A Better Way to Show Budget Increases to Owners

By Anthony Ing
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Some of the angriest owner emails I’ve ever received as a director of my condo were about budget increases. Certainly, there were good reasons for these increases – but it’s a perfect example of how there's always room for improvement with communication.

In this week's blog, we'll share with you the little-known "contribution" metric that we now use at our condo to quickly and clearly explain budget increases to our owners. Over the years, it has helped tremendously to ease concerns about budget increases from owners.

During unusual times like today - when insurance premiums, water bills, and reserve fund expenses are increasing at a rate well ahead of inflation - it is more important than ever to get the overall budget message across to your owner base

A Case Study

We’ll use the following fictional budget to frame this discussion.

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We can see that the overall budget has increased by 4.44%.

Landscaping, Management and Audit have all increased by 20%. Owners will wonder why they are spending so much more on those services this year. They may voice great displeasure, but is it justified?

What Are the Real Drivers of the Increase?

In reality, given the relatively small allocation to Landscaping, Management and Audit, the increases in those items contribute very little to the overall 4.44% increase. While relevant, these increases serve more as noise than signal

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An astute property manager will know that it’s Water and Reserve Fund expenses that are driving the increase in fee (given their large allocations), but what is the best way to communicate this?

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Surfacing Key Drivers: The Contribution Formula

We need to find out how much of the 4.44% increase was because of the increase in either Water expense or Reserve Fund Allocation (or any other budget item).

Let’s start with water. The water budget increased by 5.0% (from $400,000 to $420,000), and the weight of Water in last year’s budget was 33.6% ($400,000 / 1,189,000). We get the contribution by multiplying these two numbers together. Therefore, the increase in water expenses contributed to 1.68% (5.0 * 33.6%) of the overall 4.44% increase in maintenance fees.

Using the same calculation, you can see that the increase in reserve fund allocation contributed to 2.10% of the overall 4.44% increase.

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Using some simple math, we can see that the increase Water and Reserve Fund Allocation alone contribute to 85% ( (1.68 + 2.10) / 4.44 ) of the total increase in the budget. Likewise, the remaining items in the budget contributed only a small minority to the overall budget increase.

Using our findings, we can write a clearer budget cover letter for our owners, like below.

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We know that property managers put a lot of thought and time into drafting a budget that meets your corporations’ needs. We hope that our insight can help you bring more clarity to your owners so that they can focus on what’s really important in the budget.