Budgets By Design
Tailoring a framework to specific needs aligns budgetary decision making with institutional strategy. This customized approach keeps Pace University on track.
By Len Sippel and Joseph Morreale
Such was the case at Pace University, New York City. A review of our former strategic plan (1992-1996) makes clear that the university’s strategic, academic, and budget planning had little or no connection. Former budgeting methods were centralized and top-down, with little input from deans and department heads. To make better use of limited resources for achieving the goals of our 1997-2002 strategic plan, we clearly needed a new model that would not only bring together the academic and administrative planning and budgeting units of the university’s multiple campuses, but would also link these units and align budgeting decisions to the overall goals and objectives of our strategic plan.
Our new SPBA (strategic planning, budgeting, and assessment) model does this. As a multifaceted planning system, our long-range academic planning is now driving resource allocation—and, ultimately, development of the university’s budget. As such, budgetary decisions at Pace today truly model budget decision making by design—taking into account long-term directions, plans, and university mission.
Five Steps to Better Planning and Budgeting
Eight and a half years ago we changed the name of the budget committee to the “planning and budget committee” to emphasize that planning must precede all budgeting decisions. This same mind-set change had to occur before we could charge ahead with a new universitywide budgeting model. Also evident: We needed a strong partnership between the academic and administrative areas of the university. As such, from the start of this initiative we developed a working collaboration between the executive vice president for finance and administration and the vice president for planning, assessment, and institutional research. During fiscal years 1996-97 and 1997-98 we together drafted the university’s SPBA model, which we then fully developed and implemented in five steps during roughly a four-year period.
Step 1: Name desired results. Our first step was to name the change results we desired from a new model. Those were:
- integrated planning that would result in a comprehensive plan and budget,
- strategic planning that would drive the university’s long-term plan and budget,
- customer service planning that would push the university to be more learner-centered, and
- assessment and assessment planning that would integrate with the entire planning process.
We concluded that any holistic approach to universitywide planning and budgeting had to include the effective allocation of five resources: human, operating, capital and equipment, space and facilities, and technological. For instance, it makes no sense to consider the salary and benefits costs associated with hiring a new faculty member if you don’t also have the resources to commit to the space and equipment costs you will need to run the new research program for which you want to hire that person. Hence, those involved in departmental and unit budgeting would routinely need to consider the allocation of all five types of resources.
Likewise, we concluded that the planning process must integrate not only operating costs but also capital and cash budgets in such a way that those requesting funds would have to consider how the allocation supported the university’s strategic plan.
|Planning and Budgeting Forms|
To support Pace’s strategic planning, budgeting, and assessment (SPBA) model, we developed specific forms designed to capture data once and use them for all aspects of the planning and budgeting process. What follows is a description of the various form categories and the nature of the information each was created to capture.
Strategic, operational, and annual plan narratives. These forms capture planning data, including mission, roles, goals, and objectives based on the strategic plan. They identify expected outcomes, such as enrollment estimates, with workload indicators and outcome indicators.
New and additional funding requests. These forms collect requests for additional funds—including capital, equipment, and operating funds—and seek input for one year, two years, three years, and beyond (long-term needs). Requested information includes summary description; funding request detail; justification and expected accomplishments; effect on university mission, long-range plan, and strategic plan; ramifications if not funded; alternatives explored; partial funding effects; cost benefit analysis and return on investment calculation; and documentation of how success will be measured.
Low-priority programs. This category of documents identifies the lowest 10 percent of priority programs included in the base budget. Requested information—essential for determining overall university academic and administrative priorities—includes summary description of the low-priority program, cost detail, and effects on university mission, long-range plan, and strategic plan.
Revenues and expense budget estimates. Paperwork captures estimates for all base funds by cost center and budget control categories. All sections are multiyear and include operating as well as capital requirements. Requested information includes identification of reallocations within the base, update of authorized position listings, listing of equipment funded in the base budget, and listing of remodeling and renovations included in the base budget.
Once forms are submitted they are aggregated, summarized, and analyzed against the university’s long-range plans. Information is then used to prepare the annual plan and budget, long-range academic plans, and long-range facilities plans. Un-funded needs are often used to develop grants or are integrated into fundraising efforts. The SPBA process also includes specific fund-determination policies that are unique to Pace, such as revenue-sharing guidelines, formulas for funding additional workload, space guidelines, equipment guidelines, formula-driven funding, and other budget-specific funding details.
Step 2: Develop a conceptual framework. Drawing on the planning and budgeting experience at other universities, we developed a draft conceptual framework that outlined all the major features of our proposed system. We then shared this draft with the university community in a series of broad-based meetings—meeting with the planning and budget committee, deans, and department heads to incorporate their feedback to further refine the system. These give-and-take discussions led to the needed buy-in from faculty and staff for the new model.
During this phase we also identified specific goals of the SPBA model:
- to chart the future of Pace University by implementing the mission and establishing strategic goals to support that mission;
- to allocate resources efficiently, effectively, and equitably across the university; and
- to allocate resources consistent with the goals and objectives of the strategic plan.
To implement such a system it was imperative that our processes focus on outcomes, inputs, related costs, and a holistic view of the university and each academic and administrative area. Of utmost importance was to place academic units at the center of the planning constellation, with support units positioned as spokes from this center.
During this phase we also developed a series of universitywide forms in support of the model’s planning and budgeting processes (see sidebar, “Planning and Budgeting Forms”).
Step 3: Test assumptions and processes. Once we had buy-in from university stakeholders for the model as concept, we ran simulations of funding portions of the model to test the results of our assumptions and the relevance and usefulness of the forms and processes we had created. Especially for institutions where budgeting has been largely centralized, it is critical to first help staff and faculty understand how your model will work before you throw hypothetical numbers at them. Otherwise, they may be so overwhelmed with making their numbers add up that they won’t grasp the overall concept of how they can directly influence the numbers with budgeting decisions.
This step also resulted in a series of training materials that we subsequently used during system implementation to help faculty and staff understand the various factors that can influence revenue streams and budget outcomes. To facilitate training, we created a group of budget representatives (mostly assistant deans and vice presidents in charge of budgeting) who meet on a regular basis for ongoing training and feedback.
Step 4: Launch the model. Within the first year (1997-98 fiscal year for the 1998-99 plan and budget), we implemented 65 percent of the system (forms and phase one of the budget process). Within the first two years, 85 percent of the system was in place as we further integrated the academic, strategic, and long-range plans and formulated holistic capital plans, refined outcomes, and put management systems in place. By year three, 90 percent of the system was implemented as we refined and made operational the outcomes, planning integration, and current management systems. In years four and five we emphasized assessment and the development of a dashboard of key success indicators (dubbed the “Pace Scorecard Performance Indicators”) to help us gauge whether we were heading in the right direction. Examples of these indicators—which we compare to our selected 12 benchmark institutions—include
- academic indicators: student selectivity, SAT average score, freshman retention rate, graduation rate, student diversity, full-time faculty, alumni giving rate, and endowment per undergraduate FTE student;
- growth indicators: enrollment, tuition and fees, and endowment; and
- financial indicators: ratios for adjusted viability, adjusted primary reserve, return on net assets, net income, debt coverage, debt service, and debt to total capitalization.
During implementation of our new model it became evident that to fully benefit from this planning system, we needed a new integrated information system. However, due to timing with Y2K issues and subsequent 9/11 events, university leaders decided to delay implementation of a new information system until the beginning of FY03-04. Once the new system is fully installed by the end of 2006, our scorecard data will be available within weeks rather than the extended time it now takes to compile the data. In addition, links between program and budget will be possible. This will allow for detailed analysis such as determining cost per student of providing specific curriculums and, if desired, specific courses.
Step 5: Assess and improve the model. Our fifth and final step was and remains the continuous task of assessing our model. A primary aim for our SPBA model was to connect academic planning and administrative planning and to then coordinate academic and administrative planning with budgeting and financial planning. These must work hand in glove to determine the best use of scarce university resources and to have resource allocation flow from academic and administrative planning. Our model goes one step further in that it also combines the many assessment functions into one unified system.
For instance, all state, federal, accrediting body, and survey reporting (including assessment data) is coordinated through one office, the planning and assessment office. This facilitates the accuracy and consistency of data and ensures that data are collected only once. On an annual basis, the planning and assessment office publishes an analysis of all the actual resource allocations made during the planning and budgeting process. This study also documents the link between those resource allocation decisions and the university’s strategic plan. The annual analysis as well as a year-by-year cumulative summary allow the president, executive council, and board of trustees to track investments made over time in relation to the university’s strategic plan and specific strategic initiatives. In a similar fashion, our indicators scorecard provides a snapshot of the academic, student life, and financial health of the university for a given year. Analyzing the indicators over time also demonstrates whether Pace is getting stronger or weaker in a particular area and reveals how Pace is performing relative to its comparative group of institutions.
During each of the years following initial implementation of the SPBA model, we evaluated and made adjustments to various processes to ensure continual effectiveness. For instance, we adjusted the schedule to allow more time for our board to review the plan, changed the planning and budget committee membership to include a greater number of faculty, and modified the long-range planning forms to better match our assessment needs.
While incorporating ongoing assessment as part of university culture has at times been slow-going, it has become second nature as schools and departments have come to realize that a meaningful assessment function can help them shape future budgetary decisions. Planning for new curricular offerings now addresses the five resources in terms of needs and also specifically addresses how the offerings will contribute to the strategic plan and how they will be assessed on an ongoing basis.
Putting Processes in Motion
Pace’s SPBA model embraces the full spectrum of planning and assessment. It integrates traditional academic budget planning with space and capital planning that flow from the strategic plan of the colleges, and ultimately, the university. The main features of our planning and budgeting process combine program/outcomes budgeting, zero-based budgeting, and formula budgeting. Our overall process includes three major phases: strategic planning (five-year cycle), operational planning (one- to three-year cycle), and planning/budgeting (one-year cycle). Each phase guides the next. Thus, a continuous planning process integrates individual fiscal-year budgeting processes with ongoing operational planning and strategic planning processes.
Our process begins with overall review and update of the university’s strategic plan, which includes detailed long-range program plans. This review takes place during February to March of the following year, beginning one and a half fiscal years prior to the actual budget year. The budgeting function begins one fiscal period prior to the actual budget year and is divided into two phases: an operational planning phase (September to February), during which the institution identifies the major building blocks for the budget and collects operational planning data; and a budget development phase (February to June), during which the institution documents the next fiscal-year budget that begins the following September (see Figures 1 and 2).
The operational planning phase is the most critical phase of the budgeting function. This is when we identify the important needs of each academic and administrative area. Thus, the months of September through February provide the foundational information for the operations of the university for the following fiscal year. This operational planning phase concentrates on the large funding issues of the university and the academic and administrative areas. Critical needs are identified and prioritized.
One key component of the operational planning phase is identifying the lowest 10 percent of priorities by all units of the university, both academic and administrative. This does not mean that these lowest-priority items will experience funding reductions. Rather, this process aims to discipline each individual department and the university as a whole to provide relevant data and set priorities. In essence, it forces everyone to take a close look at current activities and assess their importance.
The operational planning phase also identifies the major determining factors for the yearly budget. Outcomes of the process include determining major parameters, tuition levels, and major programmatic thrusts, including new programs and emphases drawn from the strategic plan. Each of these items is reviewed and approved by the board of trustees during January and February. Thus, the scope of the yearly operating budget is determined based on the strategic plan and the operational plan and includes a multiyear view of the operating budget.
Once strategy and operations are determined, actual preparation of the detailed budget proceeds as a technical process from February through June, with a final budget submitted to the board for approval in July or August. The SPBA planning and budgeting system provides an integrated basis for guiding the future of Pace and links planning elements into a cohesive overall plan. Execution of the plan and the audit and assessment of its execution complete the entire SPBA model, leading back to the first phase of the planning process—the overall review of the university strategic plan.
Pace University was founded as the Pace Institute in 1906 to provide training for accountants and lawyers.
The institute became a college in 1948 and a university in 1973.
In fall 2003, the university had a total undergraduate and graduate enrollment of 13,962 and a FTE of 10,852. Undergraduate enrollment was 8,871, of which 6,893 were full-time.
The university is composed of six schools: Dyson College of Arts and Sciences, Lienhard School of Nursing, Lubin School of Business, School of Computer Science and Information Systems, School of Education, and School of Law.The university has four campuses: downtown Manhattan graduate and undergraduate campus, downtown White Plains graduate campus, White Plains Law School campus, and Pleasantville/Briarcliff undergraduate campus. In addition, Pace has three centers located in midtown Manhattan, Yonkers, and at Stewart Airport.
Engendering a Long-Term Outlook
Especially in times of limited resources, an institution must carefully analyze and identify its priorities, plan for its achievements, allocate funds appropriately and judiciously, and measure the effectiveness of its strategies in accomplishing its goals. In the current climate of accountability in higher education, decisions increasingly must be by design.
For Pace, active training and engagement across all constituencies of the university have made it possible to radically transform the disaggregative planning that previously existed into a coordinated universitywide planning, budgeting, and assessment effort. Implementation of our SPBA model has forced individual schools and departments to think about the university’s long-range strategic plan during the entire year, since they must link their plans to the strategic plan not only during planning stages, but also for ongoing assessment purposes.
Because Pace’s SPBA model is comprehensive in nature and is based on fundamental budgeting techniques, it is transferable and scalable to most colleges and universities. The costs incurred from our new model have centered primarily on the human resources required to develop the model and the training needed to apply it.
Perhaps our biggest hurdle has been getting people to change. To this day, we still have some who pull out old budget forms from eight years ago or those who continue to submit funding requests mid-cycle. Installing a process such as Pace’s SPBA model does entail a substantial amount of legwork and time, and no shortcuts exist. However, budgeting must take place in some form at every institution. Doing so in a manner that ensures that university monies are allocated to high-priority items and in alignment with institutional strategic goals is the true payoff for the patience required to execute such a model. As precious as human resources are, requiring that all departments focus on the long-term goals of the institution during the planning and budgeting process pays greater dividends in the accomplishment of those goals.
Author Bios Len Sippel is executive vice president for finance and administration and treasurer for Pace University, New York City, and is managing associate at Right Sourcing Associates, a consulting firm serving higher education. Joseph Morreale, formerly vice president for planning, assessment, and institutional research, is Pace University provost.
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