2012 Spring Human Resources Conference

Transcription

1 2012 Spring Human Resources Conference SESSION 5b: Building a Business Case Justification for Non-Finance Staff (training)/finance 101 May 9, 2012 Nashville, TN

2 What s It All About????????? Its all about the 360 degree perspective that effective managers need to be successful Admin Engineering HR Finance Real Estate HR is a full partner with the business and therefore needs to understand the business

3 Finance Workshop Participants Stephen Robinson - Controller Allegheny County Airport Authority Topic: Fundamentals of Airport Finance Patrick Heck - Deputy Manager of Aviation for Finance and Administration/CFO Denver International Airport Topic: Making the Business Case

4 Airport Finance Presented by: Steve Robinson 4

5 AGENDA Overview of Finance Department Roles and responsibilities Airport Cash Flow Rates & Charges Budgets Operating & Capital Questions 5

6 Finance Department Chief Financial & Administrative Officer Controller Manager of Finance Manager Financial Accounting Accounting/Payroll Assistant Accounts Payable Administrator Payroll Supervisor Project Cost & Budget Administrator Accounts Receivable Administrator Fixed Asset & Grant Accountant Accounts Payable Accountant Accounting Assistant 6

7 Airport Cash Flow Aeronautical Revenue Sources Aeronautical revenue comes from Rates and charges - landing fees Concession revenue Land rents Fuel flowage fees Tie downs 7

8 Aeronautical Revenue Sources Two Ways of Determining Rates and Charges Residual-Cost Method Tenants agree to maintain financial solvency and are charged a reduced rate Have a voice in airport capital budgeting decisions Compensatory Method Airport maintains financial solvency alone Tenants are charged actual cost of airport operations and have no voice in capital decisions 8

9 Aeronautical Revenue Sources Rate Determination Residual method Commonly used by large airports Because of the influence and power of the airlines in generating economic traffic 9

10 Aeronautical Revenue Sources Rate Determination Compensatory rate methodology Growing interest Allows for build-up of excess funds for future use 10

11 Aeronautical Revenue Sources Landing Fees Paid by aircraft operators for use of Airfield Runway and taxiway system Snow removal Aircraft rescue and fire fighting Security and other airport services 11

12 Aeronautical Revenue Sources Land Lease and Terminal Rent Agreements Leaseholds may be both from aeronautical or non-aeronautical use sources 12

13 Aeronautical Revenue Sources Fuel Flowage Fee A percentage on the amount of fuel sold to be collected as airport revenue Often, an FBO will Pump the fuel Collect the charge Pay the airport the pre-determined percentage on a monthly or quarterly basis 13

14 Airport Cash Flow Non-Aeronautical Revenue Sources Non Aeronautical Revenue Aeronautical charges Relate to the operation and use of the airfield by aircraft or aviation-related businesses Non-aeronautical charges Relate to those operations and uses that are incidental to the operation of aircraft 14

15 Non-Aeronautical Revenue Sources Non-aeronautical revenue from the rental of airport property for purposes completely unrelated to aviation Fees derived from terminal rentals and concessions Rental cars Vehicle parking In-flight catering Advertising space Information technology services (e.g., Internet) Privilege or royalty revenue Gaming 15

16 Rates and Charges 16

17 What are Rate & Charges? Rates and charges is the method airports use to calculate fees paid by the airlines for use of airport facilities, specifically the airfield (through landing fees) and the terminal (through terminal rental rates). ACAA s rates and charges are calculated in accordance with our Airport Operating Agreement, (AOA). Because we have a residual agreement our rates and charges are calculated so that airport revenues equal airport expenses each year. These rates are established for the upcoming year based upon the Board approved budget. 17

18 Airport Finance Budget Preparation 18

19 The Airport Executive as a Financial Manager An airport operator s role as a financial manager has four primary emphases Capital and investment planning Strategic planning Budgetary accounting Fiscal constraints and processes 19

20 Financing Several factors affect an airport s ability to become more self-sustaining Geographic location Activity Competition, expansion capabilities Physical facilities available Economic potential and demographic makeup of community 20

21 Financing Airport board, commission, or other policymaking members should focus on Decisions relative to the overall financial operation of the airport Employing and extending of airport resources Planning and financing of capital improvements Pricing of airport facilities and services 21

22 Budget Budgeting & Budget Preparation A financial plan that delineates the short term operation Includes the planned dollar amounts 22

23 Budgeting & Budget Operating Budget Preparation Focused on those expenses and revenues necessitated by normal ongoing operations 23

24 Budgeting & Budget Preparation Four functional areas of Airport revenues and expenses Airfield Terminal Landside General, or general and administrative 24

25 Budgeting & Budget Preparation 25

26 Budgeting & Budget Preparation 26

27 Budget Process and Monitoring Monitoring activities Regular audits End-of-year budgeting results Deviations report Graphic presentation methods Summary of fund balances and transfers Develop an A/R and aging report 27

28 Budget Process and Monitoring Budget Variance Analysis Actual performance measured against the plan Variance report developed 28

29 Budget Budget Preparation Preparation similar to conducting a project Fundamental tasks of project management can be applied to budget preparation 29

30 Budgeting Techniques Traditional Budgeting Percentage increase or decrease Line-Item Budgeting Most detailed form of budgeting Medium to large commercial airports 30

31 Budgeting Techniques Capital budgeting Funding grants, PFC s, CFC s, other capital funds, financing, etc. Long-term projects Courses of future activity 31

32 Budget Approval Budget presented to Board of Directors in workshop session Operating & Capital Budget approved in public Board meeting Rates and charges & capital plan presented to airlines 32

33 Questions 33

34 Creating a Solid Business Case& Statements Patrick Heck CFO May 2012

35 The Need for a Business Case Resources are limited Not all good ideas are affordable Strategic goals require priorities Many resources are wasted chasing ideas that are not properly vetted Feb 12 35

36 ATVPDKI xnx0pa8lq A2R2RITD books glance 01b Eugene Bardach s Eightfold Path 1. Define the Problem 2. Assemble Some Evidence 3. Construct the Alternatives 4. Select the Criteria 5. Project the Outcomes 6. Confront the Trade-offs 7. Decide 8. Tell Your Story Feb 12 Source: Eugene Bardach. "A Practical Guide for Policy Analysis". Book. CQ Press. 36

37 Defining the Problem Problems can seem unsolvable without a solid definition Solutions are often chasing problems Solutions may not address the real issue if not properly defined Feb 12 Problem Statement 1 There are not enough gates to accommodate demand from the airlines. Problem Statement 2 Airline demand is exceeding existing capacity. 37

38 Identifying and Analyzing Alternatives Identification Do nothing is always an alternative Start with unconstrained thinking Eliminate alternatives that do not meet strategic goals or are impractical Feb 12 Analysis Understand the factors that can be quantified Use data to quantify as much as possible Determine effectiveness of each solution in solving the problem 38

39 Picking a Solution Balance financial return and goals/objectives of the organization Use financial analysis as one criteria for making a decision Understand how effective the solution is at solving the problem Don t be afraid to do nothing Feb 12 39

40 Case Study: Personnel Request Problem Definition: Long recruiting periods for DEN personnel Alternatives 1. Do nothing 2. Hire additional recruiter 3. Use temporary staffing to augment existing staff 4. Leverage personnel from other areas of the City as volumes fluctuate Feb 12 Analysis Assess long-term volumes and potential for short-term fluctuations Identify key sources of data Determine level of productivity Solution: Augment existing staff with personnel from other City agencies as necessary 40

41 Key Misconceptions Financial analysis is the only necessary part of a business case Finance groups only care about the bottom line Analysis only results in less resources The numbers tell the whole story Action will always solve a problem Feb 12 41

42 Creating a Solid Business Case& Statements Patrick Heck CFO May 2012