Planning and Budgeting: A Dovetailing Duo

Print Version

August 2004

Like salt and pepper, planning and budgeting go together. A NACUBO workshop explored the companion processes.

By Anna Marie Cirino and Sue Menditto

While planning and budgeting are topics that each merit individual discussion, integrating these two elements provides a broader, more complete picture of an institution’s financial framework. NACUBO’s inaugural Integrated Planning and Budgeting program, which attracted 120 participants, focused on these companion processes at various colleges and universities.

In his presentation on the theory and practice of planning Nathan Dickmeyer, principal of Dickmeyer Consulting, Upper Grandview, New York, challenged participants to think about the advantages and disadvantages of different planning styles. “When a dynamic environment necessitates institutional change, strategic planning focuses the direction of change,” said Dickmeyer, author of The Strategic Attitude: Integrating Strategic Planning Into Daily University Worklife, recently published by NACUBO. He presented methods for improving planning participation within the entire university community so that plans can be more broadly linked to budgets.

Larry Goldstein discussed how effective planning identifies what is important, budgets quantitatively represent those issues, and resource allocation decisions support what is important. Goldstein, president of Campus Strategies, Crimora, Virginia, focused on processes related to three budgeting areas: operating, capital, and special initiatives. Using campus experiences as illustrations, he suggested that business officers “strive for accountability versus control.”

Measuring Performance

Planning and budgeting can be shaped by results presented within a performance management framework, emphasized Frank Kurre and Mark Oster, partners at Grant Thornton. Performance measurements can assess whether plans were followed, if the desired outcomes were achieved, whether budgets were reasonable, and where revised plans and bud-gets should focus.

After covering overall characteristics, types of measures, and measurement of organizational objectives, Kurre and Oster provided a framework for performance management. Using detailed examples, they described how business officers can implement and use metrics to examine year-to-year performance, effect midterm course corrections, tie departments in an institution together, link to capital and operating budgets, and assist with resource decisions.

The speakers pointed out several characteristics of metrics:

Appropriate: They focus on activities that align with the institution’s strategy.

Meaningful: They measure outcomes, not outputs or routine functions.

Quantifiable: They are easy to aggregate, compute, and compare.

Effective: They allow conclusions to be drawn from the data.

Comprehensive: They portray significant attributes that assess organizational performance and progress toward mission.

Reliable: They have a small margin of statistical error.

Behavioral: They establish accountability and incentive for change.

Achieving Budgeting Excellence

Business officers who hope to design a process, system, and structure for strategic allocation of resources found inspiration in the case study presented by Nancy Zielke, assistant vice chancellor, fiscal operations, University of Missouri-Kansas City. UMKC, which created new standards for higher education financial management and shifted the organizational culture to transform the process, won the Government Finance Officers Association’s 2003 Award for Excellence in Financial Management.

According to Zielke, three key elements of UMKC’s former process—communication, open decision making, and centralized budgeting—required change. Applying budget practices promulgated by the National Advisory Council on State and Local Budgeting, leaders designed and communicated a process with a multiyear focus that identified opportunities for stakeholder input, aligned resources to campus priorities, and assigned accountability. To accomplish this, Zielke and others started off by taking four steps:

• creating an open, transparent approach to budgeting;
• owning the budget possibilities and challenges;
• developing an action plan that reflected campus priorities and strategic goals and in which they truly believed; and
• initiating discussions about programs and projects that were once considered sacred.

Today, UMKC has a responsibility-centered and incentives-based budget process. Within this new framework, leaders adopted policies that prohibit across-the-board reductions, address future needs, and cover critical financial issues. For example, Zielke described a new proposed resource allocation policy that calls for upfront set-asides of a percent of net tuition fee income. The allocation would include instructional priorities, special incentives for academic excellence, contingency reserves, and enrollment management initiatives. Instructional priorities include core library support, capital equipment, and facilities maintenance and repair, as well as a capital improvement fund. Another policy sets criteria for allocating the unrestricted operating funds appropriated by the state.

Zielke indicated that UMKC’s financial management process has expanded communication, improved accountability, increased empowerment relative to change, and focused planning. It has also created five challenges:

• competition between and within units;
• accountability measures that address different issues;
• change within the university’s culture;
• conversations regarding expansion versus downsizing; and
• efforts to attract group ownership for difficult budget decisions.

Denis S. Ransmeier, vice president for finance and investments at Seattle University, Washington, presented another budgeting case study. He explained how he collaborated with the university’s planning vice president in a yearlong effort that culminated in the institution’s first-ever comprehensive business plan. (For in-depth coverage of Seattle’s experience, see “Big-Picture Planning” in the March 2004 issue of Business Officer.)

Link Capital Planning to Budgeting

The University of Virginia, Charlottesville, handled capital planning and budgeting on a project-by-project basis until expanding facilities requirements and increasingly complex funding sources demanded a transformation, explained Yoke San Reynolds, UVA’s vice president for finance.

Similar to other research universities with major capital improvement programs and increasing reliance on debt, the university wanted to consolidate information on individual projects as they evolved—from early approvals through construction. At the same time, the university needed a systematic approach to link construction and financing programs. The existing process limited the office of finance’s ability to plan on an institutionwide basis.

UVA leaders identified resource constraints and then created an action plan to address each one. Constraints included land availability, funding capability, project management capacity, operating costs of new facilities, and administrative overload.

The university’s new planning and budgeting process established clear roles and responsibilities; process timelines, tasks, and accountability; lines of communication; a project business plan; and a revised debt program. The transformation sought to address two fundamental issues:

1. The allocation of resources—that is, the tradeoffs involved in “doing the right thing” to advance strategic priorities and policies.
   
   
2. The management of allocated resources—“doing things right” with regard to better planning information, budget monitoring, information and decision sharing, and using better tools for sensitivity analysis and scenario building.

Reynolds reported that UVA has not completed its revamping of the process. “The first stage saw the implementation of the integrated capital financing approach,” she noted. “In the current stage, we are focusing on needs assessment in facilities planning. We want to make sure our academic objectives drive our capital construction program.”

Paying for Technology

For those interested in financing future technology, Edward R. MacKay, vice chancellor and treasurer, explained how the University System of New Hampshire integrated the planning and budgeting process for technology initiatives. Prior to 1992, USNH invested in technology on an ad hoc basis, which caused a variety of problems. The budget lacked academic input, definite funding, and an overall relationship to institutional goals, plans, and priorities.

After Coopers & Lybrand conducted a study in 1992, USNH implemented several recommendations, the first being the establishment of a formal governance structure. USNH created an IT council that reports directly to the system chancellor and is composed of senior academic and administrative managers.

The council, which in 1993 drafted the first in a series of five-year strategic plans adopted by the board of trustees, follows a process that provides accountability and flexibility with emerging issues and technology changes, secure and continuing funding, and a link to the system’s vision. The process is both “bottom up” and “top down.” As a result, IT has become a continuing and highly visible board priority.

Describing how this works at the campus level, Jay V. Kahn, vice president for finance and planning at Keene State College, one of USNH’s three residential campuses, explained how enterprise resource planning for IT evolved from a sustainable platform to a strategic advantage. He described how accountability is achieved through strategic scanning for an operations and funding assessment and shared illustrations of using metrics to assess outcomes related to performance and reliability. Kahn’s advice: To obtain approval for technology initiatives, link them to campus priorities and resource allocation, as well as the decision-making and governance processes.

Author Bios Anna Marie Cirino is associate director, financial management policy, and Sue Menditto is director, accounting policy, at NACUBO.
E-mail anna.cirino@nacubo.org; sue.menditto@nacubo.org