Church Management Academy Blog - Knowledge, Tips and Tools

By Michael Castrilli

Break It Down

Do you feel dread when you hear the words “budget” or ‘”budget process?” Based on my discussions with pastors and parish administrators over the years, you are absolutely not alone! No need to fret! Break the process down into four manageable stages and watch as you reap the benefits of creating a collaborative, transparent, and efficient budget.

Stage 1 – Establish Priorities

If the budget is a reflection of priorities, it’s important in the first stage to establish priorities. Stage 1 includes the examination of Church mission, vision, goals, and objectives. This is the stage when pastoral leaders collaborate with staff, parishioners, or other stakeholders and encourage an open dialogue about where the parishes today and what the parish hopes to accomplish in the future. As previously discussed on this blog, the budget is a reflection of your priorities. Therefore, it’s critical to spend some time thinking and praying over what you want to accomplish. Otherwise, the budget may become a shelf document and not a management tool to help you accomplish your goals and objectives.

Timing: 4-5 months prior to the budget being finalized

Stage 2 – Deliver Guidance

In Stage 2, create a roadmap to help you and your team arrive at your destination. This is the stage to discuss targets and expectations. Most income and expense estimates contain uncertainty anyway, so take the worry out of the creation of the budget.

It can be as simple as developing a brief one or two-page document that offers guidance, expectations, and timelines to those helping you create the budget.

This is also the stage to address any assumptions that will impact budget creation. For example, if you have a budget target in mind for a program or initiative, let people know. Don’t keep them guessing as to what you are thinking. People want direct feedback. No one wants to create a budget proposal only to find out that the program was not even considered!

Otherwise, the budget formulation process becomes a “paper exercise” that undermines your leadership and dissatisfies those working with you. Expectation setting may be challenging to deliver in the moment, but being honest with people saves everyone in the end. Transparency around decision-making also helps you gain the trust and respect of your colleagues. Allow adequate time for estimates and justifications to be produced.

Timing: 3-4 months prior to the budget being finalized

Stage 3 – Develop Budget

Stage 3 is when your team estimates parish income and expenses, design program budgets, and create performance goals. Using your parish financial software and other tools at your disposal, you will be able to consolidate information so you can review the various budget elements (income, expenses, and program justifications) from different perspectives. Utilize helpful tools like Microsoft Excel, Google Sheets, or other software programs that serve to consolidate information. When the information is contained in this type of format, you will have a broader perspective and visibility on the various components that will make up your budget.

Timing: 2 months prior to the budget being finalized

Stage 4 – Gain Feedback and Finalize

Share the budget with those you have involved from the earliest phases of the process. After you have a draft budget include stakeholders by allowing them to give you feedback as you prepare your final proposal. This consistent information sharing will continue to build momentum and ultimate buy-in for the creation of a collaborative budget. Buy-in at this stage is defined as ownership and understanding of your budget among stakeholders who are critical for the achievement of your policies and programs. For a parish, this would include staff, parishioners, finance and pastoral councils, and others who help you achieve success.

Timing: 1 month prior to the budget being finalized

Stay Tuned: Tomorrow, we will discuss best practices for implementing these stages.

Portions of this text come from Michael J. Castrilli and Charles E. Zech, Parish Finance: Best Practices in Church Management (New York: Paulist Press, 2016) Chapter 3.

By Michael Castrilli

Tips for Communicating Church Finances with Impact and Ease

We covered so much ground in our discussion of communicating church finances with impact and ease! Let’s conclude our discussion with three final tips to make your church financial reports awesome!

Tip 1: Clarity Matters

As you develop your church financial report, ask yourself the question, “Is this clear?” A helpful technique may include seeking the counsel of a colleague or member of the Finance Council. Ask the question, “As you look at this report, what do you think are the key takeaways that I am trying to convey?”
If your reader struggles or offers a lengthy, convoluted message, you have your answer. Ask parishioners to weigh in, allow others to assist you, seek input from staff.

Tip 2: Offer Context

When creating a financial report, a common mistake is to forget to include the overall picture, providing context to what is being reported. For example, if I report that our savings account has $200,000. Is this number good, bad, or indifferent? The answer is, “It depends.” The figure needs context. It might help to include the savings amount from the last three years. Has it been on a slow decline, increase, or up and down over these years? Additional historical data can provide context to the reader.

Tip 3: Practice, Practice, Practice

Remember, writing these reports takes practice. The first time you compile a new type of report and offer it to parishioners, it may not be perfect. Share the report with others, get feedback, and revise. Creating something is better than producing nothing. You are not alone in this process. Every member of the parish has a stake in understanding the finances of their parish.As you lead efforts to create accessible, empowering, and transparent financial reporting, remember that the methods and techniques discussed are not only good management practices, but also speak to the values that we share as a Christian community. The clearer we are in our communication of church finances, the stronger we become as a community.

As you lead efforts to create accessible, empowering, and transparent financial reporting, remember that the methods and techniques discussed are not only good management practices, but also speak to the values that we share as a Christian community. The clearer we are in our communication of church finances, the stronger we become as a community.

Interested in learning more about visuals for church financial reporting? Read our previous posts:

By Michael Castrilli

Prioritize Your Time

There is no doubt that church managers are busy people. As you develop a budget, focusing on the “right” areas of the budget means prioritizing your time so that you spend the greatest amount of effort on those areas that will provide the most significant benefits. A nice tool to deploy during this phase of the process is to calculate the Budget Category Impact Percentage (BCIP).

If time is money, the BCIP calculation is a simple formula that can assist you to quickly assess the relative size of a specific budget category as compared to the total receipt or spending for the overall Income or Expense category. If you calculate which categories have the greatest impact on the budget, you can spend the majority of your time focusing on those areas.

Let me use a simple example of revenue categories to show you what I mean:

St. Jane’s Church

At the fictional parish of St. Jane’s, the church receives revenues from the following sources:

Next, calculate the BCIP by dividing each Revenue Category by Total Revenue.

Total Collections ($357,000) divided by Total Revenue ($378,300) = BCIP (94%)
Total Holyday Collections ($16,000) divided by Total Revenue ($378,300) = BCIP (4%)

Using a spreadsheet or other mode to make calculations, you can make the calculations for each category quickly by dragging the formula down the column. As you review the information, what are your observations?

Like most churches, Sunday Collections drive the majority of the income for St. Jane’s. You can see that items like Flower Donations and Bulletin Advertising make up only a tiny proportion of the overall revenue.

“So, why does this matter?”

The problem is that many churches spend an inordinate amount of time on reviewing/estimating/analyzing categories that are not driving large portions of the budget. If you have two hours to spend on a budget analysis, focus on the largest drivers of revenues and expenses. By the way, the same process used above for revenues should also be used for expenses. Most likely, after you calculate the BCIP on expenses, you’ll find that salary and benefits make up a large proportion of expenses, and this makes sense because people are your most important resource! Take the analysis to the next step – what is the next expense category that is driving expenses? And the next?

Tip 7: Prioritize Time – Calculate a Budget Category Impact Percentage (BCIP)

Armed with this information, you can begin by reviewing those categories with the largest impact on the budget. I am not arguing that all budget categories are not important. But, with limited time, focus on the income or expense categories with the greatest impact on the budget.

Read More Church Finance 30/30 Tips

Portions of this text come from Michael J. Castrilli and Charles E. Zech, Parish Finance: Best Practices in Church Management (New York: Paulist Press, 2016) Chapter 5.

By Michael Castrilli

Step-By-Step Strategy to Help Churches Hire A Contractor

Selecting a company or individual to do major work at the church can be overwhelming. From short and long-term impacts on money, time, and people, along with oversight responsibilities, resources are always limited (scarce). Investing in the right people, places, or things are critical for effective parish management.

This post describes a step-by-step process churches can use for evaluating and selecting a vendor, contractor, or service provider. Recognizing this can be a complex topic, the goal is to break the process down into manageable parts. After learning the method, you can right-size the concepts to fit the needs at your church.

Examples, where you might like to use a selection strategy, include large–scale projects like choosing an architecture firm to put blueprints together for a parish facility or deciding which builder to hire for repairing the church roof. This type of process can also be used for major purchases like choosing which church management software to buy.

To simplify the terminology, throughout this post, I’ll use the words “contractor/vendor” as an all-inclusive term to include any external product or service being purchased by the church. For example, this term encompasses service providers (e.g. architecture firm, lawn care company), builders/manufacturers (e.g. construction company), Jane/Joe self-employed business, and/or vendors (e.g. church management software company).

Challenges

One of the main reasons selecting a contractor/vendor can be so complex in the church environment is that at times, the lines between pastoral care and business interest get blurred. Let me use an example of a local church that is seeking to hire someone to replace the roof.

Church Roof Replacement: The parish administrator made a presentation to the parish council on the need to replace the church roof. The estimated cost for the current roof to be removed and a new roof to be replaced is in the $100,000 ballpark. After the presentation, a member of the Council approaches the administrator and says, “My company would be happy to do this work. I’ll even try to get you a discount.” At first glance, this may seem like the perfect solution to the problem. However, going forward with this generous offer, without considering other options can be a major mistake.

How many stories have you heard where a parishioner (or their company) is hired for a project, there is a problem (maybe with schedule or cost) and then one party feels stuck with limited recourse. Whether it is the result of unclear boundaries or simply one party deciding to avoid conflict altogether, this can be a slippery slope. Of course, there are always exceptions, but, why risk misunderstandings, hurt feelings, and poor outcomes because no process existed to ensure that the right company, individual or product was purchased?

Creating a clear and transparent selection process benefits everyone involved. The process benefits the parish management team by creating a structure to make informed decisions. The process benefits contractors/vendors because all are fairly evaluated on clearly defined criteria.

Church Roof Replacement: Even though the parish administrator decides to hold off on accepting the parishioner’s offer, this does not mean that the parishioner’s company will not be considered for the job. If the company decides to put in a bid for the work, they will have to participate as part of the broader contractor selection process.

Selecting an Award Recipient

Let’s use a simple example to help understand how the process will work. Two teachers have been appointed to choose a winner of a student essay contest. The award is based on the following criteria: essay content, clarity of the student’s writing, proper use of grammar and the inclusion of a formatted bibliography. Recognizing that these criteria are not of equal weight, the teachers create a grading rubric that assigns points based on the relative importance of each criterion to the total grade.

Using the points system, the teachers then individually grade each student’s paper. When the grading is completed, the teachers average the grades and come together to discuss the results.

Now imagine using precisely the same process with different variables and weights for contractor/vendor selection at your church.

Step 1 – Define Requirements

Typically, organizations will refer to the initial phase of buying anything (whether a product or service) as procurement planning. Procurement planning is the process of deciding what, when, and how to purchase (buy) goods or services. This process involves the development of documentation to solicit (request) quotations, bids, and/or proposals from companies or individuals to complete a program, project, or task. Like any investment at the parish, whether large or small, getting clear on goals, needs, and requirements is critical.

Church Roof Replacement Example: Depending on whether the replacement of the roof is an immediate or longer-term need, the parish administrator and pastor discuss the timing for initiating the project. They discuss and decide that the work should be completed by November so that the roof is protected for the winter months. They also discuss the desire to work with a company that has previously worked with churches and comes highly recommended from a neighboring parish.

By brainstorming requirements, you establish some guideposts for the next step in the process. If you are unsure where to begin, many dioceses have resources available to help parishes in this phase of the process. There are also organizations that offer tools and templates to assist churches with defining requirements related to procurement decisions.

Step 2 – Establish and Weigh Criteria

Once requirements have been developed, it is important to brainstorm and establish criteria to evaluate potential contractors/vendors. Like the example of the teachers creating a rubric for essay evaluation, what are the driving factors that will help you make the decision on which contract/vendor to choose? To determine priority weights, consider the relative importance of each criterion and the impact this criterion should have on the overall score.

Some hints when developing criteria and weights:

Prioritize. Initially, you may have a large list of requirements and criteria. Take time to narrow the list down so that you have only the most critical items. Otherwise, you might fall into the trap of ‘information paralysis’ where it is difficult to differentiate any information.
Ensure that you have clear criteria definitions. Definitions will ensure precision around what has been developed so that you can return to this information in the future. Have you ever attended a meeting, a decision is made, and then a month later everyone gets back together and forgets what was decided? If this sounds similar, you are not alone; it happens in every organization.
Keep rating scales simple. Whether you decide to use a 1-100 (A+) or 1-10 (high) scale to rate proposals, simplicity will help reduce any confusion. You may also consider creating definitions for the scales. For example, “To receive a score of 10, the proposal must include X, Y, Z.”
Collaborate! Use a team approach and get others involved in this process. No need to let all of the responsibility for this process fall on one person. Allow this process to be a shared responsibility.

Step 3 – Solicit Bids

Next, you are ready to seek contractors/vendors to bid on the work. The solicitation document that is commonly used to seek bids from service providers is called a Request for Proposal (RFP). The RFP will typically include answers to the following questions:

What is the nature of the project? What are the requirements and expected deliverables for the work?
Where is the location of the work? Who is the organization that is making the purchase?
How will proposals be evaluated and what are the submission guidelines?
When are proposals due?
Who is the main point of contact?

In the Catholic Church, many dioceses will also have particular laws (financial policies) in place that require parishes to participate in specific bidding processes. For example, some dioceses require that for contracts over a specific dollar amount, the parish must request bids from at least three companies. It is imperative to be aware of what diocesan protocols may be required when examining these issues at the parochial level.

Step 4 – Evaluate Proposals

Once proposals have been requested and submitted, gather the team, and score the proposals using the criteria and weights that have been established. In choosing who should take part in the evaluation process, consider key people that will be most involved in working with the contractor/vendor.

Church Roof Replacement: Companies A, B, and C have submitted proposals for the roof replacement project. The pastor, along with the parish administrator and a member of the church maintenance staff reviews the proposals and score them against the established criteria. Once the ratings have been completed, the group will gather to discuss the results.

There are many ways to tabulate the results, but a straightforward approach is recommended. Recall the method used by the teachers to grade essays in the example above. The process can be simple:

Individually grade the proposals (essays)
Average the grades per proposal
Summarize and discuss the results.

Step 5 – Select Winner

Bring the evaluation team together and discuss scoring results for each proposal. At this point, the hard work you have completed in earlier steps of the process will pay off. You have all of the information you need to make a great selection decision.

Church Roof Replacement: Company A and B came out with the highest scores. After reviewing the information, the team decided to go with Company B. Although the bidding price from Company B was slightly more expensive than Company A, the differentiating factor came down to Company B’s excellent references and their extensive work with churches.

In this step, be sure to allow raters to confer on why they chose certain ratings for the various proposals. Rating or metric based systems are only one means of evaluation. Subjective data from individual experiences, organizational history, and general knowledge of a topic should never be discounted. The key is to bring people together, recognize and openly discuss any biases and celebrate the fact that there are always differences of opinion. “No one of us is as smart as all of us.”

Summary

Create a process, even a simple one, to evaluate and select contractors/vendors for major purchases of products or services. By defining requirements, establishing criteria, and developing a simple, yet clear evaluation and selection process, many positive results occur. First, the process will promote a spirit of equity, openness, and accountability both internally for the parish management team and externally for those working with the church. Second, although every decision will not have the same requirements, by following this systematic approach, you will have created a strategy that you can transfer and repeat for future purchasing decisions. Finally, the results of this process promote a church management structure that is efficient, effective, and transparent in conducting the business of the church.

This article was originally published by Villanova University’s Center for Church Management and Business Ethics by Michael Castrilli

By Michael Castrilli

Church Budget Methods: Take it from the Top!

Which budget method(s) do you use when you create your church budget? How do you estimate revenues and expenses?

There are a variety of methods you can use to create an effective church budget. Three common techniques:

Top-down budgeting
Bottom-up budgeting
Incremental budgeting

Let’s begin with top-down budgeting.

Top-Down Budgeting

I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated at a high-level and the details are then worked out based on this amount of funding. To use a simple example, think about your salary. Each month, your employer gives you a salary but does not dictate how you spend that money. Unless a pay raise is on the horizon, you know how much money you have available to spend and you work out your budget based on that amount of money.

The same method can be applied to organizations. At certain organizations, a leader will establish how much money will be allocated for a given project and then the budget is created from that level of funding. On the other hand, maybe you receive a donation from a benefactor and you are going to budget those resources using this method.

Like all budget methods, there are inherent advantages and disadvantages.

The advantage of top-down budgeting is that the method is relatively simple. It does not necessarily require labor-intensive cost estimating because the overall amount of money that will be budgeted is established. Using this method, money is then allocated to categories of spending. One disadvantage to top-down budgeting is that you might be forcing or form-fitting various cost elements to meet your target.

Empowerment and Buy-In Go Together

Top-down budgeting can work really well when you know the amount of money you are willing to allocate or you have a set amount of funding being given by an external source. The key is to involve and empower others who will help you manage the budget so buy-in is established early in this process. As a general rule, if the top-down method is applied to budget formulation, it is important for those who are given responsibility for managing the budget to propose and justify enhancements or reductions for the budget they have been allocated.

A simple method would involve asking the Director to detail how she plans to spend the money AND allow her an opportunity to propose changes to the amount that has been allocated. You may now be saying, “Ok, but staff will always seek more resources, right?” Again, this is where collaboration is so critical in budget matters. When staff members are empowered and know that they have input into a budget’s creation, it is much less likely that unreasonable requests are proposed. Budgets that are developed secretly or through closed-door methods serve no one well and actually diminish staff morale. Top-down budgeting works well when those who will manage the budget are involved in the process.

Learn more about the benefits of church budgeting!

Photo Credit: David Holt London Flickr via Compfight cc