Why Fiscal Management?

The Case for Fiscal Management

District size can often determine the extent of the food service director’s fiscal management responsibilities. In smaller districts (those with fewer than 2,499 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 to make informed decisions. They must 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 may 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 should 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 manage their funds efficiently. 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. The most innovative districts have a thorough understanding of their bottom line and can 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 benchmark to evaluate the progress and success of potential program changes such as 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 shifts in labor assignment or a full reorganization.

Professional Development in Position Control

Time and resources for professional development are another important element of routine annual expense in position control. This is an area of the budget that is often missing in districts that want to expand their program models. In fact, it is common to have as little as a half-day allocated 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 directed by the Healthy, Hunger-Free Kids Act of 2010, the USDA published the final rule on Professional Standards for school food service employees:

• Directors must complete 12 hours of annual training.
• Managers must complete 10 hours of annual training.
• All other staff working a minimum of 20 hours per week must complete 6 hours of annual training.
• Part-time employees working less than 20 hours a week must complete 4 hours of annual training.
• Per the USDA: “At least 8 hours of food safety training is required either not more than 5 years prior to their starting date or completed within 30 calendar days of employee’s starting date.”

Though some districts try to accomplish at least some of the USDA Professional Standard training requirements within the regular work day, for districts shifting to scratch-cooking, budgeting for professional development provides the necessary and cost-saving opportunity to establish new skills and refresh forgotten ones. We recommend budgeting 2 - 3 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 is undergoing a major shift in operations, additional one-time training time is incredibly useful in setting up the next stages for success.

In fiscal management, the Position Control Worksheet is the basis for approving positions for the department’s budget. Most district accounting systems have a position control module, which can export a spreadsheet of personnel data that is similar to this tool. This worksheet must be as accurate as possible to ensure the reliability of the personnel budget, and can 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 the personnel budget changes, 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 timesheets 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 creating 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:

• Compare the parity of labor between similar sites.
• Assess the ability of the department to sustain current labor hours.
• 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 balance 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, food service directors can hold proactive conversations with staff when they feel that they do not have adequate time to perform their jobs.

Recommended 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 (unless it a cold pack-out similar to snack)

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 choose 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 milk) 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. One of the most referenced guides for MPLH is found in Pannell-Martin and Boettger’s, School Food Nutrition Management in the 21st Century. Their analysis developed MPLH guidelines that vary depending on the operational model and menu production type (Conventional versus Convenience Systems ).

For example; a school serving 301-400 meals in the Conventional System would be found to range from 14 to 16 MPLH, while the same meal counts meeting the Convenience System description range from 16 to 18 MPLH. Those numbers could be used as a starting point, but are often considered low and depending on the district, conservative MPLH goals may not be fiscally viable. We recommend adjusting a District’s productivity goals to be more relevant to their specific operational model, facilities and budget climate.

When examining labor in schools make sure to consider all the elements surrounding your MPLH goal. For example, elementary sites are often highly 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. A MPLH range of 28 to 45 is common for an elementary school with classroom breakfast and strong lunch participation.

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 annual food expenditures. Inaccuracy can be devastating to a food service fund.

We’ve created a Food Cost Projection Worksheet to help 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:

• The average food cost by meal type (i.e., breakfast, lunch, snack, supper; see Simple Menu Cost Worksheet)
• 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:

• Annual Food Cost = 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)))

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

For smaller districts without software we have created a Food Cost and Inventory Tracking Tool. Smaller districts are often more at risk of overspending due to lack of support from accounting services, 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
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:

• Cost of Goods Sold = 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, 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, you can respond to an increase in food cost immediately instead of attempting to adjust later in the year when it is often too late. A rise in 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 trends. 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 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.

Once you have identified the issue, you can 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 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 actions:

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

You should review these calculations to ensure the increased revenue is enough to offset the increased expense caused by any changes. If revenue falls short, you will need to review your labor changes.

Budget Development

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 serves as a road map that depicts the goals of the department and the pathways to achieving them, while also functioning 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
• 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 details 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.

Multi-Year Profit and Loss

Once you have created all of the spreadsheets suggested above, gather them together in a Multi-Year Profit and Loss Statement to be 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 year’s to establish trends and ensure that you have not missed any revenue or expenditure categories. The spreadsheet also provides a quick snapshot 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.