Course Introduction Welcome!  Introductions  Ice Breaker  Housekeeping  Agenda  Course Materials  PMDP courses

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Text of Course Introduction Welcome!  Introductions  Ice Breaker  Housekeeping  Agenda ...

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Slide 2 Course Introduction Welcome! Introductions Ice Breaker Housekeeping Agenda Course Materials PMDP courses Slide 3 Course Introduction Housekeeping Ground Rules Be on time Listen to and show respect for the opinions of others Avolid side-conversations Cell Phones off Breaks Lunch Facilities Slide 4 Course Introduction Course-Agenda Course Introduction Module 1: Budget Development Module 2: Understanding Financial Reporting Course Summary Slide 5 Course Introduction Professional Management Development Program (PMDP) M-100: The Essentials of Community Association Management M-201: Facilities Management M-202: Association Communication M-203: Community Leadership M-204: Community Governance M-205: Risk Management M-206: Financial Management Slide 6 Course Introduction Course Materials Pre-session Assignments Participant Guide 2 Modules: Financial Management Bidding and Contracts Activities Course Evaluation & Exam forms Slide 7 Course Introduction Importance of Course A budget is a financial plan for managing community association. Budget establishes: What services community provides When they will be done How they will be done Slide 8 Introduction to Module 1: Budget Development Slide 9 Budget Development Focus Developing a community association budget Slide 10 Budget Development Module 1 Objectives: 1.Identify the elements of Duty of Care. 2.Identify and explain the elements associated with Duty of Loyalty. 3.Identify a budget line item and its level of service based on the associations obligations, its needs, and owner expectations. 4.Develop budget line items using zero-base budgeting and a comparison to historical trends. 5.Apply zero-base budgeting to calculate current replacement costs. Slide 11 Budget Development Module 1 Objectives, cont.: 6.Determine whether current replacement costs are adequately funded. 7.Apply zero-base budgeting to calculate the cost of performing a service in- house versus outsourcing a position. 8.Reconcile budget revenues and expenses. 9.Obtain approval for an associations operating and replacement fund budgets. Slide 12 Budget Development Optional Pre-Reading Three chapters from M-100 available to review basic concepts: Chapter 5: Budgets and Reserves Chapter 6: Section on Assessment Chapter 7: Report Funding & Financial Statements Slide 13 Lesson 1: Fiduciary Duties Slide 14 Fiduciary Duties Lesson 1 Objectives: Identify the elements of Duty of Care Identify and explain the elements associated with Duty of Loyalty Slide 15 Fiduciary D uties Board members are bound by state law to: Act within their authority Exercise due care Act in good faith Act with ordinary care that they believe to be in the best interests of the association Slide 16 Fiduciary Duties Fiduciary duties include: Duty of Care Duty of Loyalty Slide 17 Fiduciary Duties The three main functions of the Board of Directors is: 1.Policy making body 2.Approval body 3.Oversight body Slide 18 Fiduciary Duties The Duty of Care: Requires a director to act in a reasonable and informed manner when participating in the Boards decisions and its oversight of the day to day management of the community. Slide 19 Fiduciary Duties Elements of Duty of Care: Attend board meetings regularly Serve on a committee Exercise independent judgment Act in the best interest of the corporation and its members Obtain adequate information Rely on experts Delegate authority to act Slide 20 Duty of Care Act Serve Delegate Authority Independent Judgment Attend Obtain information Rely on Experts Slide 21 Fiduciary Duties The Duty of Loyalty requires the Director to exercise power in good faith and in the best interest of the community rather than the Directors own interest or the interest of another person or entity. Slide 22 Fiduciary Duties Duty of Loyalty relates to: Conflict of Interest Corporate Opportunity Confidentiality Slide 23 Lesson 2: Developing Line Items Slide 24 Developing Line Items Lesson 2 Objective: Identify a budget line item and its level of service based on the associations obligations, its needs, and owner expectations Slide 25 Developing Line Items No two community associations: Are identical Face exactly the same situation from one year to the next Slide 26 Developing Line Items Assess and weigh the set of factors that determine: Whether an item is included in an association budget. And if so, the level of service to provide. Slide 27 Developing Line Items Distinguish between: Association Obligation Association Need Owners Expectation Slide 28 Developing Line Items Two types of budget line items: 1-Mandatory: Requirements the community is obligated to meet. 2-Discretionary: Items are based on owner, board, and committee desires, but the association is not obligated to fund. Slide 29 Developing Line Items When to identify the level of service? When a variation in the level of service is possible. A change in obligation, need or expectation occurs. Slide 30 Developing Line Items Need for Contingency Planning Budget for contingencies Accumulate operating contingency funds Surpluses Separate budget line items Rule of thumb for level of accumulated funds 2-5 % = minimum 10-15% = very good Slide 31 Developing Line Items Activity #1: Level of Service for an Association Budget Line Item Purpose: To practice identifying a level of service by balancing obligation, need, and expectation. Slide 32 Lesson 3: Historical Trend & Zero-base Budgeting Slide 33 Historical Trend & Zero- base Budgeting Lesson 3 Objective: Develop budget line items using zero-base budgeting and a comparison to historical trends. Slide 34 Historical Trend & Zero- base Budgeting What is the difference? Historical = estimates line items based on past trends Zero-base = starts from zero and justifies every amount added to line item Slide 35 Historical Trend & Zero- base Budgeting Historical trend Estimates line items based on past trends Easier to use by itself Slide 36 Historical Trend Budgeting Process: What When Why How Historical Trend & Zero- base Budgeting Slide 37 Zero-base Verifies the need for a budget line item Starts with zero and justifies every cost source added to the line item Meets owner expectations Slide 38 Zero-Base Budgeting Process What When Why How Historical Trend & Zero- base Budgeting Slide 39 Zero base budgeting ensures: The association is charged only for their utilities No fluff in large dollar line items like landscape Pet projects are not being funded On-site employees arent being paid more than the worth of the services Historical Trend & Zero- base Budgeting Slide 40 Zero-Base Budgeting Process Steps 1.Identify each cost component for the line item 2.Determine the basis for estimating each cost component 3.Calculate the zero-base estimate of the expense 4.Compare the zero-base item with the historical trend for the item 5.Investigate and resolve any significant discrepancies 6.Adjust the estimated expense for any anticipated increase in prices 7.Recommend a budget line item Slide 41 Information you need: Basis for estimating individual budget line items Association assets Asset lifetimes Historical Trend & Zero- base Budgeting Slide 42 Basis for estimating individual line items include: Rate Quantity Time Number of Entities Historical Trend & Zero- base Budgeting Slide 43 Cost Areas Description RRate: Expected rate and the unit of measurement to which it applies QQuantity: The expected quantity of the cost component TTime: Time period NNumber: Number of entities FormulaZero-base Estimate = R x Q x T x N Slide 44 Sources of Information for Budget Development Management Company Utility Companies Local contractors and consultants Reserve study, engineers State agencies Community Associations Institute Trade associations Historical Trend & Zero- base Budgeting Slide 45 Sources of Information on Association Assets Inventory and analysis sheets Manufacturers information warranty statements Original as-built drawings New product information Historical Trend & Zero- base Budgeting Slide 46 Sources of Information on Assets Lifetimes Publications from CAI Other trade associations Local contractors Consultants State agencies Reserve study professionals, engineers IRS Certified Public Accountants Historical Trend & Zero- base Budgeting Slide 47 Activity #2a: Develop a Utility Line ItemExample Purpose: To apply the procedure for developing budget line items To identify the sources of association costs for water usage Slide 48 Historical Trend & Zero-base Budgeting Basic Instructions for Small- Group Work: Choose a leader Choose a timekeeper Choose a recorder Slide 49 Historical Trend & Zero-base Budgeting Activity #2b: Develop a Utility Line Item Group Work Purpose: Develop a zero-base line item Compare a zero-base line item to the historical trend to see if there is a potential for efficiency and savings Slide 50 Lesson 4: Replacement Reserves Slide 51 Replacement Reserves Lesson 4 Objectives: Apply zero-base budgeting to calculate current replacement costs. Determine whether current replacement costs are adequately funded. Slide 52 Replacement Reserves Why fund replacement reserves? The association needs a plan Regular periodic assessments are most equitable Loans usually cause a unit owner to pay for the asset twice Slide 53 Replacement Reserves Two Parts of a Reserve Study 1.The information about the physical status and repair/replacement cost of the major common-area components the association is obligated to maintain. 2.Analysis of associations reserves, income, and expenses. Slide 54 Replacement Reserves Reserve Specialist (RS): CAI established the Reserve Specialist designation to help identify qualified reserve study providers. The Reserve Specialist Code