Build a New Budget Model that Advances Your Institution’s Strategic Goals
Many institutions are considering wholesale budget model changes to reinforce financial goals and strategic priorities. While models like responsibility-centered management (RCM) have gained popularity in the past decade, there isn’t a uniform “one-size-fits-all” model that every institution should emulate. Instead, leaders must design custom models that align with an institution’s unique strategic priorities, mission, and culture.
Understand trends in budget model design
Changing budget models is a time- and resource-intensive process. Before determining whether to switch models, senior leaders should understand trends in budget model design and acknowledge what changing models will—and won’t—help them accomplish.
Expert Insights
While some institutions are changing models in response to current pressures, others are proactively doing so to reorient institutional decision making and build resilience against unknown, future threats. Of course, changing the budget model is not a panacea that solves all institutional problems.
All models require strong executive leadership and direction to be successful, as well as sufficient IT and data capabilities. Nonetheless, the budget model can create a decision-making structure for long-term success and alleviate some of the problems associated with shared governance.
Create your budget model stakeholder committees
New budget models affect stakeholders from across the institution, so leaders should thoughtfully involve them in the design process to ensure buy-in. Successful transformations begin with a bicameral budget model committee structure. A narrow group of senior leaders—including the CBO, the Provost, the President, and the budget director—should make the most critical budget model decisions first.
After these (few) key decisions are made, leaders can delegate the many remaining decisions to a budget model committee or taskforce composed of a broader mix of campus stakeholders, including deans and faculty.
Make these 13 design decisions
Designing any budget model requires hundreds of individual decisions—which can quickly become overwhelming. Fortunately, 13 decisions have a disproportionate impact on model success or failure. Focusing energy on just this handful can generate a model that aligns with an institution’s strategic priorities, mission, and culture.
Research Highlights
The 13 executive-level decision points break into three major categories—first, creating unit-level financial accountability; second, preserving mission-critical activities through subvention and strategic reserves; and third, incorporating institutional strategic goals into the model.
Address the remaining budget model elements
To finish designing the new model, the broader budget model committee must determine how to allocate revenue and cost elements not addressed in the 13 executive-level decision points.
Secure stakeholder support of the new model
While engaging the appropriate mix of stakeholders in model design is critical, leaders must also get the support of other, more distant stakeholders to ensure the success of a new model. Executives must secure stakeholder support not only to mitigate conflict over model design decisions, but also to ensure deans and faculty respond to the models’ incentives.
Review your budget model’s effectiveness
Changing a budget model should not be a “set it and forget it” exercise. Leaders will occasionally need to review—and potentially tweak—the model to account for unintended consequences, stakeholder grievances, and new priorities.
While some small tweaks to the model will be necessary, leaders should avoid making significant changes in the first few years post-implementation. Stakeholders need time to learn the new model, and frequent modifications can spur distrust and change fatigue.
Instead, leaders should commit to conducting a formal review of the new model three to five years post-implementation. In the interim, they should maintain a formal process for recording stakeholder feedback and ensure that all grievances are acknowledged in the formal review process.
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