financial management and budgeting in educational institution

Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

1. introduction to education budgeting, 2. understanding the budgeting process, 3. identifying revenue sources, 4. allocating funds for personnel and salaries, 5. managing non-personnel expenses, 6. budget monitoring and reporting, 7. strategies for cost reduction and efficiency, 8. budget modeling techniques, 9. best practices for budget administration.

Education budgeting is a multifaceted process that involves allocating financial resources to educational institutions or programs. It plays a pivotal role in shaping the quality of education, student outcomes, and overall institutional effectiveness. From the perspective of educators, administrators, policymakers, and even students, education budgeting is a critical aspect that warrants careful consideration.

Here are some insights from different viewpoints:

1. Educators and Administrators:

- Resource Allocation: Educators and school administrators grapple with the challenge of distributing limited resources effectively. These resources include funds for teacher salaries, classroom materials, infrastructure maintenance, and extracurricular activities.

- Balancing Priorities: Budgeting requires striking a delicate balance between competing priorities. Should funds be allocated to hiring more teachers, improving technology infrastructure, or enhancing student support services ? These decisions impact the overall learning environment .

- Programmatic Budgeting: Schools often allocate funds based on specific programs (e.g., STEM education, special education, arts programs). Programmatic budgeting ensures that each area receives adequate support.

2. Policymakers and Government Officials:

- Equity and Fairness: Policymakers focus on equitable distribution of resources across schools and districts. They aim to bridge gaps in funding between affluent and economically disadvantaged areas.

- Performance Metrics: Policymakers consider performance metrics (e.g., standardized test scores, graduation rates) when allocating funds. Schools that demonstrate positive outcomes may receive additional resources.

- Advocacy and Lobbying: Education budgeting decisions are influenced by lobbying efforts from various stakeholders, including teachers' unions, parent associations, and advocacy groups.

3. Students and Parents:

- Access to Resources: Students and parents want access to quality education . Adequate funding ensures well-equipped classrooms, updated textbooks, and extracurricular opportunities.

- Impact on Learning: Students directly experience the effects of budget decisions . For instance, reduced funding may lead to larger class sizes, fewer elective courses, or outdated technology.

- Inclusion and Special Needs: Parents of students with special needs advocate for budget allocations that support inclusive education. This includes funding for special education teachers, assistive technologies, and accessible facilities.

Now, let's explore key aspects of education budgeting in-depth:

1. Budget Components:

- Personnel Costs: Salaries and benefits for teachers, administrators, and support staff.

- Operating Expenses: Classroom supplies, utilities, maintenance, and transportation.

- Capital Expenditures: Infrastructure improvements, construction, and technology upgrades.

- Program-Specific Funds: Allocated for specific educational programs (e.g., STEM, arts, vocational training).

2. Budgeting Models:

- Incremental Budgeting: Adjusts the previous year's budget based on inflation, enrollment changes, and contractual obligations.

- Zero-Based Budgeting: Starts from scratch, requiring justification for every expense. Encourages efficiency and innovation.

- performance-Based budgeting : Ties funding to measurable outcomes (e.g., student achievement, graduation rates).

3. Challenges and Strategies:

- Funding Shortfalls: Advocacy efforts are crucial to secure adequate funding from local, state, and federal sources.

- Transparency: Clear communication about budget decisions fosters trust among stakeholders.

- long-Term planning : Multi-year budgeting helps institutions plan for future needs.

- Contingency Planning: Unforeseen events (e.g., natural disasters, economic downturns) require contingency funds.

Example: Imagine a school district facing declining enrollment. Instead of reducing teacher positions immediately, they invest in professional development to enhance teacher skills. This strategic approach ensures long-term sustainability .

In summary, education budgeting is a dynamic process that involves collaboration, trade-offs, and a commitment to student success. By understanding its nuances, educational institutions can create an environment conducive to learning and growth.

*(Note: The above content is and creativity. For specific data or recent developments, I recommend consulting reliable educational resources.

Introduction to Education Budgeting - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

## Perspectives on Educational Budgeting

### 1. The Administrator's Lens

Administrators bear the weight of financial stewardship. They must balance competing demands: maintaining infrastructure, investing in technology, paying faculty and staff, and providing student services. Their perspective is strategic and forward-looking. Here are some key considerations:

- Strategic Planning : Administrators align the budget with the institution's strategic plan. They identify priorities, such as expanding research programs, enhancing student support services, or renovating facilities. For example, if the strategic goal is to improve student retention , funds may be allocated to tutoring centers or counseling services.

- Resource Allocation : Administrators allocate resources based on needs and available funding. They weigh trade-offs: Should we invest in a new science lab or hire additional faculty? Decisions ripple through the organization, affecting students, faculty, and programs.

- Risk Management : Administrators assess financial risks . What if enrollment declines? How will external funding (grants, donations) fluctuate? contingency planning is essential .

### 2. The Faculty Perspective

Faculty members are at the heart of education. Their focus is on teaching, research, and student engagement. Here's how they view budgeting:

- Program Funding : Faculty advocate for adequate funding for academic programs. They need resources for textbooks, lab equipment, and research materials. A well-funded program attracts quality faculty and students.

- Salaries and Benefits : Faculty salaries impact morale and retention. Adequate compensation ensures a motivated teaching force. benefits like health insurance and retirement plans matter too.

- Research Grants : Faculty seek external grants to fund research projects. Budgets should accommodate grant applications, overhead costs, and stipends for graduate students.

### 3. The Student Angle

Students experience the budget indirectly but profoundly. Their educational journey depends on it:

- Tuition and Fees : Students pay tuition and fees, which contribute to the institution's revenue. Transparent communication about where these funds go builds trust.

- Financial Aid : Budgets determine financial aid availability. Scholarships, grants, and work-study programs alleviate the burden on students.

- Campus Services : Students benefit from well-maintained facilities, libraries, and student centers. Budgets impact the quality of their campus experience.

## The Nuts and Bolts: Steps in the Budgeting Process

1. Needs Assessment :

- Identify needs: What programs, services, and facilities require funding?

- Consult stakeholders: Involve faculty, staff, students, and community members.

2. Revenue Projection :

- Estimate revenue sources: Tuition, grants, donations, endowments, etc.

- Consider enrollment trends and external factors.

3. Expense Estimation :

- Break down expenses: Salaries, benefits, utilities, maintenance, etc.

- Prioritize: Allocate funds based on strategic goals.

4. Budget Development :

- Create line-item budgets for each department or program.

- Negotiate: Balancing competing requests.

5. Approval and Implementation :

- Present the budget to decision-makers (board, trustees, etc.).

- Monitor implementation: Adjust as needed.

## Example: The Science Department Budget

Let's say the Science Department aims to enhance its research capabilities. The budget includes:

- Lab equipment upgrades ($100,000)

- Faculty development workshops ($20,000)

- Research grants for faculty ($50,000)

Remember, budgeting isn't static; it's an ongoing process. Adaptability, transparency, and collaboration are key to successful educational budgeting.

Understanding the Budgeting Process - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

1. Tuition and Fees: The Backbone of Institutional Revenue

- Insight : Tuition fees are the most straightforward and consistent source of revenue for educational institutions. They directly impact an institution's financial health and determine its ability to offer quality education.

- In-Depth Information :

- Undergraduate and Graduate Tuition : Institutions charge tuition based on the level of education (undergraduate, graduate, or professional programs). Different programs may have varying fee structures.

- Course Fees : Some courses (e.g., lab-based courses, workshops, or specialized programs) incur additional fees beyond standard tuition.

- late Fees and penalties : Institutions collect fees for late payments, course changes, or other administrative actions.

- Examples :

- XYZ University : Offers a tiered tuition structure based on credit hours. Graduate programs in engineering have higher fees due to specialized equipment and faculty expertise.

- ABC Community College : Charges lab fees for science courses to cover consumables and equipment maintenance.

2. Government Funding and Grants: Public Support

- Insight : Government funding plays a crucial role in sustaining public educational institutions. Grants, subsidies, and allocations contribute significantly to their budgets.

- State and Federal Grants : Educational institutions receive grants from government bodies to support specific initiatives (research, infrastructure development, teacher training, etc.).

- Formula Funding : Some states allocate funds based on enrollment, credit hours, or other performance metrics.

- State Department of Education : Allocates funds to K-12 schools based on student headcount and special programs.

- national Science foundation (NSF) : Awards research grants to universities for scientific research projects.

3. Endowments and Donations: building a Financial legacy

- Insight : Private institutions often rely on endowments and philanthropic donations to enhance their financial stability .

- Endowment Funds : These are long-term investments managed by the institution. The returns from endowments support scholarships, faculty positions, and capital projects.

- Alumni Donations : Alumni contribute to their alma mater through annual giving campaigns , major gifts, and bequests.

- Corporate and Foundation Grants : Institutions seek funding from corporations and foundations aligned with their mission.

- Harvard University : Has one of the largest endowments globally, supporting scholarships, research, and infrastructure.

- Smith College : Receives substantial donations from alumnae to fund scholarships for women in STEM fields.

4. Auxiliary Enterprises: diversifying Income streams

- Insight : Educational institutions explore auxiliary enterprises to supplement traditional revenue sources.

- Housing and Dining Services : Revenue from student housing, meal plans, and catering services.

- Bookstores and Merchandising : Income from selling textbooks, apparel, and branded merchandise.

- Conference Centers and Event Rentals : Utilizing campus facilities for conferences, workshops, and events.

- University of California, Berkeley : Generates revenue by hosting summer camps and conferences in its facilities.

- Midtown College : Operates a popular campus coffee shop that contributes to its budget.

5. Research Grants and Contracts: Fueling Innovation

- Insight : Research-intensive institutions rely on external grants and contracts to fund cutting-edge research.

- Federal Research Agencies : Institutions compete for research grants from agencies like the National Institutes of Health (NIH), National Science Foundation (NSF), and Department of Defense (DoD).

- Industry Collaborations : Partnerships with private companies lead to sponsored research projects.

- MIT : Receives substantial funding for its research centers, such as the Media Lab and the Broad Institute.

- Stanford University : Collaborates with tech companies on AI and biotechnology research.

Remember, each educational institution's revenue mix is unique, influenced by its mission, size, location, and student demographics. By diversifying revenue sources and managing them effectively, institutions can ensure financial sustainability while providing quality education .

Allocating funds for personnel and salaries is a crucial aspect of budgeting for educational institutions or programs. It involves determining how financial resources should be distributed to support the hiring and compensation of staff members. This process requires careful consideration of various factors, including the institution's goals, staffing needs, and available funding.

When allocating funds for personnel and salaries, it is important to take into account the different perspectives involved. Administrators need to ensure that the institution has a qualified and motivated workforce to deliver quality education . Teachers and staff members, on the other hand, expect fair compensation for their work and contributions.

To provide in-depth information , let's explore some key considerations and strategies for allocating funds in this area:

1. Assessing Staffing Needs: Begin by evaluating the current and projected staffing needs of the educational institution or program. This involves analyzing student enrollment, class sizes, and the desired student-to-teacher ratio. By understanding the staffing requirements, you can allocate funds more effectively.

2. Determining Salary Scales: Establishing salary scales is essential for fair compensation. Consider factors such as experience, qualifications, and job responsibilities when determining salary levels. It is also important to stay updated on industry standards and local regulations to ensure competitive compensation.

3. performance-Based incentives : Consider implementing performance-based incentives to motivate and reward staff members. These incentives can be tied to specific goals, such as student achievement or professional development. By linking compensation to performance, you can encourage excellence and continuous improvement .

4. professional Development opportunities : Allocate funds for professional development programs and opportunities. investing in the growth and training of staff members can enhance their skills and knowledge , ultimately benefiting the educational institution or program. This can include workshops, conferences, certifications, or advanced degree programs.

5. balancing Fixed and Variable costs : When allocating funds, strike a balance between fixed and variable costs . Fixed costs, such as salaries, are recurring expenses, while variable costs may include temporary staff or contract workers. By considering both types of costs, you can optimize resource allocation based on the institution's needs.

Remember, these are general insights and strategies for allocating funds for personnel and salaries in an educational context. Each institution may have unique considerations and priorities. It is important to adapt these strategies to fit the specific needs and goals of your educational institution or program.

Allocating Funds for Personnel and Salaries - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

Managing non-personnel expenses is a crucial aspect of budgeting in educational institutions. It involves effectively allocating and monitoring funds for various expenses other than salaries and wages. Here are some insights from different perspectives:

1. Budget Allocation: When preparing the budget, it is important to allocate funds for non-personnel expenses such as supplies, equipment, maintenance, utilities, and technology. This ensures that the institution has the necessary resources to support its operations and provide a conducive learning environment .

2. Prioritization: Prioritizing non-personnel expenses is essential to ensure that the most critical needs are met within the available budget. This can be done by assessing the impact and urgency of each expense and allocating funds accordingly. For example, investing in updated technology may be prioritized over other non-essential expenses.

3. Cost Optimization: Educational institutions can optimize non-personnel expenses by exploring cost-saving measures. This can include negotiating contracts with vendors, bulk purchasing, energy-efficient initiatives, and implementing sustainable practices . By identifying areas where costs can be reduced without compromising quality, institutions can maximize their budgetary resources.

4. Tracking and Monitoring: It is crucial to establish a system for tracking and monitoring non-personnel expenses. This helps in identifying any deviations from the budget and allows for timely corrective actions. Regular reviews and analysis of expenses can provide insights into spending patterns, identify areas of overspending or underspending, and facilitate informed decision-making .

5. Collaboration and Communication: Effective communication and collaboration among various stakeholders, such as administrators, department heads, and finance teams, are vital for managing non-personnel expenses. Regular meetings and discussions can help in aligning budgetary goals, addressing concerns, and ensuring transparency in financial management.

Remember, these are general insights on managing non-personnel expenses in educational institutions. Each institution may have its unique requirements and considerations. By implementing these strategies and adapting them to specific needs, educational institutions can effectively manage their non-personnel expenses and optimize their budgetary resources.

Managing Non Personnel Expenses - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

1. The importance of Budget monitoring :

- Administrative Perspective:

- Resource Allocation: Budget monitoring allows administrators to track the allocation of financial resources across different departments, programs, and projects. It ensures that funds are distributed appropriately to meet operational needs.

- Financial Accountability: Regular monitoring helps maintain financial transparency and accountability . Administrators can identify discrepancies, prevent overspending, and address any financial irregularities promptly.

- Decision-Making: Real-time budget data informs decision-making . For instance, if a department is consistently overspending, administrators can adjust allocations or implement cost-saving measures .

- Faculty and Staff Perspective:

- Program Sustainability: Faculty members rely on budget information to sustain academic programs. Adequate funding ensures quality education, research, and student support services.

- Salary and Benefits: Faculty and staff salaries, benefits, and professional development opportunities are directly tied to the budget. Monitoring ensures timely disbursement of payments.

- Resource Requests: Faculty can use budget reports to justify resource requests (e.g., new equipment, library subscriptions, or research grants).

- Student Perspective:

- Tuition and Fees: Students benefit from transparent tuition and fee structures . Budget monitoring ensures that fees are reasonable and contribute to enhancing the overall educational experience.

- Financial Aid: Monitoring financial aid budgets ensures that eligible students receive scholarships, grants, and loans promptly.

- Campus Facilities: Budget allocation affects campus infrastructure, including classrooms, libraries, and recreational spaces. Students rely on well-maintained facilities.

- At XYZ University, the budget monitoring committee meets quarterly to review financial reports. They analyze spending patterns , assess program performance, and recommend adjustments.

2. Components of effective Budget monitoring :

1. Regular Reviews:

- Conduct periodic reviews (monthly, quarterly, or annually) to assess budget performance.

- Compare actual expenditures with the approved budget.

- Identify variances and investigate any significant deviations.

2. key Performance indicators (KPIs):

- Define KPIs related to financial health, such as the operating margin, liquidity ratio, and debt-to-equity ratio .

- Monitor these KPIs to gauge the institution's financial stability.

3. Variance Analysis:

- Understand the reasons behind budget variances (favorable or unfavorable).

- Was overspending due to unexpected costs or poor planning?

- Did revenue fall short due to enrollment fluctuations?

4. Forecasting:

- Use historical data and trends to create accurate financial forecasts .

- Anticipate future resource needs and adjust the budget accordingly.

5. Communication:

- Regularly communicate budget updates to stakeholders (faculty, staff, students, and governing bodies).

- transparency builds trust and fosters collaboration.

6. Technology Tools:

- Leverage budgeting software or spreadsheets for efficient tracking and reporting.

- Automate routine tasks to save time.

7. Scenario Planning:

- Develop contingency plans for unexpected events (e.g., economic downturns, natural disasters).

- Simulate scenarios to assess their impact on the budget .

3. Reporting Formats:

- Financial Statements: Income statements, balance sheets, and cash flow statements provide a comprehensive overview of an institution's financial health.

- Budget vs. Actual Reports: Compare planned budget figures with actual expenditures.

- Narrative Reports: Explain budgetary decisions, challenges, and achievements in a narrative format.

- Visual Dashboards: Use charts, graphs, and infographics to present budget data concisely.

4. Challenges and Mitigation Strategies:

- Challenges:

- Changing Priorities: Educational institutions often face shifting priorities (e.g., new programs, infrastructure upgrades).

- External Factors: Economic fluctuations, legislative changes, and funding uncertainties impact budgets.

- Mitigation Strategies:

- Flexibility: Build flexibility into the budget to accommodate unforeseen changes.

- Contingency Reserves: Maintain reserves for emergencies.

- Collaboration: involve stakeholders in budget discussions to align priorities.

Remember that effective budget monitoring and reporting contribute to the long-term success of educational institutions. By adopting best practices and fostering a culture of financial responsibility, institutions can navigate challenges and achieve their educational mission.

Budget Monitoring and Reporting - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

### Understanding the Landscape

Before we dive into specific strategies, it's crucial to recognize that cost reduction and efficiency are multifaceted challenges. Different stakeholders—administrators, faculty, students, and support staff—view these issues from distinct angles. Let's consider their perspectives:

1. Administrators:

- Administrators are responsible for overall financial management . They seek ways to allocate resources efficiently , ensuring that educational goals are met.

- They focus on long-term planning, balancing investments in infrastructure, technology, and personnel against available funds.

- Example: An administrator might decide to invest in energy-efficient lighting systems to reduce electricity costs over time.

2. Faculty:

- Faculty members are concerned with teaching quality and student outcomes. They want resources that directly impact the learning experience.

- They may advocate for investments in instructional materials, professional development, and research opportunities.

- Example: Faculty might collaborate to create open educational resources (OER) to replace expensive textbooks, benefiting both students and the institution.

3. Students:

- Students are cost-conscious consumers . They want value for their tuition dollars.

- They appreciate affordable tuition, accessible course materials, and campus services.

- Example: A student might choose a public university over a private one due to lower tuition fees.

4. Support Staff:

- Support staff (e.g., maintenance, IT, administrative assistants) play a vital role in day-to-day operations .

- They seek streamlined processes and tools that enhance productivity .

- Example: Implementing an automated system for student registration reduces paperwork and frees up staff time.

### strategies for Cost reduction and Efficiency

Now, let's explore actionable strategies:

1. Energy Conservation:

- optimize energy usage by upgrading to energy-efficient appliances , using programmable thermostats, and promoting awareness among staff and students.

- Example: installing solar panels on campus buildings can reduce electricity costs and demonstrate environmental responsibility.

2. Shared Services:

- Collaborate with other institutions or departments to share administrative services (e.g., payroll, IT support, procurement).

- Example: A consortium of small colleges might jointly negotiate software licenses, achieving cost savings .

3. Lean Operations:

- apply lean principles to eliminate waste, streamline processes, and improve resource utilization.

- Example: Conduct regular process reviews to identify bottlenecks and inefficiencies in administrative workflows.

4. Technology Rationalization:

- Evaluate software licenses, subscriptions, and hardware to eliminate redundancies.

- Example: Consolidate multiple learning management systems (LMS) into a single platform to reduce licensing costs.

5. outsourcing Non-Core functions :

- Consider outsourcing non-academic functions (e.g., janitorial services, landscaping) to specialized vendors.

- Example: Hiring a cleaning company allows the institution to focus on its core mission of education.

6. Strategic Procurement:

- Negotiate favorable contracts with suppliers, bulk purchase when feasible, and explore group purchasing options.

- Example: Centralize procurement to negotiate better prices for office supplies and equipment.

7. data-Driven Decision-making :

- Use data analytics to identify cost drivers, monitor spending patterns, and make informed decisions.

- Example: Analyzing student enrollment trends helps allocate resources effectively .

8. investment in Professional development :

- Train staff to enhance their skills, making them more efficient in their roles.

- Example: Offering workshops on financial management for department heads improves budget oversight.

Remember that these strategies are interconnected, and their effectiveness depends on collaboration across the institution. By adopting a holistic approach , educational organizations can achieve sustainable cost reduction while maintaining educational excellence.

Strategies for Cost Reduction and Efficiency - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

1. Zero-Based Budgeting (ZBB) :

- Overview : ZBB is a method where each budget cycle starts from scratch. Instead of basing the new budget on the previous year's figures, ZBB requires justifying every expense anew.

- Insight : Advocates argue that ZBB encourages efficiency by forcing decision-makers to critically evaluate all spending.

- Example : Imagine an educational department adopting ZBB for its annual budget. Instead of assuming that existing programs should continue, they assess each program's impact and cost-effectiveness. As a result, some programs may be discontinued, while others receive increased funding.

2. activity-Based budgeting (ABB) :

- Overview : ABB links budget allocations directly to specific activities or programs. It focuses on resource allocation based on the volume and complexity of activities.

- Insight : ABB aligns budgets with an institution's core functions, ensuring that resources are allocated where they matter most.

- Example : A university's research department might use ABB to allocate funds based on the number of research projects, faculty workload, and student involvement. High-impact research areas receive more funding.

3. Performance-Based Budgeting (PBB) :

- Overview : PBB ties funding to measurable performance outcomes. It emphasizes achieving specific goals and objectives .

- Insight : PBB encourages accountability and transparency by linking funding directly to results.

- Example : A school district implementing PBB might allocate additional funds to schools that demonstrate improved student performance, graduation rates, or teacher effectiveness.

4. Rolling Budgets :

- Overview : Rolling budgets extend beyond the traditional annual cycle. They continuously update based on changing circumstances.

- Insight : Rolling budgets allow flexibility, adapting to unforeseen events or shifts in priorities.

- Example : A college might use a rolling budget for its capital projects. As construction timelines change or new opportunities arise, the budget adjusts accordingly.

5. Scenario-Based Modeling :

- Overview : Scenario-based modeling involves creating multiple budget scenarios based on different assumptions (e.g., enrollment growth, funding changes, economic fluctuations).

- Insight : It helps institutions prepare for uncertainty and make informed decisions .

- Example : A community college might model scenarios for declining enrollment, state funding cuts, and increased competition. By doing so, they can proactively address potential challenges .

6. cost-Benefit analysis (CBA) :

- Overview : CBA assesses the costs and benefits of various programs or investments.

- Insight : It ensures that resources are allocated to initiatives with the highest return on investment.

- Example : A vocational training center evaluates the cost of expanding its welding program against the potential increase in student enrollment and industry demand.

Remember that effective budget modeling isn't a one-size-fits-all approach. Institutions must tailor their techniques to their unique context, mission, and goals. By combining these techniques strategically, educational leaders can create robust budgets that support student success and institutional growth.

Budget Modeling Techniques - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

## 1. Collaborative Approach to Budgeting:

Effective budget administration begins with collaboration. Engage stakeholders from various departments, including academic affairs, student services, facilities management, and finance. Their insights are invaluable for understanding program-specific requirements and aligning budgetary decisions with institutional goals. For instance:

- Academic Leaders: Involve deans, department heads, and faculty in the budgeting process. They can provide input on instructional materials, faculty development, and research funding.

- Student Services: Consider student affairs professionals who advocate for student success. Allocate resources for counseling services, career development, and extracurricular activities.

- Facilities and Infrastructure: Facilities managers can guide capital expenditure planning . Prioritize maintenance, upgrades, and safety enhancements.

- Finance and Administration: Collaborate with financial officers to ensure compliance, risk management, and transparent reporting.

## 2. Data-Driven Decision Making:

Budget administrators should rely on data to inform their decisions . Here's how:

- Historical Trends: Analyze past budgets to identify patterns, seasonal variations, and areas of overspending or underspending.

- Enrollment Projections: Consider enrollment trends and student demographics. Adjust allocations based on expected student headcount.

- Program Costs: Break down costs by program, course, or department. Understand direct costs (e.g., faculty salaries, supplies) and indirect costs (e.g., utilities, administrative support).

- Performance Metrics: Tie budget allocations to performance metrics. For example, allocate more resources to programs with higher graduation rates or research productivity.

## 3. Zero-Based Budgeting:

While incremental budgeting is common, zero-based budgeting (ZBB) challenges assumptions. In ZBB:

- Start from Scratch: Instead of adjusting last year's budget, build it anew. Justify every expense, regardless of historical precedent.

- Prioritize Programs: Allocate resources based on program priorities. High-impact programs receive adequate funding, while low-priority areas face scrutiny.

- Cost-Benefit Analysis: Evaluate the return on investment for each expenditure. Is the cost justified by the benefits to students and the institution?

## 4. Contingency Planning:

Budget administrators must anticipate unforeseen events. Consider:

- Emergency Funds: Set aside reserves for emergencies (e.g., natural disasters, unexpected enrollment drops).

- Scenario Analysis: Model different scenarios (e.g., enrollment decline, funding cuts) to assess their impact on the budget.

- Risk Mitigation: Identify risks (e.g., inflation, regulatory changes) and develop strategies to mitigate them.

## 5. Transparency and Communication:

Transparent budgeting builds trust within the institution. Communicate openly:

- Budget Workshops: Conduct workshops to explain the budget process, allocations, and trade-offs.

- Budget Reports: Regularly share budget reports with stakeholders . Highlight achievements and challenges.

- feedback channels : Create channels for feedback and suggestions. Involve the campus community in decision-making .

## Example: Allocating Technology Funds

Suppose an educational institution receives additional funds for technology upgrades. The budget administrator collaborates with academic leaders to prioritize projects:

1. Classroom Technology: Enhance interactive displays and audio systems in classrooms.

2. Library Resources: Invest in digital subscriptions, e-books, and research databases.

3. Online Learning: Allocate funds for learning management system enhancements and faculty training.

4. Student Devices: Provide laptops or tablets for students who lack access to personal devices.

Remember, effective budget administration isn't just about numbers; it's about supporting the institution's mission and enhancing the educational experience for all stakeholders. By following these best practices, budget administrators can navigate financial challenges while fostering institutional growth and excellence.

Best Practices for Budget Administration - Education budgeting and budget modeling: How to prepare and administer the budget for an educational institution or program

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Effective Financial Management Strategies for Educational Organizations: Case Studies & Insights

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• By [email protected]
• January 15, 2024

Managing finances in educational organizations is no small feat. With tight budgets and the constant need for resources, schools and universities must navigate a complex financial landscape. Effective financial management ensures that these institutions can deliver quality education while maintaining fiscal responsibility.

I’ve seen firsthand how well-planned financial strategies can transform an educational organization. From budgeting and forecasting to managing grants and donations, every dollar counts. Financial management isn’t just about keeping the lights on; it’s about paving the way for academic excellence and long-term sustainability.

What Is Financial Management for Educational Organizations?

Financial management for educational organizations involves planning, organizing, directing, and controlling financial activities to achieve academic and institutional goals.

The Importance of Financial Management in Education

Effective financial management ensures optimal use of resources, enabling educational organizations to deliver quality education and maintain fiscal health. With tight budgets, managing funds efficiently becomes crucial for achieving long-term sustainability. Proper financial strategies, such as budgeting and forecasting, help in anticipating future needs and allocating resources where they’re most needed. Additionally, managing grants and donations properly can significantly support educational programs and infrastructure improvements, fostering academic excellence.

Key Concepts in Financial Management

Understanding key concepts in financial management helps educational organizations make informed decisions.

• Budgeting : Creating detailed financial plans to allocate resources effectively. For example, setting budget limits for each department ensures controlled spending.
• Forecasting : Predicting future financial conditions based on historical data. Accurate forecasts guide decision-making and long-term planning.
• Grants Management : Administering received funds according to donor requirements. Proper grants management ensures compliance and maximizes fund utilization.
• Donations Handling : Managing philanthropic contributions and maintaining transparency. Effective handling of donations builds trust and supports additional fundraising efforts.
• Financial Reporting : Preparing accurate financial statements to reflect the organization’s financial position. Clear reporting aids in transparency, accountability, and strategic planning.
• Cost Control : Implementing measures to keep expenses within budget. Cost control strategies prevent overspending and ensure financial stability.
• Resource Allocation : Distributing resources based on priorities and needs. Efficient allocation optimizes the use of available funds for maximum impact.

Budget Planning and Control

Effective budget planning and control are crucial for the fiscal health of educational organizations. Proper attention to these processes ensures optimal resource allocation and financial stability.

Developing an Annual Budget

Creating an annual budget involves stakeholders’ collaboration to align financial resources with institutional goals. I identify key revenue sources, such as tuition, grants, and donations, and allocate funds to various departments and initiatives. This detailed allocation helps manage expenses while prioritizing essential academic programs and operational costs. Regularly revisiting budget assumptions allows for adjustments in response to unexpected financial changes.

Tracking and Adjusting the Budget

Continuous tracking of budget performance is vital. I use financial software to monitor actual expenditures against the planned budget. Monthly or quarterly reports highlight any deviations. When discrepancies occur, immediate action ensures alignment with financial goals. Budget adjustments, based on real-time data, support proactive financial management and prevent overspending.

Funding Sources for Educational Institutions

Educational institutions rely on diverse funding sources to support their operations, programs, and initiatives. Effective use of these funds is critical for achieving academic excellence and sustainability.

Government Funding and Grants

Government funding plays a significant role in supporting educational institutions. Federal, state, and local governments provide financial assistance to schools, colleges, and universities. Funds are typically allocated based on formulas considering student enrollment, demographic factors, and institutional needs. Federal grants often focus on specific goals like improving STEM education or increasing access for underrepresented groups. For example, the Title I program provides funding to schools with high percentages of students from low-income families to help ensure all children meet challenging state academic standards.

Private Funding and Donations

Private funding and donations from individuals, corporations, and foundations provide essential support to educational institutions. These funds can be unrestricted or earmarked for specific projects like scholarships, research, or infrastructure improvements. Organizations such as the Bill & Melinda Gates Foundation offer significant grants aimed at educational innovation and equity. Alumni often contribute through annual giving campaigns or capital projects, providing a steady stream of funding. Additionally, corporate partnerships can offer resources, expertise, and opportunities for students, such as internships or collaborative research initiatives.

Cost Management and Reduction

Effective cost management in educational organizations ensures financial stability and supports academic objectives. I focus on identifying areas to cut costs and implementing cost-effective practices to optimize resource allocation and reduce waste.

Identifying Areas to Cut Costs

Financial audits reveal cost-saving opportunities. I review expenditures and compare them with budget projections to identify discrepancies. Focus areas include:

• Administrative Costs : Evaluate office supplies and administrative expenses. Implement digitization to reduce paper use.
• Energy Consumption : Reduce utility bills by upgrading to energy-efficient lighting and HVAC systems.
• Outsourced Services : Review contracts with third-party providers. Consider competitive bids or in-house alternatives for cleaning, maintenance, and security.

Implementing Cost-Effective Practices

Adopting cost-effective practices maximizes resource use. Best practices involve:

• Bulk Purchasing : Leverage bulk buying for educational supplies to negotiate better prices.
• Technology Integration : Use digital tools to streamline processes. Implement Learning Management Systems (LMS) to reduce physical material costs.
• Energy Efficiency Programs : Launch initiatives to promote energy-saving behaviors among staff and students.

Regularly assessing cost-saving measures ensures continuous improvement and financial security.

Financial Reporting and Accountability

Effective financial reporting and accountability are crucial in educational organizations. These practices ensure fiscal health, foster trust, and support academic goals.

Types of Reports for Educational Organizations

Educational organizations utilize various types of financial reports. Annual reports provide comprehensive insights into an institution’s financial health over a fiscal year. They include income statements, balance sheets, and cash flow statements. Quarterly reports offer more frequent updates on financial performance, aiding in timely decision-making. Budget variance reports compare actual expenses to budgeted amounts, highlighting discrepancies and facilitating adjustments. Grant reports are necessary when institutions receive external funding, detailing fund usage and project progress.

Ensuring Transparency and Compliance

Ensuring transparency and compliance in financial reporting involves several key practices. Adopting standardized accounting practices maintains consistency and reliability. Regular audits, both internal and external, verify accuracy and integrity in financial records. Educational organizations must stay updated with relevant financial regulations and reporting standards, such as the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). Providing stakeholders with clear, accessible financial information builds trust and demonstrates accountability. Structured reporting schedules ensure timely dissemination of financial data, supporting informed decision-making processes.

Case Studies: Successful Financial Management in Schools

Successful financial management in schools provides a foundation for achieving key educational goals. Examining real-world examples of how schools manage their finances offers valuable insights into effective strategies and practices.

Example from a Public School

In 2018, Lincoln High School in Springfield implemented a zero-based budgeting approach. By starting each budget cycle from zero, the school scrutinized every expense rather than simply adjusting the previous year’s budget. This led to a more focused allocation of resources, directly supporting student programs and facilities upgrades. The administration reported a 10% increase in funding efficiency, enabling them to reduce class sizes and improve technology in classrooms.

Example from a Private Institution

Harvard-Westlake School in Los Angeles leveraged targeted fundraising campaigns to diversify its revenue streams effectively. The school focused on engaging alumni and local businesses in its capital campaign. By 2020, the institution raised $50 million, allowing it to build state-of-the-art science labs and enhance scholarship offerings. Transparent financial reporting to stakeholders, including detailed annual reports, fostered trust and encouraged ongoing support. As a result, the school’s endowment grew by 15%, ensuring long-term financial sustainability.

Effective financial management is crucial for the success of educational organizations. By adopting strategies like zero-based budgeting and targeted fundraising campaigns schools can optimize their resources and achieve their academic goals. The examples of Lincoln High School and Harvard-Westlake School highlight how transparent financial practices can build trust and ensure long-term sustainability. With the support of entities like the Bill & Melinda Gates Foundation educational institutions can innovate and thrive. Sound financial management directly impacts educational outcomes making it an indispensable part of any school’s strategy.

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Financial Management, Higher Education Institutions

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Budgeting ; Budget management

The process of developing, monitoring, revising, and evaluating budgeting policies and practices, budgets, and budget performance in tertiary/postsecondary education institutions.

In the simplest of terms, “a budget is a plan for getting and spending money to reach specific goals by a specific time” (Dropkin et al. 2007 , p. 3). The missions of tertiary/postsecondary education institutions vary, and many institutions have missions which incorporate a diversity of foci. Good financial management will lead to the development of budgeting policies and practices and to institutional, divisional, and academic/administrative unit budgets which reflect and promote pursuit of the goals articulated in the mission statement and other planning documents.

Functions of a Budget

Drawing on the work of Maddox ( 1999 ) addressing budgeting for not-for-profit organizations, Barr and McClellan ( 2018 ) note five purposes for budgets in higher...

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Barr, M.J., and A.E. Golseth. 1990. Managing change in a paradoxical environment. In New futures for student affairs, eds. M.J. Barr, M.L. Upcraft, and Associates. San Francisco: Jossey-Bass.

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Goldstein, L. 2005. College and university budgeting: An introduction for faculty and academic administrators . Washington, DC: National Association of College and University Business Officers.

Hillman, N. 2016. Why performance-based college funding does not work . New York: The Century Foundation. Accessed on 3 May 2017, at https://tcf.org/content/report/why-performance-based-college-funding-doesnt-work/ .

Maddox, D.C. 1999. Budgeting for not-for-profit organizations . Hoboken: Wiley.

Slaughter, S., and L.L. Leslie. 1997. Academic capitalism: Politics, policies, and the entrepreneurial university . Baltimore: Johns Hopkins University Press.

Slaughter, S., and G. Rhoades. 2009. Academic capitalism and the new economy: Markets, states, and higher education . Baltimore: John Hopkins University Press.

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I. Setting the Stage

Using Budgeting Effectively

Dr. Sherman Bloomer

Budget policies and practices are tools to advance the goals of an institution. Budgets are also visible to most members of a university community and can sometimes be viewed as the only motivation for decisions—to the detriment of pedagogy, curricular needs, and mission. Aligning budget practices with institutional goals and priorities and communicating (repeatedly) how those practices support the goals and priorities are critical. A change from historical and incremental budget distributions to productivity-informed or responsibility-centered management (RCM)–based distributions at Oregon State University and a recent review and revision of that change together provide an example of the opportunities and challenges in such a transition. The budget distribution approaches had to balance real and perceived incentives for scholarship and teaching, online and traditional instruction, high-cost but mission-critical programs and high-enrollment lower-cost programs, and the needs of academic units for both sufficient staffing and high-functioning services and support operations. The most productive discussions about balancing each of these interests came when the focus was on “and” rather than “versus.” Budget development is commonly very focused on annual cycles but benefits from being part of longer-term financial planning. Forecasting three- to five-year trends can help the development of productivity-informed or RCM budget practices by buffering them against significant changes in state funding, pension costs, or international enrollments. Long-term forecasting at an institutional level can identify areas of concern for the institution’s financial health (unaddressed depreciation costs, for example) and can inform annual budget decisions that contribute to long-term financial goals.

The observations here come from my work at Oregon State University as a department chair, dean of a large college, and associate vice-president for budget and resource planning. My thoughts are shaped by what I learned along the way and as much by the absence of some things as by the presence of other things. I was very fortunate in my role in budget to have many talented, professional, and patient finance colleagues educate me about the nuts and bolts of university finance and many academic colleagues who willingly engaged in rethinking how we did some things and patiently (mostly) listened to me talk about why the financial and business realities of the institution did limit how fast we could do things or how much of certain things we could do. I am particularly grateful for the learning and planning we did together through the pandemic.

The observations in this essay are much influenced by my experiences as OSU transitioned from a largely incremental education and general budget process (though there were activity-based budgets associated with the online education program) to a modified responsibility-centered-management (RCM) budget process. The work on this transition was in collaboration with deans, senior leadership, and university budget committees from 2015 to 2018; it was implemented in 2018; it was reviewed comprehensively in 2021–2022 and is currently being revised. The review provided not just an understanding of what had worked (and what had not) in the budget model change, but a great deal about how people viewed the budget model, how they understood it to work, and the things they did not understand. It emphasized to me the importance of effectively communicating about budget and budget processes.

What Are the Mechanics?

One of the things that surprised me when I went from my role as a dean to the budget office was how little I actually understood about the budget mechanics of the institution—how much revenue comes from tuition? What’s our discount rate? What are the trends of state funding? How much of the total budget is spent on people? What are the central costs we have to pay (debt, insurance, contracts with the city, etc.)? Not all of the details would have mattered in my dean role, but understanding some of those details would have been very valuable in explaining budget to department chairs and faculty (and understanding it myself).

Depending on your role at your institution, some level of knowledge of how the budget works is valuable. A department chair might want to know the broad outlines of where revenues come from and how they are spent in the education and general budget and what recent trends have been. This can be helpful in showing faculty why engagement in student recruiting is important or why expectations of state funding or endowment returns are limited.

For senior leaders, having a broad knowledge of the budget levers for your institution would include the mechanics of the education and general budget, the magnitudes and trends of revenue streams for the major self-support operations, how philanthropy works at your institution (an affiliated foundation or within the institution), and what the restricted fund portfolio looks like. It’s useful to know the current state of affairs and what the trends have been the last few years.

The point of my suggestion is not that you will be managing the details of those funds but understanding them helps you talk with faculty, staff, and the campus about budget and how it works. Public universities would love to see more investment from the state, but if it is 15 percent of your revenues and has not changed in fifteen years, it may not be a strategy that is promising. Growing grant revenues is important for the mission at some institutions, but that may or may not grow the finance and administrative costs recovered from those grants depending on the types of grants and the agencies they come from. Unit-level enrollment strategies and ideas can generate lots of enthusiasm, but if your institution has been stagnant in undergraduate student enrollment for years, the issues are likely larger than individual unit programs. A broad understanding of your budget mechanics can help you engage with the university community more effectively.

Budget as a Strategic and Communication Tool

Budget is something that almost everyone at a university or college notices and has an opinion about. This can make it a source of frustration, but it is also an opportunity to engage the campus community in conversation about how the budget works and why certain decisions were made.

Productive conversations about budget require a degree of openness about budget and budget data. The extent to which you can share budget detail likely varies depending on your type of institution (private, public with an independent board, public and part of a state system, etc.), but at some level it is likely you can share budget information with your leadership and the campus community. Where does the budget for your unit (or institution) come from? Where does it go? What is the general outline of the budget distribution process? In the absence of shared information, the members of your unit and the campus community will create a narrative that likely will not match reality very well.

Making budget information available is not necessarily the same as making it understandable. How you present it, how much explanation you provide, and the acronyms or language used can obscure what you’re trying to share. Making the public budget data understandable is an important part of sharing it. One way we approached this at Oregon State was to start a series of informal budget seminars. We called them “Budget Conversations,” but they were really a series of budget primers. We’d put together a one-page (front and back) summary, explain it for about twenty minutes, then open the conversation up for questions. These ranged from where the whole budget comes from and where it goes, to how finance and administrative cost recovery from grants works, to how capital projects come to be, and so on. These have proved to be very useful both for helping more of the campus understand the budget and for creating a small library of explanations to commonly asked  budget questions.

A more formal, and unit-specific, budget report can also be useful. The provost at OSU asks each college leader to do an annual financial report that is for the members of the college (and also informs the provost). The report details the budget sources and distributions in the college, highlights major budget investments in the last year and their outcomes, looks ahead to major investments planned in the next two years, and discusses any threats or emerging opportunities for the college. These have been helpful in creating a resource for faculty and staff to have access to an overview of their unit’s finances and are a resource when questions are asked or someone says, “well, no information is ever shared with us.”

Data as a Foundation

Something to ask when you take on a leadership role is how well does the institution or unit understand itself? Are there good data on credit hours, spending, faculty and staff FTE, benefits costs, grants and contracts expenditures, and so on? The question is probably not “are there data” but “are the data accessible and accurate enough to inform decision-making.” There are two big reasons for checking into the data tools.

This first is for planning. It is very hard to know what your strategy should be if you don’t know what the organization looks like now and where it has been. How much do the faculty in your unit teach? What do they teach? Who is bringing in external funding? In what areas? Who are the students who come to your institution? What’s their socioeconomic distribution? What’s the staff to faculty ratio across your units? Are there good reasons why they are different? There are a lot of questions you’re likely to want to have answered to inform your strategies, and it should be (relatively) easy to get at least first order answers to those questions.

The second reason is that you’re going to want to be able to assess if the strategies you put resources into have the effect you want. Did adding those two recruiters in Texas move enrollment for you? Did the investments in a summer bridge program meaningfully affect first-year retention or graduation rates? Did the research center you funded make good on the projections for grant funds and external engagement? Higher education has not always built assessment into the academic (and service) investments we make. Increasingly slow revenue growth makes it more imperative that an honest look at the effectiveness of new things is part of making those investments.

So, as you take on a new leadership role, explore the data ecosystem for your institution. If it is hard to get answers to questions you’re asking, it may be that is one of the first areas you want to give some attention. Good information is foundational to making good (or at least informed) budget decisions.

What Does Your Budget Process Encourage?

There are lots of approaches to budget development and distribution in higher education. Incremental budgeting, activity-based budgeting, RCM budget models, other outcomes-based budgeting, and combinations of these can be found in the public and private sectors. These intersect with constraints that may come from your legislature, state system, or board. All of these systems can work and they all can create incentives for certain behaviors by your leadership and faculty.

If you’re using incremental budgeting, you may expect to provide stability and to encourage strong professional relationships between deans and the provost and college-based advocacy for budget decisions. You may not intend to create a perception that a particular dean is successful in that advocacy because of personal or social relationships. If you’re using RCM budgeting, you may intend to encourage deans to pay close attention to college enrollments and graduation rates. You may not intend for colleges to think up entrepreneurial ways to teach courses outside their core expertise to capture credit hours. At Oregon State, prior to the development of the modified RCM, our growing online program was budgeted on a revenue-sharing model, and the campus programs were budgeted largely through an incremental approach. This encouraged units to grow their online programs, but it also turned out to encourage offering sections for on-campus students online instead of in person.

Any approach to university budget will create incentives for some things you didn’t intend. If you know what they are and they’re outweighed by the positive aspects of the approach, then you’re good. If, however, you don’t know what those intended and unintended behaviors are, your units may be spending quite a bit of effort on activities that aren’t actually moving the institution forward.

It is worth spending some time understanding how your budget process is perceived. Ask your leadership team what they think increases their budget allocation. What are they doing with the intention of securing more resources? When you have an opportunity to talk with department or school heads, ask them what activities they think change their budget allocation. You don’t need to do all that yourself, but it is important to understand how leaders and managers understand your budget process and what it is encouraging them to do or not do. If those actions are at odds with what you need to advance your strategy, you likely need to either communicate the actual budget process more clearly or consider a revision in your budget process to align the incentives with the desired actions.

Once you do understand your budget process, I would also encourage you to honor it in your decisions about budget allocation to the degree possible. Unexpected circumstances and emergencies do arise, and resources have to be committed outside of the usual annual budget cycle. However, if your direct reports find they can lobby you successfully for resources outside the institution’s usual process, you’ll spend a lot of time in those conversations and will frustrate leadership in units that are sticking to the defined budget process.

Long-term and Short-term

Balancing short-term and long-term budget needs is one of the most challenging parts of allocating your institution’s resources. Budget is, of course, an annual process, and the immediate needs of replacing positions, easing advising loads, shoring up Title IX services, and the myriad other needs of a university of any size can trump the need to maintain operating reserves, set aside cash for capital renewal projects, or plan for essential strategic investments, like replacing the ERP  or making cluster hires of faculty in key areas. The problem is exacerbated by the fact that almost all of the existing budget is distributed to someone doing something, and maintaining those efforts, every year, is the largest annual incremental budget investment any institution has to make. Carving funds out of increasingly limited new revenues for long-term needs isn’t easy and has to be intentional.

Making allocations for long-term strategic needs should be an integral part of your annual budget development process. There are a couple approaches that can help with this. Oregon State’s Board of Trustees asks for an annual ten-year business forecast that lays out current plans for capital projects, enrollment strategy, and trends in revenues and expenses. It is at a very high level and, of course, has significant uncertainty in years farther out. However, it is very valuable for management to identify key areas of weakness and to consider different ways of addressing those weaknesses. It provides a way to talk to the campus community about why funds are being set aside for a particular reason (“in five years we’ll have enough to completely renovate Founder’s Hall”) or why a particular program is being started now, even though it may have little impact for one or two years (“in six years this master’s degree program should have enrollment of x and will be generating y dollars to support other needs on campus”). It was not a small amount of work to set up the methodology for doing this, but it has been well worth the return.

On a more local level, we have begun asking units to make their annual requests for new budget resources in a three-year time frame. Unit heads in service and support units are asked what new resources they need (and for what of course) for the next fiscal year, and for the two years after that. This has helped them think more strategically and to think ahead a bit about how much they can realistically manage in the next year. It has allowed leadership to look at the aggregate requests and consider if some can be staggered across years, if there are common “pain points” across units, or if there are some things that could be funded from reserves rather than new recurring funds. We also have  all of the unit leaders reporting to the provost all of their colleagues’ requests for new budget. It has helped unit leaders develop a better understanding of the complexity of the institution and a more strategic view of the annual budget process.

Flexibility for Leaders

When I came into the budget office, I was surprised how many requests for resources (often one-time) came to the Provost or the Vice-President every year outside of the usual budget cycle. I was equally surprised at how small many of those requests were and how little latitude the senior leaders had to address them. The requests consumed a lot of time and energy and resulted from a lack of consistent strategic reserve allocations at the right levels.

Giving leaders at every level some level of discretionary reserves can be very helpful in getting small things done without having to go up the approval chain for every single thing. Making sure senior leaders have reasonable strategic reserves lets them respond to institutional strategic needs effectively. Institution leadership sometimes wants to retain year-end balances all centrally so funds are not “wasted.” Unit level leaders want to retain year-end balances because they “earned” them by good management and know best how to use those resources for their part of the mission. Some balance between those extremes is good. If unit leaders have some discretionary reserves, they can make smaller local decisions quickly. If the Provost has reasonable strategic reserves, they can respond to strategic opportunities. In all cases it is important that leaders using those reserves clearly recognize they are spending one-time funds, not recurring funds.

One way we’ve tried to strike that balance at Oregon State is to redistribute reserves in the units reporting to the provost and the vice-president for finance at the end of each year, because these are resources allocated by students and the state and we need to use them strategically and responsibly. Twenty-five percent of the ending balance goes into a reserve fund for the provost and vice-president, and the balance remains with the unit to be invested in strategic needs (which ought to be periodically reported on by the unit). This approach has encouraged unit leaders to manage responsibly and has, over time, established strategic investment funds for the senior leaders.

The precise approach to this will depend greatly on your institution. Public institutions may have board or legislatively established minimum and maximum reserve balances; some portion of reserves are always committed to faculty start-ups or projects that cross over fiscal years, or there may be board limits on how you can manage your end of year balances. Within those limits, considering how to let leaders at every level have access to strategic funds they manage can be an effective tool in getting things done with your budget resources.

Scarcity and Opportunity

One of the things that was striking in our review of OSU’s modified RCM budget model was that virtually every conversation we had included the comment that “there wasn’t enough.” The specifics of the comment could be about tenure-track faculty numbers, supplies and equipment for laboratories, staffing in human resources, or accountants in business operations but came from colleges, business units, academic support units, and executive offices. The prevalence of a scarcity mind-set was striking.

This is hardly a surprise, as most universities, public ones particularly, deploy most of the resources they receive, don’t hold huge reserves, and always have longer lists of things to improve or start than they have new revenue. It was very clear the scarcity mind-set was limiting how units and unit leadership viewed what they could and could not do.

While the scarcity is real—there are always more things to do than there is incremental revenue to support them—institutions have millions, or tens of millions, or hundreds of millions of dollars to support and educate students, engage with their communities, and pursue scholarship and innovation. Those dollars come from students and taxpayers and provide an opportunity to do as much good as possible. Keeping that message as part of budget development and management is very challenging but very important. If the scarcity mind-set is the only lens that is used, it can easily squeeze out any thinking about new opportunities or new directions.

I don’t mean this to be unrealistically optimistic. The enrollment and state funding challenges faced by many institutions are real and daunting. Sometimes, they are severe enough that the conversation has to be about hard choices and reductions. But for many institutions with stable but challenging circumstances, it is worth considering how to talk about opportunities in each budget cycle, even as you have to say no to some things.

Plan for the Down Cycles

Most higher-education institutions have faced the impacts of a recession on state funding and endowment returns or a sudden shortfall in enrollment. These events are not always predictable, but it is extremely likely they will occur at some point, so planning for them is prudent. This isn’t completely at odds with the advice I just provided about promoting an opportunity mind-set. In that, I was thinking of the prevailing thinking about the annual budget at the institution. In planning for recession or enrollment-driven budget downturns I am thinking about the need to have a plan when those circumstances arrive.

If you’ve been able to set aside significant discretionary reserves over time, you have one piece of managing those downturns in place. However, for many institutions maintaining reserves at a level that would let you weather the one or two or three years of a major downturn is probably unlikely. If so, the more you have thought about what you would do in those circumstances, the more effectively you can manage them when they arrive. For most of us, when those downturns have happened, we have to make decisions quickly; there aren’t many options; and we wind up with largely across the board reductions that can have long-term consequences and aren’t very strategic.

It is worth thinking about your strategy for those downturns before they happen. What do you have to protect—advising services, research administration, the library? What could you defer or fund out of something else—capital renewal repairs, capital equipment replacement, staff professional development for a year? If you had to reduce programs or degrees or services what would be the criteria? There are many possible choices and it is a hard conversation. However, having those conversations before you are scrambling to deal with a sudden decline in budget resources can be invaluable in managing through that downturn.

Final Words

The purpose of higher education, regardless of institution size or type, is to make a difference in individual lives and to advance the economic and social well-being of the communities our institutions serve. It is a compelling and rewarding mission, and budget management is the engine that makes the work possible. Conversations about budget, budget processes, and budget priorities can be daunting, but I encourage you to embrace them. Clear and open dialogue about budget can help your institution understand your priorities and constraints and can help you understand how well the members of the institution do (or don’t) understand your priorities and processes.

About the author

name: Dr. Sherman Bloomer

institution: Chancellor and Dean, OSU-Cascades

Using Budgeting Effectively Copyright © 2024 by Dr. Sherman Bloomer is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License , except where otherwise noted.