summarizes

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By the end of this lesson, students should be able to:

List the four optimal links between planning and budgeting.

Explain why it has become more difficult to conduct planning and budgeting at universities.

Discuss ways to re-engineer the planning and budgeting process

There is no doubt that proper budgeting requires careful planning. If a university has poor planning you will find that the finances of the institution are always under suspicion. It is easy to spend so much time planning that we don’t move the institution forward at an acceptable pace. Universities need to be on guard to strike the appropriate balance between planning and strategic decisions. To properly link strategic planning and finance a university should consider the following:

1. Changes to what the university costs and all sources of income can have a profound impact on the budget.

2. A large shift in a departmental budget due to internal or external factors should be anticipated.

3. Political pressures both internal and external should be considered when linking strategic planning to budget.

4. Communication between and among those who draft the budget will enhance the outcome of the budget process.

Universities behave much like consumers as they have needs, desires, and a limited amount of income. There is an infinite supply of vendors and products but there is a financial limit to what can be purchased. Most employees in higher education do not view their activities as consumer oriented. In this environment the financial administrator must devise ways to evaluate individual consumer information. Across the board change is not adequate when dealing with the complexities of higher education. Some departments will have greater needs than others. There are several approaches used to link planning and budgeting. Each university will have their culture and style. One common approach is for there to be a “King” who makes most of the decisions. Their preferences often enter into the decision process and have a tendency to weaken the outcomes. Some universities allow each functional unit to operate within the unit. Usually an imbalance occurs between units in this method. There are departments that are particularly good at asking for resources so they receive more than others by being loud and forceful. Budget shifts occur that create an imbalance in this method. The traditional method is to plan, focus on programs, and distribute budget funding. This is the most commonly used system and it does incorporate many of the theories outlined above. Zero-based budgeting requires the unit to start over from zero each year and justify every

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expenditure. This method is disruptive and escalates political pressures because the unit does not want to see a downturn in funding. Strategic planning is widely used and looks very different at each institution. Most of the strategic planning models do not consider budget details. Much thought should be given to the way a university links planning and budgeting. Universities conduct many different types of planning processes. It is more difficult to link planning to budget. Strategic planning involves a cross-section of people at the university who attempt to describe the environment in which they live and work. Program planning is the study of specific programs that can help move the vision of the university forward. Facility planning has to do with the management of physical assets and the construction of new physical assets that will help the university accomplish its goals. Operational planning is concerned with placing resources in the proper departments to reach short-term goals. Budget planning gathers the financial resources of the institution and determines how to strike a balance between the services needed with the revenue. Issue-specific planning deals with particular initiatives that concern the operation of the university. Retention is an example of an issue that may receive attention in this type of planning. Universities are more sensitive to revenue sources that drive the need for planning more carefully. Most initiatives undertaken today consider whether the new activity will produce at least a minimal amount of positive revenue. They also consider how well this revenue can be maintained. One important aspect of new revenue is the flexibility of launching the new effort. When investing new resources universities should make sure that the immediate costs are covered and that efficiency is required. It does little good to launch a new program without the resources to make it successful and it is a waste of time if the operation is inefficient. Higher education is selling a product that is largely not understood by their customers. There is a basic level of trust on the part of the consumer that we are offering a good product. When the university fails to deliver a good product the trust of the consumer is damaged. Higher education must be careful to deliver on their implied responsibility of trust. The financial officer must recognize that there are multiple sources of income and each should be evaluated and proper distribution of that income is important. There are various ways to distribute the income to maximize the performance of the institution. One way is to return a portion of tuition revenue back to the department that generated the income. Higher education is always changing the planning process and no one method is the best fit for all institutions. Some general approaches that seem to be effective is to have a strategic planning process. The key stakeholders of the institution should be included in this activity. The assessment data collected should be widely shared in an effort to have better informed planners. Several themes are consistent with quality improvement in higher education. Faculty development is important to improving the product we sell. They should be encouraged to consider how the student moves through their classes to complete a degree. Alternative scheduling may be helpful to consider. The use of technology may enhance the classroom experience and sufficient training of faculty is important. The campus life climate is another important theme to consider. Students should be consulted regarding the availability of campus activities and the services provided to students should be evaluated. By focusing on these areas the university can be more certain that they are placing resources on the most critical functions. The budget must reflect these plans to ensure that they get done in a timely manner.

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The university is wise to consider that external accountability is affecting the way resources are allocated. Students want an education so they can get a better job and earn better pay for the long-run. The most effective strategy is to use this external demand to shape the university. One of the major external drivers of change in higher education is vocationalism. The majority of students in the U.S. are considered non-traditional. Their primary focus is to better themselves rather than to simply become more educated. As parents and students borrow more money for higher education they are becoming increasingly concerned about the value they are receiving for their investment. Some time and resources should be directed to ensure that quality is measured and enhanced. The changing of technology is affecting academic life in new ways. Students have access to so much information on the internet that they did not have prior to the 1990’s. The ability to offer classes at distant locations or in the home of the student has also changed the landscape. In order to take full advantage of the benefits of the change in technology significant restructuring is needed. This restructuring will require new ways of looking at resource allocation. In response to the new challenges of consumerism and technology universities should consider tuition increases, research grants, new revenue sources, and across the board cuts in budgets. These changes can either be brought by upper management or a broad-based effort to include as many people as possible. The government has met these new consumer demands and increased technology costs by awarding a set amount to the university based on past performance. Future changes to that amount may go up or down depending on factors both inside and outside of the university. The key is to retain accountability and efficiency in this type of financial climate. Strategic budgeting is the process a university undertakes to divide the financial resources fairly and produce the desired outcome. There are a couple of advantages to strategic budgeting. When decisions about the budget are being made there are parameters placed on how much the institution is able to spend. There is internal discussion about how well they will maintain the current level of academic programs versus the alternative of doing nothing. Because each unit is considering what to do with the budget the administrators are not likely to be reactive. Strategic budgeting is a proactive way of improving higher education.