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The New Normal: Budgets, Cost Recovery and Pricing

The New Normal: Budgets, Cost Recovery and Pricing. 2013 Massaschusets Parks and Recreation Association-Annual Confernece. Chris Nunes, CPRE Director of Parks and Recreation The Woodlands Township The Woodlands, Texas. Session Objectives. Identify the types and components of a budget

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The New Normal: Budgets, Cost Recovery and Pricing

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  1. The New Normal: Budgets, Cost Recovery and Pricing 2013 Massaschusets Parks and Recreation Association-Annual Confernece Chris Nunes, CPRE Director of Parks and Recreation The Woodlands Township The Woodlands, Texas

  2. Session Objectives • Identify the types and components of a budget • Develop a program/cost center budget • Forecast cost recovery percentages thus identifying a potential program price

  3. Then

  4. Then

  5. Now

  6. Now

  7. Background Information • Somewhere between then and now our facilities, programs, and services changed but did our budgeting and pricing techniques?

  8. Is this you and your facility? • Decreased share of base fund/tax base • Competition/market share • Increase in requests for services • Facilities built in the late 1990’s and early 2000’s • Slow growth, if any • Limited capital improvement funding • Decreasing agency support How can we better understand these challenges?

  9. Background Information • Purpose of a Budget • Document use of funds spent and received • Standardized for ease of comprehension • Means for evaluating program and service goals and objectives. • If you can’t measure it, you can’t manage it.”- Peter Drucker

  10. Budget Information • Where doesour revenuecome from? • Membership • Dedicated Fees • Taxes • Fees/Charges • Contracts • Grants • Donations • Other????

  11. Budget Information • Operating Budget Formats • Line Item Object Classification • Program/Cost Center- • Costs are separately figured and allocated- macro, micro, nano

  12. Budget Information • Types of Budgets • Capital • long-range, high-cost, long-term budget items • buildings, vehicles, major facility renovations etc. • ROI on new facilities/equipment

  13. Program/Cost Center Budgeting • How can you increase funding/decrease cost? • Increase membership/sales/base fee/property/sales tax rate • Review existing programs/services for efficiency/cost effectiveness • Re-tooling the inventory- “sacred cows” • Other revenue- concessions, lease/rentals, contract services, etc-CAUTION • Review programs and services on a micro level, i.e. cost center

  14. Program/Cost Center Budgeting • Why do I want to do a program/cost center budget? • Accountability • Constant review of budget • Reduce reliance on subsidy • Ensure quality of service • Ability to understand market and service paradigm • Ability to understand core services and patron needs

  15. Program/Cost Center Budgeting • Setting up a Budget: Expenses • What is your internal cost structure? • In House vs. Contract out • Supply Costs • Cost to produce a service • Utilities • Repair and Maintenance • Efficiency of Staff • Need for Staff • Technology • Other?

  16. Program/Cost Center Budgeting • Budget Development • What programs/services could be offered? Pool Heater Example • Swim Lessons • Swim Team • Staff Training • Rentals • Water Polo • SCUBA • Stroke Training • Remember that there are costs associated with providing these services.

  17. Program/Cost Center Budgeting Budget Development-Expenses

  18. Program/Cost Center Budgeting Budget Development - Expenses

  19. Program/Cost Center Budgeting Budget Development-Expenses

  20. Budget Development- Direct Cost Program/Cost Center Budgeting What costs are missing……………….

  21. Budget Development - Indirect Cost Program/Cost Center Budgeting GreenPlay, LLC, 2008 Cost Recovery Study Bend, OR What are you required to recover?

  22. Program/Cost Center Budgeting Budget Development-Indirect Cost Should there be a different overhead cost for different services?

  23. Program/Cost Center Budgeting Budget Development - Revenue/Pricing • Who benefits from the service? • Who generated the need, therefore, the cost? • What is the commitment or intensity of the program? • Do community values support subsidy? • Are we obligated to provide this service? • Will the level of the fee affect the demand for the service? • Cost Recovery / Goals Recovery Policies

  24. Pricing • How can price be determined? • Cost Recovery Goals (25%, 50%, 75%, 100%, 150%) • What costs need to be recovered? • Market Based • Price based on time/location • Supply/Demand

  25. Program/Cost Center Budgeting Budget Development - Revenue/Pricing • How do I arrive at program estimates? • Educated Guess • Historical Numbers • Trend identification • Competition (lack of) • Growth/Contraction • Other agency’s numbers • Fee Increase • Hunch………..

  26. Pricing • Will price have an impact on use rates? • Increase • Decrease • No Impact • Elasticity

  27. Pricing • Minor fee increase • Decrease 10% • Major increase • Decrease 20-40% • Value • Understand market, • Undervalued Services • Psychology of Pricing • 5’s and 9’s • Price breaks • First year is the toughest!!

  28. Program/Cost Center Budgeting • Historical Numbers • Growth/Contraction • Fee Increases

  29. Program/Cost Center Budgeting • Price by Height • Price by Location

  30. Program/Cost Center Budgeting • Riva Row Boat House • 2 years old • Elastic or Inelastic • Impact of a $5 fee increase? • Growth or No Growth? • Impact of advertising and marketing • Desire to keep fees constant for two years or more

  31. Pricing- Market Based Program/Cost Center Budgeting Differentiation = Quality, Expertise, Speed/Level of Service

  32. Pricing- Market and Cost Recovery Based • Approach • Two year-2007 • Tiered facility • Service Levels • Service Differentiation • Reaction of the public/board • What was the impact of these increases?

  33. Pricing- Market and Cost Recovery Based While there is a decrease in use, there may be a decrease in expenses, 51% decrease in use, yet $39,000 increase in net effect.

  34. Pricing- Market and Cost Recovery Based

  35. Program/Cost Center Budgeting • Ability to meet goals • Management Tool • Monitoring Techniques • Are you on track? • Additional marketing needed to reach goals?

  36. Program/Cost Center Budgeting Can we use this methodology for individual programs?

  37. Pool Fees

  38. Pricing- Market Based Pool Fees

  39. Pricing-Issues • My competition just changed their price…..what do I do? • Evaluate the competitor’s reason for the price change • Evaluate marketplace response • Considers own product’s strategy

  40. Pricing Issues • What do I do?....... • Reduce price • Raise perceived quality • Improve quality and increase price • Launch low price “fighting brand”

  41. Capital X Budgeting

  42. Capital X Budgeting

  43. Program/Cost Center Budgeting • Things to remember • Understand your pricing philosophy • Benefits/costs of micro detail • Decreasing use may increase revenue • Ability to use for programs, services and maintenance • Understand the marketplace and its relation to your price • Control leakage • The devil (and the savings) is in the details…………. • "A billion here, a billion there—sooner or later it adds up to real money.“ — Senator Everett Dirksen

  44. Thank You!!!!!! Chris Nunes, Ph.D., CPRE Director of Parks and Recreation The Woodlands Township 2801 Technology Forest Blvd The Woodlands, Texas 77381 281-210-3906 cnunes@thewoodlandstownship-tx.gov

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