Fiscal Management

The Case for Fiscal Management

Fiscal Management is the process of keeping an organization running efficiently within its allotted budget. Fiscal accountability in food service departments is imperative given the challenge of operating in a highly regulated environment, often with limited revenue, inadequate facilities, and the high personnel costs. Add in any shifts in the operational model from ready-to-serve foods to scratch-cooked meals, and meticulous fiscal management becomes even more crucial. With this knowledge, food service directors can lead with full transparency and accountability which enables them to make informed decisions when developing and growing their programs.

District size can often determine the extent of the food service director’s fiscal management responsibilities. In smaller districts (those with fewer than 2,000 students), the accounting department may manage much of the food service budget and advise as needed on financial issues. The district’s business manager may view food services simply as a line item without regard to the greater vision of the department’s impact on students’ well-being and the school community. For the food service director in a smaller district, envisioning a change of their food service department will require learning new processes and using tools for oversight that will enable them to make informed decisions pertaining to their fund. They will also need to be able to explain their plan to the business manager with adequate analysis as back-up.

In larger districts, the food service director is generally more involved in the processes related to their fund. They often have budgetary responsibility and a detailed understanding of both food and payroll costs. In these districts, the accounting department may support food services by providing basic accounting services such as bank deposits, check writing, and other accounting functions. But typically, the expectation is that the food service director makes the decisions regarding their fund’s operation, including payroll and food expenditures.

Although federal regulation mandates that food service department funds be budget neutral, in some cases food services will need additional support from the district’s general fund. District administration may attempt to reduce the transfer of funds from the general fund to the food services fund, and a common response is to cut expenditures without considering strategies to increase revenue and participation. This produces a culture that sabotages the creative problem-solving necessary to improve food quality and student participation, and, as a result, increase revenue. This is why the food service director must take charge of the fiscal management of the program; it is the key to a successful and sustainable food program.

Trusted and effective calculation tools can help food services directors achieve proficiency in managing their funds. The ability to correlate statistics and make accurate projections allows the department to navigate through unforeseen changes and events, which may be internal to the department or extend to the overall district. These tools can create a common language for discussing changes and reorganization with the district administration and accounting department. We have seen that the most innovative districts are the ones that have a solid understanding of their bottom line and the ability to articulate how a robust food service is a vital part of the educational program.

The Management Tools & Resources page contains easy-to–use downloadable spreadsheets that can be used in conjunction with district-wide financial systems, Point-of-Sale software (POS—meal counts by eligibility used to claim reimbursement), and back-office software (back of the house software—recipe management, menu cycles, purchasing records, inventory, and production records). Very small districts that do not have any of the software mentioned above can use the Lunch Box tools as stand-alone management tools. All of these tools provide a bench mark for evaluating the progress and success of potential program changes such as instituting universal breakfast, centralizing production, labor shifts, or menu shifts to increase participation. The tools can also be used to create projections by developing “what if” scenarios for a full re-organization.

BACK TO TOP

Labor Costs

Labor costs generally account for 45-50% of a food service department’s budget. It is vital to accurately project this budget and to ensure that you have the correct staffing in place to produce quality meals in a timely manner. Most districts develop their personnel budgets with software that is tied to the payroll system. Typically, this software does not provide all of the information needed by the food service department to manage current personnel or to plan for future change; when planning any change to the department’s programs, food services must be able to forecast the staffing requirements for the changes and then monitor the results to see if the projections were accurate. The following Lunch Box labor cost tools help food services:

  • Develop accurate budget projections
  • Track assigned hours as compared to the actual hours worked
  • Analyze by-site productivity

The Labor Cost Tools

Position Control

The food service department’s labor cost is an area that requires strong management and planning since it represents one of the largest portions of the expenditures. The annual cost for each position considered necessary for the operation of the department is calculated based on the current salary paid to the employee holding the position (or an estimate if the position is open), as well as the other incremental costs (fringe benefits) associated with that position: pension payments, FICA, Medicare, and healthcare. Variable attributes such as job title, pay range, collective bargaining affiliation, location, available health plans, retirement, work calendar, and allotted hours are also assigned to each position. As soon as people are hired for open positions, their unique information—such as date of hire, placement on the salary schedule, and health plan selection—should be updated in the calculations.

Professional Development in Position Control

Another important area that should be allocated as a routine annual expense in position control is time and resources for professional development. This is an area of the budget that is often missing when we assess districts that want to expand their program models. In fact, it is common to see as little as a half-day added for a start-up meeting, a few hours for receiving and opening orders prior to the school year, and some extra hours for closing the site down at the conclusion of the school year, with no time or expense allocated for professional development.

As part of the HHFKA of 2010, food service department professional standards have been identified and are currently under review for comments. Included in the standards are minimum recommendations for training site level staff including 12 hours for new and current managers and 8 hours annually for all staff working an average of 20 hours a week. Though the regulation states that the district must keep a record proving that they are in compliance with the regulation, it does not specify that the district must plan for the fiscal ramifications of providing an annual allotment of training hours. 

In districts where expanding services and skills are prioritized, budgeting for professional development provides the necessary and cost-saving opportunity to establish new skills and refresh forgotten ones. For this, we recommend budgeting two to three days of professional development per school year for all site leads and other key management personnel. At least one 8-hour training day should be budgeted for staff who work 20 hours a week or less. If your district were undergoing a major shift in operations, additional training time would need to be added, and, if necessary, funded through outside sources like grants or community partners.

In fiscal management the Position Control Worksheet is the basis for approving positions for the department’s budget. This worksheet must be as accurate as possible to ensure the reliability of the personnel budget, which you will want to regularly compare to the actual personnel expenditure by the department. As a cost controlling tool, the position control worksheet should be a living document that reflects your current plan to produce quality meals and service for your students. If you have changed your personnel budget up or down you should inform the accounting office so the district financial system mirrors your budget.

Hours Assigned to Hours Worked

Tracking labor activity across all positions is powerful information for fiscal accountability. Some districts use time clock systems for this purpose, which can enhance the ease of the task, but manual time sheets can function in the same way. 

Once the assigned hours are identified, it is essential to perform a monthly comparison to the actual hours worked to make sure that the hours are within the expected budget. Some payroll systems have “exception reports” that can provide information about hours worked in excess of the assigned or contracted hours, however most school payroll departments do not provide this type of vital information to the departments.

In the absence of an exception report, you can establish your own process for comparing hours assigned to hours worked by obtaining a report that shows the actual paid hours by employee and comparing those to assigned hours. Because there are many different kinds of payroll systems and pay periods, we cannot provide “the best” tool. However, we have provided the Hours Assigned to Hours Worked Worksheet as an example to help you understand the concept. You can develop a format that fits your department’s needs.

This tracking is important because if hours worked are greater than the assigned hours, then your department will exceed its payroll budget before the year is complete unless the extra hours are to backfill a vacant position. In some cases this is reasonable and expected, but you need to be prepared to explain the discrepancy. For example, you may have adjusted labor assignments due to enhanced programming—like adding breakfast in the classroom—which may have required an hour or two more a day over the cafeteria-based model. In this particular example, the increased revenue from the program expansion balances the increased labor assignment.

Conversely, additional hours can simply happen without cause. Regularly occurring extra minutes worked across each site can add up and throw the budgeted labor out of sync with revenue and other expense areas. Establishing clear protocols for approving additional or overtime hours is important to the fiscal health of your department. Performing hours worked to hours assigned comparisons on a routine basis will give you the ability to respond quickly to imbalances and to make necessary changes.

Meals Per Labor Hour

Meals per Labor Hour (MPLH) is one of the most common measurements of productivity that food service departments use when evaluating their sites. MPLH can be calculated to: 1) compare the parity of labor between similar sites, 2) assess the ability of the department to sustain current labor hours, and 3) analyze “what-if” scenarios when evaluating the potential efficiency of shift in the production model. Our Meals Per Labor Hour Worksheet is a useful tool to provide the logic for balancing staffing between sites. It also provides an indicator of a site’s ability to take on new programs and increased student participation without adding labor costs. In that vein, this calculation can also be used as a tangible illustration for administrators when approval for additional labor is needed due to a significant increase in participation. Additionally, with a complete picture of the overall operation in hand, you will be able to have proactive conversations with staff when they feel that they do not have adequate time to perform their jobs.

The Calculation

The calculation is relatively simple: take the daily average of all of the meals served at a site and divide by the number of actual labor hours performed. Note: we differentiate “actual” from “budgeted” or “assigned” to account for the actual practice at the site. 

Meals per Labor Hour = Average Daily Meals or Meal Equivalents Served
                                          Number of Actual Labor Hours

Though the calculation is standard across districts, it is difficult to compare one district to another because how they apply the meal equivalent varies. The primary differences that we’ve found are in how meal equivalents are calculated for breakfast versus à la carte sales. We recommend the following calculations based on our experience in evaluating numerous districts of various sizes in different parts of the country. 

Meal Equivalents

  • Breakfast served before the bell in the cafeteria: 3 to 1
  • Breakfast served for universal Grab n’ Go (to the classroom), either as students enter or after first period: 2 to 1
  • Universal Breakfast in the Classroom (BIC) served after the bell, delivered to the classroom: 2 to 1
  • After School Snack Program packed out for pick-up: 4 to 1
  • Lunch: 1 to 1
  • Supper: 1 to 1

À la carte sales as a meal equivalents is where The Lunch Box differs from the norm—we don’t count à la carte as a meal equivalent. Here’s why:

  • We always recommend selling the reimbursable meal as the primary focus since encouraging kids to eat the planned meals promotes better eating habits and improved health. The reimbursable meal is what our work is really all about.
  • Focusing on participation in the reimbursable meal is the most effective way to maintain a fiscally sustainable food service fund. Almost every type of à la carte sale (with the exception of a milk or other beverages) competes with the reimbursable meal and are not necessarily healthy—e.g. two bags of hot Cheetos and Vitamin water.
  • The majority of à la carte sales are snacks and beverages that require minimal labor other than inventory management. Labor spent on counting and managing these items is labor that could be focused on improving the food and service quality of the reimbursable meal.

How Many Meals Per Labor Hour?

Determining the acceptable range for MPLH is another part of the equation that varies from district-to-district. The most commonly referenced MPLH ranges for the various site types and production methods can be found in Foodservice Management for the 21st Century by D. Pannell-Martin. But the average that we most commonly hear directors cite as their goal, regardless of production method or site type, is 16 MPLH.

Within the context of the statistics, it is important to review school characteristics that might affect the calculation at a site such as the site type (elementary versus high school) the number of programs operated (i.e. breakfast, lunch, afterschool snack, supper, contract meals), the number of employees, the number of serving periods including length and lag times, the number of serving lines, type of kitchen (i.e. satellite, on-site production, regional or central production), complexity of the menu, the type of meals prepared, and variables of the facilities, such as the efficiency of the site layout.

When examining the labor and schools more closely, certain trends appear that are important to note when considering 16 MPLH as a “typical standard”. For example, elementary sites are often the most productive, so their higher ratios of average daily participation (ADP) are a primary contributor to the district’s bottom line, though the labor assigned to elementary sites is routinely lower, as are the job classifications. Furthermore, if the elementary site is serving in-classroom breakfast models, their MPLH will be even higher. An MPLH range of 28 to 45 is common for an elementary school with classroom breakfast and strong lunch participation.

On the other hand, the less productive secondary schools require more supervisory staff, multiple service lines, and more menu choices, which translate to a higher labor assignment. Even less productive can be high schools, which are often identified for renovations and upgrades ‒ new equipment, nicer dining areas, high tech POS stations, and lots of staff, but still struggle to attract diners. Food court-style serving areas are also a strategy for competing with the nearest fast food outlets; consequently high schools are most commonly relying heavily on à la carte sales to break even or are resigned to operating at a loss.

With these factors in mind, directors can identify opportunities for making adjustments to their labor assignment and creating MPLH targets for like site types that are effective benchmarks for their districts. It may take a few years of looking, comparing and adjusting to determine what productivity standard works within your organization, but consistent evaluation will result in optimized efficiency and higher productivity.

Illustration of MPLH before and after

Food Costs

Along with labor costs, food costs are the other major expenditure of a food service department budget. Responsible management and understanding of food costs is vital to a successful food service operation, especially when considering significant shifts to menus, production, or service models. An accurate projection of budgeted food costs is fundamental fiscal management.

Food Cost Projection Worksheet

One of the key challenges for districts considering major shifts to their menu production—such as shifting from ready-to-heat to scratch-cooking or adding salad bars to their program—is how to plan for their annual food expenditures. Inaccuracy can be devastating to a food service fund. We’ve created a Food Cost Projection Worksheet to help you safeguard your food service fund when undergoing complex program change. Take note, this tool can be applied to your budget anytime—even without going through major change – because it creates a realistic measurement for a director to compare actual food cost against budgeted food cost as the year progresses. In addition to the impact of menu production changes, food cost can also be impacted by other less obvious shifts such as unanticipated enrollment, demographic shifts, or changes in participation due to redrawn district boundaries.

When projecting budgeted food cost for a new menu model, the necessary data includes: 1) the average food cost by meal type (i.e., breakfast, lunch, snack, supper; see Simple Menu Cost Worksheet), and 2) the ADP (see Simple Meal Count / Average Daily Participation Worksheet) for the full year of your current year by meal type. Here is the basic formula:

Sum of  (Average Cost by Meal Type x ADP by Meal Type) x Serving Days = Annual Food Cost

(((Average Cost of Breakfast x Breakfast ADP) x Serving Days)) + ((Average Cost of Lunch x Lunch ADP) x Serving Days)) + (Average Cost of Snack x Snack ADP) x Serving Days))) = Annual Food Cost

This food cost total is inclusive of all five components of each meal. Although we know that offer versus serve will reduce this presumption because students may not choose all five components, the calculation provides the upper limit of the food budget which is the most conservative approach to budget development. Once the district has accrued a participation history of new menu cycles, the food cost projection can then be based on actual serving data which is collected via the production records, as well as by utilizing vendor velocity data.

Food Cost and Inventory Tracking Tool (for Districts without Back-Office Software)

Districts that try to manage their food and inventory costs without back-office software are at a disadvantage. Software programs designed for school food service operations support recipe management, inventory, ordering, and receiving. It also automates tasks like determining food cost per meal and can provide real-time information on money spent for food prepared during a month. While it is possible to track food costs and make estimations without software, districts must be careful not to base food costs simply on food expenses. They also must account for price changes, existing inventory, shifts in the menus, enrollment shifts, and average daily participation.  

For smaller districts without software we have created a Food Cost and Inventory Tracking Tool that can be used successfully manually. Smaller districts are often more at risk of overspending due to lack of support services from Accounting, lack of personnel or training. When a small district decides to shift their menu model, due to their size they are often more nimble, but without careful consideration of the impact of change ‒ they can run into trouble quickly with food cost. Two areas that must be tracked to avoid overspending are 1) inventory, and 2) cost of the food purchased each month. The cost of food used in the preparation of the meals is calculated on a monthly basis using the following formula:

Monthly food costs = (Beginning inventory + Food purchased – Ending inventory)

The food cost, which represents the total value of the food used, can be divided by the number of serving days in that month to determine the average food cost per day. Next, you can check this daily average against your annual budget by dividing your projected annual food cost total (generated in the Food Cost Projection Worksheet) by the annual number of serving days. When comparing that number to the daily average of the recent month, the recent daily average should be less or equal to the annual daily average that was projected.

The Food Cost and Inventory Tracking Tool provides an easy way to effectively monitor food costs in real-time. By performing a monthly analysis of your activity you will be able to respond to an increase in your food cost immediately instead of attempting to adjust later in the year when it is often too late. A rise in your food cost during the year can be due to a rise in participation (which is a good thing!) food prices, mismanaged inventory, menu items that are not well received, or general over-production of the menu items that result in discarded food or excessive leftovers

Review the average daily food costs for the month and year-to-date to determine trending. The average food cost dollars per day for the year-to-date multiplied by the annual serving days should not exceed the annual food budget. The only time it is acceptable for your food costs to rise is when that is accompanied by an increase in ADP. In that situation, the increased revenue will offset the increase in food cost.

Meal Counts

Meal counts determine the amount of revenue that a program will receive to cover the costs of labor and food. Meal counts are the key data set to track in school food programs and should drive the hours of labor needed to produce and serve meals properly and provide the basis for estimating the amount of food that needs to be purchased to support the menu. Complete and accurate monitoring of meal counts is the foundation of the food service program.

The National Child Nutrition Programs have strict regulations for counting meals served for federal reimbursement. Most districts utilize a Point of Sale (POS) system that allows for a streamlined digital process to count the students by eligibility and the type of meal they are provided. This data from the POS system should be incorporated into a spreadsheet that projects the annual program revenue. The projection can be compared to budget to determine if the program is achieving the anticipated meal counts to support the budget. 

Ideally, the meal counts will track exactly as budgeted. However, if the actual counts are lower than budgeted, here are some questions to ask:

  • Is enrollment lower than anticipated? 
  • Are the eligibility demographics different than budgeted? 
  • Do the students not like the meals?
  • Are competing à la carte sales impacting reimbursable meal sales? 
  • Did the bus schedule change, causing the students to arrive too late to eat breakfast?
  • Did the bell schedule change, causing issues with meal service?
  • Have recess times changed?
  • Have “open campus” policies changed?

Once you have identified the issue, you will want to work quickly to modify the program to ensure a balanced budget. This could mean reducing staff or redeploying them to other sites, making menu modifications, instituting a marketing plan, or having a discussion with administrators about the new bell or bus schedules.

 If the actual counts are higher than budgeted, questions to ask include:

  • Is the enrollment higher than anticipated? 
  • Are the eligibility demographics different than budgeted? 
  • Do the students like the new menu items?
  • Have bus, bell, or recess policies changed?

Having higher meal counts than projected is a good problem to have. Still, you’ll want to study the causes and respond. Here are some recommended courses of action:

  • Rework your revenue projections if you feel that the meal count increases are valid and stable.
  • Recalculate your food budget.
  • Review your Meals Per Labor Hour Worksheet calculations to determine if you need to add hours to the sites or possibly redeploy staff.
  • Update your Position Control Worksheet if you need to increase staff based on MPLH.

You should review these calculations to ensure the increase in revenue is enough to offset the increases in expense that any changes may incur. If it is not, you will need to review your labor changes.

Meal Count Tools

  • Meal Counts & Revenue Tracking Tool – Small District: This tool is appropriate for a small district with only a few sites that are broken up by grade level. It is a single spreadsheet without linking tabs. It provides the ADP and annualized revenue for comparison to budget projections. Directions for using the worksheet are provided in the first tab.
  • Meal Counts & Revenue Tracking Tool – Large District: This tool is a better fit for a large district with many sites and a variety of grade levels—or one that provides breakfast, lunch, snack, and supper options. Each site is tracked separately and pulls the data to a summary tab for budget comparisons. Directions for using the worksheet are provided in the first tab.
  • Simple Meal Count/Average Daily Participation (ADP) Worksheet: If a district is very small or has only one school, and all sites have the same grade levels and are homogenous in demographics, then the Simple Meal Count/Average Daily Participation (ADP) Worksheet can be used. This spreadsheet uses only the district totals of meal counts each month and annualizes the revenue to compare to budget. This can be a useful tool but might not be accurate enough for more complex districts that don’t have a homogeneous population. Directions for using the worksheet are provided in the first tab.

Budget Development Process

The budget is the financial foundation for an organization’s plans. The budget summarizes in dollars and cents, the anticipated expense of resources, people, supplies, contracted services, and equipment. The annual planning process establishes how the food service department fits into the larger picture of the district. A budget is a road map that depicts the goals of the department and the pathways to achieving them. It also functions as a benchmark for measuring year-end success.

Budget Assumptions

The first step in the budget development process is creating a list of budget assumptions. Budget assumptions outline specific changes to each area of the budget. The assumptions list should include, but not be limited to: salary schedule rate changes, health insurance premium assumptions, meal counts, meal prices, and reimbursement rates. In addition, any anticipated programmatic changes or external factors should be detailed so that the planned budget can be justified to administration. Budget assumptions provide the detail of the total line item dollars in your budget. This type of documentation will also assist with budget adjustments that are typically made if factors change during the year. 

See a Budget Assumptions Example.

Personnel Budget

To create the Personnel Budget , use the Position Control Worksheet to apply known and anticipated changes to positions and hours, hourly rates, statutory benefit rates, health benefits costs, as well as planned staff development days. The personnel budget reflects total dollars for all staff and should equal the detail by position found in the Position Control Worksheet. 

Program Changes or Additions

Create worksheets as back up for any programmatic changes such as implementing Breakfast in the Classroom or adding an after school snack program. The sample Budgeted ADP Program Change Revenue Projection Worksheet provides an example of revenue projection when adding a breakfast in the classroom to the district. 

Revenue – Meal Counts

Use your Meal Counts and Revenue Tracking spreadsheet to develop a Budgeted ADP for Revenue Projection Worksheet that can be updated with anticipated federal and state revenue as well as meal prices to estimate the annual revenue for the program.

Other Revenue

Provide the budget and expected revenue from any contractual programs that you run such as Head Start or catering activities. If you are selling à la carte items, detail your planned revenue for that too. We recommend that food cost for à la carte not exceed 50% of revenue.

Food Costs

Use the Food Cost Projection Spreadsheet and apply average meal cost by type to create an estimate for the annual food costs. This can be compared to the Food Cost and Inventory Tracking Tool as a possible way to fine-tune your overall food costs. Be sure to note the justification of any fine-tuning in the budget assumptions.

Multi-Year Profit and Loss

Once you have created all of the spreadsheets suggested for revenue, personnel, and expenses, you will gather them together in a Multi-Year Profit and Loss Statement that is updated each year with the new budget information. Be sure to modify the detail line to reflect the district financial report descriptions and format. The line item detail can be compared to the previous years to establish trends and to ensure that you have not missed any revenue or expenditure categories. The spreadsheet also provides a quick snap shot to determine if the budget is balanced.

Throughout the year, you can update any of these worksheets to reevaluate your current position. Depending on your district’s standard operating procedure, consider updating your budget in the district system so administration can see that you are managing your department’s fiscal health and are making informed adjustments.

INCREASE STUDENT PARTICIPATION

Learn more about Marketing Your Program to increase participation in your district!

MANAGEMENT TOOLS & RESOURCES

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Visit our Management Tools & Resources page for worksheets, calculators, signage, guides, and more.

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