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Business Officer Magazine
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A Build-Anew Budget

An enrollment downturn caused Columbia College Chicago to analyze core needs and true costs of academics and administration. Scrapping its incremental model, the institution turned to zero-based budgeting to build a cost structure directly related to the classroom.

By Jessica Davenport Williams and Sayma Riaz

Do any of the following situations sound familiar?

  • Declining enrollment and related tuition revenues.
  • A high percentage of institutional expenses related to personnel costs.
  • Insufficient funds to support strategic initiatives, new programs, or upgraded equipment.
  • Department chairs, who skirt the process, and take their budget requests directly to the provost or CFO.
  • Wide variations, from one department to the next, in discretionary expenses, student-to-faculty ratios, and direct instructional expenditures per student credit hour.

Seven years ago, Columbia College Chicago was experiencing "all of the above"—and more. Academic departments, for example, continued to replace positions, despite declining enrollment, and limited their collaboration and resource sharing; across the college, redundant services and courses were often offered. Addressing these issues called for a different approach to budgeting, one that would enable us to identify the institution's core needs and evaluate the true cost of instruction.

In our case, the introduction of zero-based budgeting helped people realize which expenditures actually contributed to instruction and also gave them a bigger say in how revenues should be spent.

Tuition revenue has traditionally driven 90 percent of the budget at Columbia, which is one of the nation's largest private, nonprofit arts and media colleges. That high dependency on tuition was supported by growth in the number of students (undergraduate and graduate), which reached 12,464 in 2008.

Between 2010 and 2013, however, total enrollment fell to 10,100—a drop of nearly 19 percent. The college wasn't completely prepared for the reductions we needed to make. Because we used an incremental budget model, the cuts were initially a set percentage across the board, regardless of a program's or department's needs.

Fortunately, by the second year of decreased enrollment, we already had underway a comprehensive review of our curriculum, student advising model, and budget practices. That put us in a better position to adjust both curriculum and the budget to reflect enrollment realities and create a more sustainable financial model for the future. But getting to that point took time and more than a few cultural changes.

The Way It Was

Because academic decisions drove the vast majority of revenue, as well as most expenses, it was imperative to review academic policy at the same time we reconfigured the budget model.

Using the School of Fine and Performing Arts as a pilot, we began our strategic resource assessment in 2010 by looking at the existing organizational structure and financial practices of the academic and administrative units. At the time, nothing was centralized—a procedural relic of an earlier time, when Columbia was much smaller and had only one school rather than three.

Historically, the department chairs simply made incremental additions to their budgets from the previous year, without accounting for any changes in programs, number of students, or staffing levels. Then, acting much like deans, they'd take their budget request directly to the provost or the chief financial officer and engage in a bit of bargaining. Whoever made the best case would receive more money.

Also, the department chairs were accustomed to getting approval any time they liked for new courses and programs to be offered the next academic year—without thoroughly considering the financial impact. This often occurred after the budget for the next year had been finalized, leaving the financial administrators to fix the problem.

We undertook a thorough financial analysis to understand both the sources of revenue and the type of expenses for each unit. It revealed that more than 88 percent of the school's annual budget was allocated to personnel costs—salaries, wages, and benefits. And many of those costs stemmed from curriculum-related decisions, such as hiring part-time faculty and student employees.

Using five years of data, we also compiled performance statistics and spending trends for each unit. These included revenue, expenses, percent of budget expended, full- and part-time faculty and staff counts, average class size, enrollment, student credit hours, the ratio of credit hours to faculty, expenditures per credit hour, and expenditures per head count.

It quickly became apparent that the incremental budget model was not serving the institution well. For example, no one could provide a rationale as to why one department spent five times more per year than another. Nor could the college fund programs with high growth potential while it continued to support the status quo.

We decided to start from scratch, scrapping the rollover-budgeting model built on historical assumptions in favor of a zero-based approach that looked at true costs. In addition, we centralized all financial functions in the administrative office, to streamline operations and enable us to identify wasteful practices.

Because academic decisions drove the vast majority of revenue, as well as most expenses, it was imperative to review academic policy at the same time we reconfigured the budget model. Fortunately, this approach had the full endorsement of the school's then-dean Eliza Nichols and then-associate dean William Frederking. (Both are still at Columbia College Chicago, Nichols as a professor of humanities, history, and social sciences, and Frederking as an associate professor of photography.) They understood that creating efficiencies and containing costs could happen only if we aligned budget and curriculum.

Working Both Sides

Flashback ... 11 Years Ago

In the August 2004 Business Officer article "Budgets by Design," about aligning budgetary decision making with institutional strategy ...
"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."

—LEN SIPPEL, executive vice president for finance and administration and treasurer for Pace University, New York City, and managing associate at Right Sourcing Associates, a consulting firm serving higher education; and JOSEPH MORREALE, Pace University provost.

Frederking and Nichols did their part by forming an academic committee within each department to audit existing courses and program requirements and compare them to best practices nationally.

    • Identifying mismatches. In some cases, the department committees found the number of degree credit hours required for a particular major fell outside the national range. In other cases, the audit revealed an uncharacteristically high number of elective courses being offered, or identified redundant courses within Columbia itself. With the deans' assistance, the departments talked through the options—such as, was it really necessary to offer similar courses in both the design andphotography departments?
    • Looking for consistency. Each committee also examined class sizes, deciding whether to increase enrollment caps or consolidate underenrolled sections, and agreed upon indicators for monitoring course quality. They also performed an audit of academic policies, such as class cancellation parameters, use of guest lecturers, and what constituted a teaching course load for full-time faculty.
    • Clarifying costs. Simultaneously, on the administrative side, we created departmental budget committees inclusive of both faculty and staff. Then we worked closely with them, asking about their budget development process, organizational structure, cost-effectiveness techniques, and shared resources—questions that many people could not easily answer (see sidebar,"Uncovering the True Costs"). One academic department, for example, insisted that it needed $100,000 to support a particular program; we monitored the program's expenses for a year by creating programmatic budgeting and found that the department spent only $50,000. Until the introduction of programmatic budgeting, it was nearly impossible to track each program's expenses.
    • Reviewing and sharing statistics. The simultaneous review of curriculum and expenses helped the dean's office determine whether the current level of allocation was appropriate to support each department's offerings. Using program codes and enrollment data, we calculated the cost of supporting a student in each program of study. Then, as enrollment shifted, the dean could decide whether to increase or decrease funding in support of student interest.

To create transparency among administrators, chairs, and deans, we widely shared the statistics we compiled, such as year-to-year change in enrollment, credit hours, and class size; and personnel costs as a percentage of instructional expenses. The expenses-per-credit-hour calculation proved the most surprising to nearly everyone.

These statistics helped raise awareness within a department of its performance and the financial implications of program decisions. We could say, for example, "Your enrollment and credit hours are down, yet your staffing hasn't changed and your expenses have gone up. Is that the most beneficial way to support students?"

In communicating this information, we often relied on Frederking to be our "translator." As a faculty member himself, he had insight into how his colleagues thought and operated; he helped us phrase questions, instructions, and suggestions in ways that faculty would readily understand and respond to.

  • Building trust. That's not to say we didn't encounter some resistance. A few chairs felt the dean was prying into their department operations and we were micromanaging their budgets. To overcome such attitudes, we had to build trust by working weekly with the faculty, staff, department chairs, and administrators, over the course of several months. Although we provided information, training, and budget templates, we always emphasized that the department itself needed to create the actual budget. 

Data for All

The Holistic View

When working with faculty and staff at Columbia College Chicago, we've found it helpful to show the wider impact of curricular decisions. The cost to instruct is not confined to an academic department, but also affects all services that support the students across the institution. The areas often overlooked include:

  • Enrollment management. If a department launches a new program, the institution will need to invest in marketing it and recruiting students. The program may struggle if enrollment management is focused on other priority areas or experiences budget reductions.
  • Library services. Adjustments in curriculum may require the library to purchase additional resources to support students in the affected programs.
  • Student services. As various majors experience growth in demand, support and events for students should increase accordingly.
  • Information technology. New and existing programs require central IT support, which may result in the purchasing of new software or technology.

Transparency did help build trust. In the past, budgets had been combined into one lump-sum budget per department. Instead, we provided breakouts so everyone in a department could track revenues and expenses for specific majors, such as graphic design, fashion design, and musical theater.

Sharing financial information garnered departmental buy-in and contributed to a sense of ownership: Administrators and faculty quickly realized the number of existing programs and services exceeded the funds available. For example, one department discovered it spent more than $45,000 annually just to hire substitute teachers. Such data, analyzed on a holistic level, helped chairs identify priorities, as well as programs needing reinvestment to remain sustainable.

For the first time, the chairs also saw program budgets, staffing, and spending levels for other departments. In their initial meetings with the dean, some chairs used the information to air complaints: Why is that department spending so much on marketing? How come this department gets so many visiting artists? Although tense at times, the conversations were also healthy because they revealed prevailing misperceptions of how other departments operated. Because they'd never seen the data before, the chairs didn't understand the challenges experienced by other departments.

As business officers, our job was to explain the numbers and emphasize that no department was hoarding money or being favored over another. We immersed ourselves in an area, attending staff, curricular, and operations meetings; and visiting labs and classrooms to gain a better understanding of a department's needs. And we challenged them: What do we need to keep? What can we discard that isn't valuable to the student experience? But we always stayed on the financial side and left the curricular work to the dean; we never said what a department should or shouldn't do with a program.

Hold, Grow, or Go?

During the first year of the zero-based budget exercise, the dean put a freeze on approving new programs and revising existing programs in order to keep the focus on evaluating what already existed. The conversations weren't about only saving money, but also how the current curriculum could be used more strategically to satisfy students' needs and expectations. In consultation with the dean, for example, the departments identified which programs and services to place on moratorium, phase out, or expand. All details were forwarded to the provost. Then, once the curricular decisions and course scheduling for the next academic year had been finalized, the zero-based budget began to take shape.

The academic and administrative units were instructed to develop their annual budgets, with our leadership, and include a rationale linked to curriculum. For the first year, however, all review and approval of financial expenses had to be vetted through our administrative office as a control measure. For example, we reviewed and approved faculty and staff stipends, purchasing orders, procurement card purchases, substitution pay, and requests for new and replacement staff positions.

Among the budget requests we received, a number related to updating classrooms. That prompted us to create a technology committee to assess classrooms and space allocations on campus. Again, we shared the results with department chairs, most of whom had never considered using other physical areas of the college. Working together, the chairs figured out which classes could be enlarged, if relocated to different classrooms, and ways they could minimize the purchase of equipment or instruments by collaborating with one another.

Getting in Line

Faculty have no expectation of receiving the same budget every year. As a result, they pay more attention to completing budget requests, which now arrive in our office with detailed information and rationales to justify approval.

Columbia College, for the most part, did not hold faculty accountable for the financial decisions and results that flow from the curriculum they develop and govern. This lack of accountability is a common struggle in higher education, but varies depending on an institution's history and culture. Within the School of Fine and Performing Arts, we gave faculty a hand in what happens financially by aligning the curriculum with the budget. This has led to a culture shift for the school's nine academic departments and three administrative cost centers.

In the past, the school had a culture of entitlement: When faculty said they needed something, administrators usually took their word for it and granted the request. Now, faculty have no expectation of receiving the same budget every year. As a result, they pay more attention to completing budget requests, which now arrive in our office with detailed information and rationales to justify approval. We rank the budget requests, funding only the elements that most closely align with priority areas.  

Undertaking the strategic resource assessment process also enabled the school to:

  • Standardize the financial workflow. Travel requests, reimbursements, stipends, and purchases varied by department. We reinforced the need for everyone to complete the financial documents in the same way, such as providing the information required by our accounting and payroll offices before submitting anything for approval. In addition, all departments now follow the same budget cycle.     
  • Introduce consistency in academic policies. Our financial analysis showed a wide variation in how departments handled class cancellations, hired adjuncts and substitutes, and compensated graduate instructors-policy decisions that could greatly affect costs. Some departments, for example, allowed faculty to hire their own substitutes at a high hourly rate; others maintained a list of qualified instructors from which faculty could make a selection. To clear up the confusion, our associate dean led an initiative to reevaluate, amend, and standardize academic policies across departments.  
  • Reallocate dollars. The curriculum review, with input from the admissions office, pointed to the need to better serve students interested in fashion studies. In 2010, the school opened its fashion studies department, the only one in our geographic region. Funding for the department's faculty and administrative positions came from reallocating dollars from the existing budget to support the new academic priority. Our fashion studies program currently has about 750 students.
  • Increase sharing of resources. By getting to know in depth each unit, we were well-positioned to make connections—such as encouraging one department to use another's print center instead of outsourcing; the consolidation of several minilabs into a larger space that could serve multiple programs; and the sharing of guest lecturers to serve more than one discipline. For the most part, faculty didn't know the other internal options existed (although we encountered at least one department that jealously guarded its lab space). We also consolidated vendors and reviewed contracts to create purchasing efficiencies.  

As the sharing of resources and transparency of financial information became the norm, the "silo mentality" disappeared. Faculty no longer feel protective of their resources, because they understand that no one is hiding anything. In fact, faculty have become so accustomed to constantly revisiting program offerings and reevaluating cost-effectiveness that they are eager to share with their colleagues their strategies and lessons learned.

Zero-based budgeting sometimes comes under fire for being time-consuming and tedious. To the contrary, we found it an effective tool for building a budget that truly relates to what happens in the classroom. We have proposed extending the same assessment to the college's other schools; the decision rests with the president, provost, and chief financial officer, all of whom arrived at the college within the past two years.

Whatever the budget model used, faculty, staff, and administrators need to have a broad understanding of how the institution operates and the impact a particular program has on overall finances. The only way to do that is to know your costs.  

JESSICA DAVENPORT WILLIAMS is a fiscal administrator within the central office of budget, planning, and analysis; and SAYMA RIAZ is assistant dean for budget and planning, in the School of Fine and Performing Arts, Columbia College Chicago. Eliza Nichols and William Frederking, both professors at Columbia College Chicago, also contributed to this article.

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Uncovering the True Costs

Recognizing that its existing financial model was not sustainable, the School of Fine and Performing Arts at Columbia College Chicago conducted a strategic resource assessment. Our goal: Implement a zero-based budget and curriculum financial model to promote innovation and creativity, while ensuring that students receive the greatest value for their educational experience and enabling the institution to competitively recruit faculty, staff, and students.

We wanted to identify wasteful and obsolete operations and reallocate funds to areas that would best support students' learning experience. The two-pronged approach looked at both finances and curriculum. In an effort to determine the true cost of instruction, we met with each academic and administrative unit to gather the following information:

Budget

  • What is the annual operating budget, itemized by personnel and nonpersonnel expenses?
  • What budget planning and management cycle is used?
  • Who is involved in the budget process?
  • Who should be included in the budget development process?
  • How many student credit hours are generated per FTE faculty?
  • What cost per student credit hour does the program generate?
  • How do we prioritize resources (financial, human, and space) for courses that support majors?
  • How do we plan for new/revised courses and programs?
  • How do we plan for new initiatives?

Cost effectiveness

  • What benchmarks are used to measure cost effectiveness?
  • How does each program/unit compare with those benchmarks?
  • Within the past three years, how has the program/unit attempted to cut costs and operate more efficiently?
  • What resources does the program/unit possess that could be shared with other units?
  • What resources support major and nonmajor courses?
  • How many employees does the program/unit have, and how are they organized?

Curriculum

  • Simultaneously, the dean's office performed an analysis of the curriculum driving budget development. This included:
  • Reviewing credit hour requirements by program, to identify redundancies.
  • Examining average class sizes to determine where enrollment caps should be increased or maintained.
  • Performing an audit of academic policies.
  • Determining indicators to monitor course and program quality.
  • Developing programmatic budgeting by program or facility spending area for each academic and administrative unit.
  • Adjusting program credit hour requirements to align with national standards (where needed).
  • Standardizing policies, guidelines, and procedures (where needed).
  • Prioritizing resources (financial, human, and space) for courses that support majors.
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