MMHA Advocate Magazine, Spring 2019 The Advocate 24 A nyone in property management knows how hard budget season is, and utilities often prove to be one of the greatest challenges to forecast. Given how much utilities cost, they are critical to get right. Utility budgets are often done by taking last year’s numbers and adding X%. This is a mistake for many reasons. The problems from billing, usage issues, weather anomalies, accounting, and billing periods would be reflected in the new budget. The utility budgets need to account for rate changes, changes on the property that affect consumption, occupancy changes, and expected weather conditions. Owners don’t want to see a budget assumption that says you are using last year’s actuals plus 3%. Other expenses aren’t budgeted this way, and if they are, they should not be. For example, if you are budgeting your carpet expense, you would determine how many apartments you expect to replace the carpet in and multiply that by the cost of the carpet. Utilities’ budgets should be done in the same manner. Failure to budget utilities based on a consumption X rate basis makes budget variance reporting very hard to do. “Why are we over budget in gas?” might be a question you’ve been asked before. If you don’t know what your budgeted gas usage and rates were, you really can’t answer that question. If the budget is just based on last year’s number plus X%, you would have to first determine last year’s actual usage and rates to understand what your current budget was based on.Then you could compare last year’s data to this year’s data to provide a meaningful answer. To budget utilities, the best approach is to budget each account individually. Budget each account’s expected usage and expected rates. Account level budgeting is certainly much more work than just using last year’s numbers. This is especially true if your property has lots of accounts. Nobody said property management was easy. Take the time and build a model – put down the account number & service address, the expected usage for each month, the expected rate, and the base fees. Do the math – usage X rate + base fees = budget. Budgeting this way will allow you to understand any variance and determine what needs to be addressed. For example, if one of your domestic hot water gas accounts was budgeted at 5 therms per day but, the bill comes in at 8 therms per day, you know exactly why you are off budget. More importantly, you can now address the issue. This approach will be the hardest and most time consuming the first year but, in future years, you should only have to make small tweaks. Chris Oates is the President of Flow Utility Management, LLC, a company the focuses on multifamily utilities. Feel free to reach out to Chris via email at chris@flowutilitymanagement. com or by phone at 301-997-2982. Utility Budgeting By Chris Oates