blog posts System Government Costing Monthly Facts and Reminders for December Dec 15, 2021 9:00 amBuying and ContractsAccounting and BudgetingFY 22Using Estimations and Projections in a 3E Service Activity Rate CalculationThere are several options available to service centers to adjust rates to include future estimations and projections in rate calculations. However, service centers must know the policy requirements for when they can be included and how to do so.EstimatingWhat if your department has decided to offer a new service? Understandably, you do not have a full year of actual historical data available to calculate service rates to get this service started. In this case, the only option is to estimate your costs and usage base.Estimating UsagePotential usage can be estimated by talking to the service providers and potential customers. There may be grants or outstanding proposals that indicate the service will be used or conversations with researchers/staff that indicate the service will be used at a certain level. This can help determine a reasonable estimate of usage.Estimating ExpendituresDevelop expenditures by determining what types of costs you will have, such as salaries of personnel that will work on the service or the materials and supplies that will be used to provide the service or product. For example, you can use purchase orders, quotes, or other price/purchase data to help determine costs of providing the service.Remember, estimating is tricky, especially when you have a new service and you are trying to build your customer base. Therefore, after six months to one year of operations, you need to recalculate your service rates to ensure the original estimates of expenditures and usage base is on point. This will help ensure the customers are being billed appropriately and your service fund is not incurring a significant deficit or surplus.ProjectingYou think some your service fund’s expenditures (i.e. - materials and supplies) are going to slightly increase but you don’t have anything to support the increases. Although, you do have a new $10,000 maintenance agreement that relates to your service fund and you have the supporting purchase order. Projections can be included for significant non-personnel expenditures, salaries and wages, and fixed asset depreciation.Before projecting expenses ask these questions:Are there significant expenditures in the past that will no longer occur? If yes, you need to remove that expense.Is this new cost a significant change for operations? If yes, it can likely be projected into the rate.Is there documentation to prove that these expenditures will occur within the next few months? If yes, the projected expense can typically be included in the expenditures.Projecting Non-Personnel ExpendituresAlthough rate calculations are determined by actual, historical expenditures, you should include significant anticipated changes in your rate calculation as well, such as your new $10,000 maintenance agreement. But do not try to include nickel and dime increases in expenditures especially when not supported. Also, remove expenditures that were incurred in the past but will no longer apply in the future.Projecting Salaries and WagesWhen there is a new employee to the service, or a new position that will be hired, the anticipated salary can be projected into the rate calculation. To include the new employee or new position, the employee should already be hired, or anticipated to be hired within the coming months. On the flip side, if you have eliminated a position, you should remove the related salary from the rate calculation. Projecting Fixed AssetsAny new equipment that will be purchased in the new few months and directly benefits the service may be included in the rate calculation. In order to include the new equipment depreciation in the rate calculation, the purchase price must be supported with an invoice, purchase order, or quote in Banner or iBuy. Since the projected equipment is not in the Banner Fixed Asset system, depreciation will need to be manually calculated based on the useful life which will be assigned to the asset in Banner via the related commodity code. Projected equipment will always only include a half year of depreciation in the rate calculation since it is in the first year of its useful life.Projecting BaseAlthough the base/denominator must be based on actual historical data in the rate calculations, you should include significant anticipated changes to your base. There may be times when the University loses some large sponsored projects which required your unit’s services and new sponsored projects were not acquired to replace the lost projects. If this is the case, an adjustment should be made to the base numbers so the service fund is not incurring a deficit. On the flip side, the University may have acquired large sponsored projects they did not previously have which will dramatically increase the customer base being served. In this case, an adjustment should be made to the base numbers so the service fund is not inappropriately overcharging customers and incurring a significant surplus.The keys to projecting related expenditures is significance, substantiation, and documentation!ContactIf you have questions about the trainings offered feel free to consult System Government Costing’s “Who to Ask” list to find an expert who can help.