Optimizing Institutional Budget Models

Use this study to develop more strategic resource allocation systems. The first resource outlines four executive-level lessons on budget design. The second resource provides a compendium of 29 budget model elements with detailed descriptions and case studies.

Budgeting in an era of change

While most colleges and universities saw stable growth in enrollment over the last several decades, many now face significant downward pressure on revenue.

Growth in enrollment has slowed substantially for many; inflation-adjusted state appropriations for public institutions are lower today than any point in last 30 years; and advancement offices are becoming less effective overall as institutions increasingly rely on a small number of large donors. Moody’s Investor Services estimates that one in ten institutions is experiencing acute financial distress from falling revenue or poor operating performance.

Read the Introduction

Budget design principles

Budgets are “the surest single indicator” of what a university is committed to doing. Beyond simply allocating revenue and costs, budgets can reinforce and even define an institution’s priorities and commitments.

Yet many institutions’ budgets fail to do so, reinforcing the wrong objectives, or no objectives at all. In too many cases, university budgets lock in damaging cost structures, underfund strategic priorities, or create harmful campus incentives. It is imperative that institutions think critically about how their resource allocation choices reinforce (or obstruct) their priorities.

To build a more intentional budget model, institutions should consider how individual elements of their budget process can be redesigned to incentivize revenue growth and cost control, set performance targets, and fund strategic priorities. To help lead more productive conversations, this section details four lessons for designing institutional budget models.

Learn More About the Principles

Compendium of budget elements

This section shows EAB’s periodic table of budget model elements. Each of the 29 elements represents one component of a budget model. Rather than debating the merits of a fully formed budget model, leaders should focus on the specific activities to be encouraged or discouraged and the associated elements that will help achieve those goals.

Budget model elements are organized into four categories—revenue allocation, cost allocation, performance targets, and strategic funding. The following pages provide a compendium of all 29 elements, with detailed descriptions and case studies. Institutions should use those elements to build a budget model best suited for them.

Traditionally institutions have held revenue centrally and allocated resources to units based largely on historical precedent. Today, more institutions are considering how to use revenue allocation in strategic ways to create incentives for units to grow. Revenue allocation elements represent different sources of institutional revenue. For each element, institutions can define allocation mechanisms that create incentives for revenue growth.

Explore the Compendium

Download the Study