18,000 |
$17,000 |
$1,000 |
6% |
|
Utilities |
$12,250 |
$12,000 |
$ 250 |
2% |
|
Liturgical and Sacramental |
$22,500 |
$25,000 |
-$2,500 |
-10% |
Table 4 provides a quick snapshot of the variance between actual
spending and how much was budgeted by category. Does this mean that next
year you need to reduce the estimate for sacramental spending because
you spent ten percent less than you budgeted? Alternatively,
should you increase the budget for office and technology because you
were six percent over budget? The short answer is, “it depends;
you need more information!” Maybe utilities was under budget this past
year because we had a mild winter and summer. The key to a variance
report is to help you narrow in on those categories where you may need
to seek further information.
The variance snapshot provides a quick and easy-to-use method to give
you insight as you formulate (and later control and execute) your
budget. If you are a leader and not heavily involved in understanding
the budget, this is a great method to validate your organizational
spending. Maybe you are new to the organization and have financial
responsibility. As a first step, ask to see this type of report for all
categories of spending for a prior year.
There is so much more we need to discuss, but this is a good point to
stop – for now! The good news is that we have time in the next article
to go further with this topic. Here is your homework. Before you
read the next article in this series, think about the ways in which your
organization currently formulates the budget. Do you use a top-down
technique, bottom up, or a hybrid? Does the method allow for
collaboration across your staff? Are those responsible for managing
budgets part of the budget formulation? Be sure to take some time to
develop a quick variance report. Are there some categories of spending
you would like to analyze? Utilizing the formulas in Table 3, calculate
the variance between budgeted and actual amounts of funding. I recognize
there are many assumptions, caveats, etc., but just try it, and in the
next article, we will continue with the best ways to use variance
reporting to improve forecast accuracy and help you manage spending
throughout the year. Until next time, happy holidays!
Questions or comments? Feel free to email Michael Castrilli at
mjcastrilli@gmail.com
Michael J. Castrilli
Michael Castrilli is a senior client decision manager at
Decision Lens, a software company based in Arlington, Virginia. Prior to
joining Decision Lens, he was the treasurer of DeSales Hall Seminary in
Washington, D.C. as a scholastic with the Oblates of St. Francis de
Sales. Before entering seminary, Michael was a management consultant
with Booz Allen Hamilton and the Corporate Executive Board.
Legal
Issues for Parishes: Negligence
By Charles Zech, PhD
It is no secret that we live in a litigious society. Every
organization, including parishes, must be vigilant to ensure it has done
everything in its power to protect itself against potential lawsuits.
While no one expects parish staff to be legal experts, understanding
some basic legal concepts can be invaluable in avoiding situations that
could result in some liability for the parish.
Sr. Mary Angela Shaughnessy, SCN, JD, PhD has written extensively on
church legal issues. In The Parish Management Handbook, she wrote the
chapter “Parish Administration and Civil Law” , in which she discussed a
variety of legal issues parishes could potentially face. Among them is
negligence.
According to Sr. Mary Angela, most parish administrators lack a basic
understanding of negligence and, as a result, are more frequently sued
for negligence than for any other issue.
Sr. Mary Angela defines negligence as “a violation of a duty that
proximately causes an injury.” Negligence can be the result of acts of
either commission or omission. An individual either did something that
should not have been done or neglected to do something that should have
been done.
Courts recognize four components in a situation in order for a legal
claim of negligence to be made. First, the individual accused of
negligence must have had a duty in the situation. Parish
personnel, both paid and volunteer, can be held responsible for injuries
that occur in a situation where they have responsibility. Sr. Mary
Angela gives cites an example of a court case where a school principal
was found to be negligent in a case where a student had been injured
after arriving at school in the morning before the school doors were
open. The court ruled that because the principal was in his office at
the time, was aware that students regularly arrived before the school
doors were opened, and had failed to establish rules for student conduct
in this situation and to arrange for the supervision of the students, he
had a reasonable duty in that situation.
A second factor of negligence is violation of duty.. If
someone has a duty, but has not violated that duty, that person cannot
be considered to be negligent.
The third element is that the violation of duty must have been the
proximate cause of the injury. The question becomes, would the
injury have occurred even if the duty had not been violated? If so,
there is no legal basis for negligence. The plaintiff must demonstrate
that the injury was a direct cause of the violation of duty. One
important aspect of proximate cause is the issue of “foreseeability.” It
is only necessary for a plaintiff to prove that a reasonable person
would have foreseen the injury. It needs to be emphasized to both paid
staff and volunteers that it is necessary for them to be foreseerers of
potential risks.
The final component for a finding of negligence is injury. If
there is no injury, there can be no legal negligence, no matter how
irresponsible a person may have acted.
According to Sr. Mary Angela, the bottom line for parishes in
developing and implementing policies is to focus on a “reasonable
standard” and to ask themselves, “Is this what one would expect a
reasonable person to do?” It is impossible to anticipate every
contingency, but reasonable people can identify potentially dangerous
situations.
Sr. Mary Angela concludes this section of her chapter with four
recommendations for parish administrators:
- In hiring both staff and volunteers, utilize procedures that
include a thorough background investigation and an assessment of
fitness for the position. Is the person capable of providing the
appropriate level of supervision? Just because an individual wants a
position does not necessarily mean they are both mentally and
physically qualified. It is difficult to turn someone down for a
position in a parish setting, but it is less hassle than an
expensive lawsuit.
- Ensure that personnel and volunteer handbooks are up to date
with clear policies and procedures for supervision. This is
especially critical when the supervision involves young children,
where courts typically apply a higher standard.
- Conduct a safety audit at least once every year. Inspect all
buildings and the grounds, identify areas of danger and develop
plans to address them. Many parishes have established a buildings
and grounds committee for ongoing oversight.
- Establish a crisis plan. Plans should be developed when they are
not needed so that they will be in place when they are needed.
To learn more about issues concerning negligence as well as other
civil law issues that impact parishes, see the chapter by Sr. Mary
Angela Shaughnessy, SCN, “Parish Administration and Civil Law” in The
Parish Management Handbook, Mystic CT: Twenty-Third Publications, 2003.
And The Survey Says…
By Charles Zech, PhD
How has your parish weathered the “Great Recession”? A recently released
2010 survey conducted by the Cooperative
Congregations Studies Partnership (CCSP),
a multi-faith group of religious researchers and faith leaders
representing over 25 faith groups, had some interesting findings in that
regard. The survey included data from a national sample of 390
Catholic parishes. The average annual budget of the parishes in the
sample was $566,564. They spent about 39 percent of their budget on
salaries and benefits, 26 percent on buildings
and operations, 13 percent on program support (such as religious
education or youth groups), 12 percent on mission and charity (including
diocesan assessments) and 10 percent on other expenditures. The CCSP
found that among the Catholic parishes in their sample:
- 39.7
percent thought that their parish’s financial health was in good or
excellent condition in 2010, while 42.9 percent believed that to
have been the case for their parish in 2005.
-
56.8
percent indicated that their income had declined during the
recession; 19.6 percent found no significant change; 13.2 percent of
the parishes in the sample saw income decrease at first and then
rebound; and 10.5 percent realized an increase in parish income
during the recession.
-
The
following areas in the parish budget have felt an impact due to the
recession:
-
21.9
percent of the parishes resorted to layoffs or furloughs
-
51.8
percent experienced staff salary reductions or freezes
-
29.2
percent delayed filling staff positions
-
61.8
percent realized an impact on their investment and saving income
-
55.2
percent found their funding for mission and charity affected
-
52.5
percent indicated that a building program or capital campaign
had been impacted
-
Parishes
have been called upon to do more for their parishioners:
-
64.6
percent indicated that the recession resulted in more requests
for pastoral counseling
-
85
percent felt the impact of the recession in the form of
increased requests for cash assistance
-
62
percent received requests for emergency housing due to the
recession
-
92.3
percent felt the impact through additional unemployment among
their parishioners
What was your parish’s experience with each of these issues? Were you
better off or worse off than the parishes in the CCSP sample? Let us
know at CSCM@villanova.edu
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