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Business Officer Magazine

Staying Out in Front

Instead of waiting for a crisis as a catalyst for action, American University employed a think-tank approach to improving its budget and finance processes in ways that keep the institution ahead of the curve of unanticipated challenges.

By Nana An and Erica Smith

*Even a crisis can have a silver lining. Emergency situations create opportunities for innovation, creativity, and advancement. The economic downturn, for example, prompted many institutions to embrace those opportunities as ways to achieve institutional efficiencies and budget reductions.

Fortunately, at American University (AU), we had maintained a relatively strong position during the recession because of earlier financial safeguards and careful planning. However, we did not want to fall behind simply because tumultuous times were not yet within view. So, rather than rely on external pressures to drive change, we used a budget and finance pilot initiative to provide the incentive for us to reinforce our solid footing. AU used leadership support, communication, stakeholder engagement, and methodical planning to simulate the sense of urgency that budgetary tides can provide. Following the Excellence in Higher Education (EHE) model formulated on the Baldrige National Quality Program, we identified improvement opportunities that resulted in 26 individual projects that we prioritized for implementation.


To review the conversation-starter questions, see “Help Them to Tell It Like It Is” in Business Officer Plus at

Eight of eleven tier-one projects are in progress, with deliverables we expect to implement during academic year 2011–12. Along the way, we've realized that our think-tank process has prompted broader campus discussion, fostered a culture of innovation, and increased coordination between central offices and departments. We think these are the first of many benefits to come, and our efforts will help AU keep its financial balance and achieve an ambitious vision of the future.

Poised for Progress

As an institution, AU is well positioned to accommodate a change effort. Chartered by an act of Congress in 1893, the university is known for its politically active and socially responsible student body. Since 2006, AU's students have been recognized twice by the Princeton Review as the most politically active in the nation. This penchant for supporting change and embracing new trends is also demonstrated by AU's strength in the international education market.

Catalysts for change. Those and other dynamic characteristics are reflected in AU's 10-year strategic plan, “American University and the Next Decade: Leadership for a Changing World,” which was adopted in November 2008. The plan includes a transformational goal of encouraging innovation and high performance, which the budget and finance pilot initiative directly supports. That linkage has helped make early project successes possible, because it highlights the initiative as an institutional priority. AU President Neil Kerwin has said, “The budget and finance pilot initiative is a terrific example of the creative efforts being made throughout the AU community to advance the university's strategic goals.”

AU's budget and finance environment also offers favorable conditions for productive change. An endorsement from AU's chief financial officer and vice president and treasurer, Donald Myers, provided a strong signal of leadership support. Myers's backing was also an acknowledgment of opportunities for improvement within AU's budget and finance processes, and our willingness to collaborate with our colleagues to identify and act on them.

“Improvement in budget and finance must start in the finance division first; we have to set an example by implementing best practices and testing innovative approaches,” says Myers. “The budget and finance pilot initiative provided the strong starting point we needed to stimulate change and improvement across the institution.” (See sidebar, “A History of Financial Stability,” to read more about American University's long-term work that laid a foundation for strong budget processes.)

Look Below the Surface

When considering the changes we might need to make, some of our challenges were already clear.

  • AU's training opportunities in budget and financial management were limited. New AU staff with budget and finance responsibilities had to rely primarily on their colleagues or self-study to learn the policies, procedures, and systems necessary to carry out their work effectively and with the level of accountability expected of them. High-performing staff who acquired budget and finance responsibilities through a promotion faced similar challenges. The consequence was that AU's budget and finance processes were being carried out by an often-frustrated group of staff with varied skill sets and limited access to the professional development opportunities they needed and wanted in order to grow.
  • Budget and financial managers often pointed to AU's financial reporting tools as a related source of frustration, despite significant institutional investments in technology. In many cases, a resource was available to meet a reporting need, but the staff member did not know it existed or understand how to use it. Communication, documentation, and digital literacy training were the missing links.
  • Lack of coordination and inefficiency were evident in other aspects of AU's budget and finance processes.

These were the problems in sight from our point of view. We would need input from other departments and divisions to bring other issues to light.

An Unexpected Opportunity

A History of Financial Stability

Features of AU's budget and financial planning activities have offered protection from unfavorable economic conditions through discipline and a focus on the future.

Earlier efforts promote stability. AU adopted a two-year budget process in 2002 to address multiyear financial implications and achieve operating efficiency. In 2006, the university activated a budget committee charged with making recommendations to the president on budget formulation criteria. The goal was to foster collaboration among various campus constituencies, facilitate communication, and enhance budget transparency.

During the budget process, resource allocations are directly linked to AU's strategic plan goals. The president communicates those linkages, along with several other snapshots of each two-year budget plan, to the entire university community in a special report that provides a transparent conclusion to AU's budget planning process. Semester and year-end
budget performance reviews with academic and administrative units across campus and voluntary Sarbanes-Oxley reviews support sound budget and financial management at AU.

Financial safety net. Over the past decade, AU's budget has also included several other financial safeguards, or budget line items, that could be pulled back to absorb enrollment shortfalls or respond to unforeseen funding needs.

“The past few years have made it very clear that economic and other factors in our environment can change drastically and quickly,” explains AU's chief financial officer, Donald Myers. “While we are committed to enhancing AU's academic mission through strategic investments, we also have to be prepared to respond. Our budget and financial planning practices reflect an awareness of that.”

AU's financial safeguards total approximately 6 to 7 percent of the operating budget, and include flexible budget lines for the following: enrollment contingency, deferred maintenance, furnishings and equipment, facilities modernization, transfer to quasi-endowment, and prefunding of salary increases. These measures contributed to Standard & Poor's affirmation of AU's “A+” credit rating and Moody's change from an “A2 stable outlook” to an “A2 positive outlook” in 2011.

At about the time we were planning the details of our approach, NACUBO selected American University to take part in its Lumina Foundation–funded Challenge 2010 Project, directed at building a culture of assessment and accountability.

Challenge 2010 support included an assessment framework, expert advice, and the sense of urgency we needed to move forward. The NACUBO self-study framework combines the Baldrige National Quality Program with the association's own Excellence in Higher Education (EHE) model to form a somewhat hybrid approach to conducting a self-study on a college campus.

While similar in structure to the Baldrige approach, EHE provides higher education context and vocabulary. NACUBO support included training and a Baldrige criteria consultant to come in and add expertise, in this case to applying the framework to AU's budget and finance processes. (For details on another of the projects, see “Ready for a Close-Up,” in the June 2011 Business Officer.)

“The opportunity to work with NACUBO on a Baldrige-based Excellence in Higher Education assessment was a privilege for AU, and one that has proven highly beneficial for the university,” says Kerwin.

Convincing Communique

The initial goal for the finance department was to seek useful feedback on our plans. But, to engage our stakeholders in a fruitful assessment process, we had to first get their attention. That's where communication was the key.

Recognizing that communication is not always a strong point for results-oriented business professionals, we formulated a detailed plan to ensure that no methods—or audiences—were overlooked in our drive to get from point A to point B. We identified various groups and tried to pinpoint the most effective methods for introducing the budget and finance pilot initiative, including standing or ad hoc meetings, targeted messages, and inclusion in periodic reports and publications.

President Kerwin's introduction of the pilot initiative in his September 2010 “Fall Semester Update” to the AU community and Myers's inclusion of the pilot initiative in a status update to AU's board of trustees not only enhanced its visibility, but also advanced our effort to create a sense of urgency by demonstrating support from top leaders.

An e-mail sent to AU's vice presidents, directors, and deans requesting nominations for staff to attend NACUBO's Baldrige Goes to College workshop generated a robust response. The eight AU staff members who attended the workshop in October 2010 learned about the EHE model, and comprised a cross-divisional working group established to support the pilot initiative. The group held a meeting following the workshop to review the EHE model and discuss its application to AU's budget and finance processes.

The group members' understanding of the EHE model is valuable, because they play several important roles in the pilot initiative: ambassadors who liaise with various AU constituencies on the initiative, members of subgroups created to support initiative implementation, and representatives of the pilot initiative's key stakeholder group—AU budget and financial managers. During a quarterly budget forum, the university budget office hosted a presentation that was used to introduce the pilot initiative.

Once we had the attention of various key audiences, we made a continuous effort to keep it, through ongoing communication on the initiative's progress. In May 2011, we sent to AU's deans, directors, and department heads a memorandum and presentation outlining initiative advancements. We also used annual summer planning retreats to report progress and to receive input and feedback on the initiative. The agenda for the AU finance division's senior staff retreat, held in June 2011, also included time to discuss the initiative.

Pushing Processes Forward

We carried out a series of think-tank sessions that represented the assessment phase of the EHE process. Assessment is at the core of the EHE model. The self-study framework includes a process of identifying strengths and opportunities for improvement that can be molded to fit the environment in which it is being applied. We decided a focus group format would be the best approach to assessing AU's budget and finance processes.

A series of four, two-hour Baldrige think-tank sessions held in December 2010 were successful in broadening the level of stakeholder engagement in the pilot initiative. Each session targeted a different group of AU constituents: (1) budget and financial managers; (2) department heads; (3) president's council (provost, vice presidents, and deans); and (4) provost's operations council (deans' direct reports). Our e-mail invitation emphasized the casual nature of the sessions and that no advanced preparation was necessary to attend. Seventy-five campus leaders, managers, and student representatives accepted our invitation to participate.

We took advantage of the consulting resources provided as part of NACUBO's Challenge 2010 support by having Brent Ruben, executive director of Rutgers' Center for Organizational Development and Leadership, New Brunswick, New Jersey, facilitate the sessions. An expert on the EHE model, Ruben was an effective catalyst who provided a degree of objectivity, while also calling on us when appropriate to contribute to the discussion and communicate with impact. Ruben's expertise was essential to fostering a productive discussion through which project participants acquired valuable feedback.

To support Ruben's efforts to moderate the conversation while keeping the EHE framework central to the discussion, university budget office staff developed a list of probing questions based on the “Topics to Be Considered” content for each EHE category from NACUBO's Excellence in Higher Education Workbook and Scoring Guide.

This approach resulted in the generation of recommended projects that collectively spanned all six EHE categories within AU's budget and finance processes and beyond. And, while we expected the assessment to reveal the challenges we'd already noted earlier, planning groups also identified additional ones—along with 26 creative solutions to address them.

Making the Most of Resources

  • Seek out external support based on the magnitude of institutional change planned.
  • Elevate the project as an institutional strategic initiative.
  • Mobilize key partners.
  • Designate internal champions.
  • Empower and motivate working groups.

The assessment process did not end when the think-tank sessions concluded. University budget office staff recorded the points presented during the sessions and condensed them into a summary analysis of opportunities for improvement and the related 26 projects. We incorporated the EHE framework into the document by listing the EHE categories and grouping the projects accordingly. The key themes, which were also noted in the summary analysis, include:  communication, training and education, institutional culture, collaboration, technology, accountability, and operating efficiency.

Because simultaneously implementing all 26 projects was not feasible, we sought additional feedback to prioritize them. We sent the summary analysis by e-mail to stakeholders throughout AU and asked them to rate the priority of each project as: 0 = not a priority; 1 = low priority; 2 = medium priority; and 3 = high priority. The response rate was nearly 70 percent, and we tabulated and summarized the ratings in Figure 1.

As illustrated in the grid, an analysis of each project's effort versus impact and the priority rating that respondents assigned to it resulted in the various tier designations. Each project is represented by a shape on the grid, with its placement based on its estimated effort, impact, and the time frame in which it will be implemented. Different shapes and sizes indicate the rating the project received in the prioritization process (larger shapes indicate higher ratings).

An Incremental Approach

Rather than attempting to tackle all 26 projects, we developed a project implementation plan composed of the 11 priority tier-one projects, in response to the stakeholder feedback we received. Our implementation time frame for tier-one projects is as follows: short-term projects for December 2011; mid-term projects by December 2012; and long-term projects by December 2013. Figure 2 highlights eight tier-one projects that are in progress, along with some of the deliverables we expect to implement during academic year 2011-12.

Only the Beginning

We recognized that carrying out the tier-one project implementation plan successfully would require partnerships and collaboration, because (1) engagement is an essential ingredient of change initiatives, (2) AU does not have a separate office or department dedicated to quality or process improvement projects, and (3) we were committed to managing this initiative within the operating budget and resources. To solve the resource issue, we empowered and motivated working groups, and designated internal champions to lead them. The cross-divisional organizational structure depicted in Figure 3 resulted in large part from inviting individuals to take an ownership role in the pilot initiative.

“I enthusiastically accepted the invitation to be a partner in this initiative, because it provides valuable opportunities to promote collaboration between AU's finance and academic divisions,” says Violeta Ettle, vice provost for academic administration and steering group member. “The bridges that have been established through this initiative are valuable avenues to change and improvement that can be applied in any AU process or function.”

The structure is composed of (1) a steering group created to spearhead project implementation, (2) four subgroups to which various tier-one projects are assigned, (3) the working group described earlier, and (4) the office of human resources as a key partner. Rather than a top-down hierarchical construction, we designed the organizational structure to emphasize crossfunctional collaboration in an effort to reflect the grassroots nature of the pilot initiative. We created a team Web site to facilitate communication, exchange ideas, and report progress amongst and between the steering group, working group, and subgroups.

Figure 4, “Project Implementation via Subgroups,” explains the way the collaborative model works for a specific project or charge. In this example, the subgroups are collaborating to develop a comprehensive budget and financial management training program, which includes working together to implement tier-one project No. 25, “Provide documentation and digital literacy training.” Both subgroups have important roles to play in achieving that objective: the budget and financial management skills training subgroup is crafting the content focused on budget and financial management knowledge and skills, while the technology and digital literacy subgroup is developing the content focused on the various technological reporting and data management tools trainees will use in applying their knowledge and skills. A comprehensive training program would not be complete without both content areas, so the two subgroups must collaborate to ensure that the two pieces of the training puzzle fit together.

Steady As We Go

Even though the project implementation phase is still in its early stages, we already see numerous benefits. Evaluating AU's budget and finance processes through think-tank sessions and the project priority rating survey that followed have reinforced a workplace culture that encourages and values accountability and assessment. The feedback and projects generated by the think-tank sessions were not limited to AU's budget and finance processes.

The assessment process prompted a broader discussion, during which we identified additional opportunities for improvement, including implementation of AU's strategic plan, fostering a culture of innovation by saying “yes” and taking risks, increasing coordination between central offices and departments, and clearly outlining roles and responsibilities.

Other institutions, whether operating in crisis mode or not, may be able to realize the same benefits by using what we consider the keys to AU's budget and finance pilot initiative's success, including the following:

  • The EHE model provides a comprehensive, methodical approach that can facilitate a meticulous assessment process guided by the EHE categories.
  • Visionary, initiative-level leadership support is necessary to energize a change initiative.
  • Managing “up and down” can be challenging, but also highly beneficial.
  • Change is not possible without communication and stakeholder engagement.
  • To create a sense of urgency from within, start small with a pilot project and employ methodical planning.

As we make progress toward completing the tier-one project implementation plan, we will begin formulating plans to implement tier-two and tier-three projects. In addition to evaluating the outcomes of completed projects and planning new ones, we will repeat the assessment process to ensure that AU's pilot initiative remains responsive to the university's changing needs in the area of budget and financial management. For further application of the EHE model, we will also identify areas for improvement beyond AU's budget and finance processes.

We are mindful of the challenges we face. Over the next 5 to 10 years, AU will embark on a major journey to strengthen and grow academic programs, support top-notch faculty and students, and double the number of facilities. Careful budget planning, a sound and prudent budget management approach, and discipline in making resource allocations tied to strategic goals will help get us there. And what we've learned through our pilot initiative has shown us that continuous improvement in budget and finance processes will further help make that vision a reality.

“Our plans for AU's future are ambitious and hold tremendous opportunity for progress,” says CFO Donald Myers. “Improvements to our budget and finance processes resulting from this initiative will strengthen the foundation necessary to make that vision a reality.”

NANA AN is assistant vice president of university budget and finance resource center, office of finance, and treasurer, and
ERICA SMITH is senior budget officer, university budget office, American University, Washington, D.C.