A strong strategic plan and community vision guide funding decisions.
By Ken Kline
In January 2008, we learned that Northern Kentucky University (NKU), Highland Heights, might need to absorb a cut in state appropriations of up to 15 percent to balance the upcoming state budget. As part of these financial challenges, it was also likely that the state would no longer be able to provide any funds for maintenance and operations for our two new state-funded buildings that were opening. This news came as quite a surprise, as we had recently completed our submission for the state’s budget-development process and the Kentucky Council on Postsecondary Education had recommended a 12 percent increase for NKU. While we knew the entire request might not be funded in the governor’s budget recommendation, nobody anticipated that a cut would be coming.
In addition to the state budget situation, we were struggling to fund the implementation of a new enterprise resource planning (ERP) system with escalating cost projections, as well as a new emergency communication system, increases in the state retirement system contribution rate, and other fixed costs. Facing the prospect of cutting nearly $16 million out of a $165 million budget, the president and executive team decided to take immediate action and plan for the worst instead of taking a wait-and-see approach. If this worst-case scenario did not arise, we knew the information gathered during the exercise could inform decisions on how deep we wanted to cut to fund other high priorities for the institution.
Fortunately, the university already had a strong strategic plan in place to guide the decisions that needed to be made. Recently, the university had completed a comprehensive business plan. Guided by the university’s strategic plan, the business plan detailed what it would take in terms of strategy and resources to achieve the goals of Vision 2015, the region’s economic development plan, and the Kentucky statewide 2020 public agenda. While this business plan was developed with the assumption that new resources would be forthcoming to fund many of the necessary investments, the information proved valuable for helping determine where budget cuts should be made and where investments were needed. Additionally, since the business plan had called for the reallocation of funds toward a portion of the investments, we were already thinking about this approach.
Charting the Course
To begin planning for a worst-case scenario, all divisional vice presidents were asked to develop individual plans based on an 8 percent reduction in funds for their areas. For each cut, we asked them to identify the impact to student learning and student success, internal and external service levels, the workload of existing employees, the overall campus environment, and activities in other divisions. We also needed them to identify what impact the reduction would have on the strategic priorities of the institution as outlined in the strategic plan and the university business plan.
We embarked on several initiatives, the most important being a thorough budget review of each expenditure unit in the entire budget.
In addition, the vice presidents were asked to develop separate investment plans for their areas, assuming cuts identified in the worst-case scenario had already been implemented. These plans assumed that up to 5 percent of the cut might be reinvested in their area. Each plan could include new investments in priorities for the institution or restoration of proposed cuts. As part of each plan, links had to be identified to the university strategic plan and the university’s business plan regardless of whether the vice president was proposing restoration of a proposed cut or reinvesting the funds in a different way. The proposals were prioritized based on the strategic priorities of the institution rather than focusing on just those areas that had been proposed as cuts.
To aid in the planning process, we embarked on several initiatives, the most important being a thorough budget review of each expenditure unit in the entire budget. Each divisional vice president and primary budget manager sat down with Sue Hodges Moore, vice president for planning, policy, and budget; Angela Shaffer, associate budget director; and me to review budget reports on a unit-by-unit basis using the following criteria:
- Answer the question, “Is this expenditure more important than other things we should be funding?”
- Look at historical carryforwards to determine which individual units were spending their funding allocations and which units might have excess funds.
- Discuss budget details including staffing levels, the amount of operating funds allocated, and how funds were being used.
- Discuss the necessity of the work and other potential ways it could be accomplished (i.e., outsourcing, sharing services, combining with other offices, and so on).
Through this review process, we uncovered areas for reductions in next year’s budget as well as potential areas that required more detailed analysis. Some of what we uncovered included:
- Units that were performing adequate work output, but that work output was no longer meeting a priority objective for the institution.
- Allocations for activities that were no longer being performed. Several of these allocations were smaller budgeted amounts that had either been sitting unused or were now being used for other purposes.
- Units that had underspent their budgets on a regular basis and had more operating funds than needed.
- Expenditures that were considered necessities when funds were available, but were no longer needed due to current resource constraints; examples included the amount of printing being done on campus and refreshments.
After the budget reviews were complete and each vice president had created a reduction and reinvestment plan, we held discussions with the president and the division vice presidents about their plans. This information allowed the president and executive team to make strategic decisions in terms of how deep to go with internal budget cuts and which investments to make once state budget cuts and tuition increases became known. The information also helped us manage the 2009–10 budget process, as we spent the summer of 2009 conducting deeper analysis into many of the topics that had been discussed during 2008–09.
Clear Vision Pays Off
Over the two-year period, we reallocated a total of $7.3 million in expenditures and we raised tuition 9.86 percent in academic year 2009 and 4 percent in academic year 2010. These funds would help cover $7.4 million in state budget cuts, as well as maintenance and operating expenses for a new student union and a new 10,000-seat arena. We created a college of health professions; funded a 3 percent salary increase pool; added faculty in high-demand areas including business, nursing, and education; and invested in other high-priority areas across the institution.
Reductions included eliminating 6 offices and institutes and 48 administrative positions (5 percent overall), restructuring and merging offices and functions, and lowering general operating funds.
The process we have used over the past two years has served us well and accomplished budgetary realignment in a manner consistent with our strategic priorities. This approach has allowed us to position ourselves effectively in the near term without undertaking an even-more-significant, in-depth, campuswide process. However, to meet the longer-term financial challenges, we are embarking on a much deeper strategic and financial realignment process that will analyze units and functions at a more comprehensive level while more narrowly defining our strategic plan.
KEN KLINE is budget director, Northern Kentucky University, Highland Heights.
Return to "Back to Basics"