Read our study to learn about 13 executive-level budget model decision points that will help you create financial accountability, safeguard mission-critical activities, and invest in institutional priorities.
Finance and administration leaders often view the budget model as one of the best ways to align stakeholders to financial realities, automate resource allocation decisions, or create a workaround for shared governance.
Shifting trends in higher education resource allocation
Budget models remain an area of intense scrutiny, as scores of institutions consider either adjustments to their current model or wholesale model changes. While a host of challenges and industry shifts are driving this interest, four major pressures in particular are pushing institutions to consider changing budget models.
First, incoming executive leaders often initiate budget model transitions at their new campuses, which is occurring more often as average President and Provost tenure decline. Second, some institutions have been forced to make model changes to meet stakeholder demands for greater financial transparency.
In addition to internal mandates, two industry-wide threats are further driving budget model changes. First, as higher education’s shifting business model requires resource reallocation and strategic investments to fuel growth, many institutions look to new models to create greater fund flexibility. Second, as institutions face tightening budgets, some change budget models to incent mission-focused academic leaders to make program decisions with financial impact top of mind.
"“We knew there were certain key things that our model had to accomplish, and we made sure they were built into the model. There were 100 other smaller decisions that honestly could go one way or another and really wouldn’t affect the outcome.”
"Ken Kaiser, CBO
Temple University
Creating unit-level financial accountability
Deans are central to any efforts to grow revenues and contain costs. While senior executives are well-suited to set long-term strategy and align units with overall institutional financial goals, much of the information required to grow existing programs or reduce spending exists at the front-line, unit level. For example, deans best understand how to adapt academic programs to meet uncaptured student demand or reduce space utilization.
However, units could fail to appropriately act on this information, as they may lack proper budgetary incentives, be overly focused on mission, or fear growth activities will increase costs more than new resources.
CBO Knowledge
- Overall institutional financial health
- Strategies for long-term financial sustainability
- Unit alignment with institutional goal and priorities
Dean Knowledge
- Academic programs in high demand
- How to adapt existing curricula to changing market
- Opportunities to reduce space utilization
Preserving mission-critical activities through subvention and strategic reserves
Incorporating decentralized elements into the budget model creates meaningful revenue and cost incentives, but can create two new challenges. First, allocating the majority of revenue to the academic units can leave central administration starved for resources.
The cost allocation methodology ensures enough funding for day-to-day business operations, but activity-based models often leave the center without sufficient funds for large, strategic, or cross-campus investments. Second, making resource allocation contingent upon performance exposes units to enrollment declines or revenue shortfalls that could threaten operations.
Center Starved for Resources
Allocating majority of resources to units can leave the center with too few funds for important strategic priorities or cross-unit investments
Units Financially Isolated
Sole reliance on allocation formula for funding leaves units exposed to market fluctuations, potentially experiencing short-term losses and making drastic cuts
Incorporating institutional strategic goals into the model
The last category of decision points focuses on incorporating institutional priorities into the budget model. While creating meaningful revenue and cost incentives promotes financial accountability, it can also increase the risk of units becoming independent actors focused solely on P+L management.
This could distract from campus-wide goals or even create counter incentives. For example, units may divest from research activities to grow SCH revenue or cancel low-registration sections of courses important to institutional completion goals. To prevent this scenario, institutions must establish incentives and policies that reward progress on institutional strategic goals in addition to P+L objectives.
There are three common strategic goals:
- Advancing student success
- Growing reach
- Launching targeted new programs
"“The model was built in collaboration with the Provost, Deans, and central administration. We built incentives into the methodology to increase the autonomy of the schools, giving them more control of their own destinies.”
"Ann McCorvey Deputy, EVP and Treasurer
GW
This resource requires EAB partnership access to view.
Access the research report
Learn how you can get access to this resource as well as hands-on support from our experts through Strategic Advisory Services.
Learn More