The problems that colleges and universities face when it comes to budgeting are significant. Given all the economic challenges higher education faces today and the need to do more with less, budgeting is clearly mission critical. That makes addressing the problems associated with budgeting a top priority.
One of my old bosses used to say that a problem well defined was already half solved. That’s certainly been my experience. So in this blog post I’m going to define the problem, and then briefly discuss what’s needed in response. Scan the list and zero in on what’s most important given the circumstances you face.
1. Faculty and staff do not enjoy the budget process and do not know and love Excel the way financial people do. They view this process as being “force-fed” from finance.
What’s Needed in Response?
A Turbo-tax like interface for faculty and staff. Faculty and staff want an interface that walks them through the budget process in a manner that is simple yet powerful.
They want to have the flexibility to budget the way they think about their areas and allows them to budget to the strategic plan of the organization including full disclosure and documentation of how and why they need what they are asking for.
2. The Finance staff in many higher education institutions is “bare bones” or close to it. They barely have the bandwidth to manage all the complex mechanical aspects of the budget process, much less provide analysis and decision support.
What’s Needed in Response?
Preparing budget templates, distributing those to the faculty and staff, collecting these spreadsheet templates, verifying their accuracy, aggregating and consolidating numbers and preparing for budget review sessions should not be a cumbersome and manual process for finance staff. Instead, the budgeting system should alleviate most of those time-consuming mechanics and allow finance staff to focus on value-added decision support and analysis.
3. The budget process in higher education often requires identifying spending for special initiatives or projects that cut across accounts or even departments. This is very difficult in Excel and presents many opportunities for human error; especially when a budget for a project is not approved and someone has to accurately strip all the spending out of all the impacted accounts and reconsolidate the results.
What’s Needed in Response?
A system that can easily create budgets for special initiatives and projects, facilitating an initiative-oriented budget review process.
The system needs to allow for faculty and staff to submit these initiatives and have the system automatically determine the impact on the account structure. Otherwise, if an initiative is not approved, someone in Finance has to go in to each of the associated accounts and try to remember how much of that account was attributed to that initiative. This can cause inaccuracies and lacks an audit trail.
4. Up to 70% of most higher education expenses relate to personnel, but salary and headcount planning are often disconnected from the rest of the budgeting process. This often leads to confusion, rework, and a lack of fiscal awareness and understanding on the part of the department heads who actually manage faculty and staff.
What’s Needed in Response?
Detailed budgeting for position control. Salaries are a special line item in budgeting. The budget system should easily handle half of the requirements with respect to “position control” – the budgeting half.
The system should allow for faculty and staff to plan for headcount down to the individual level and let the system handle additions, reductions, raises, FICA, benefits and other
5. Reporting is always a challenge. It seems that faculty and staff are heavily reliant on Finance for even the simplest of reports. Producing these reports can be time consuming and prone to error, especially if Excel linked spreadsheets are being used.
What’s Needed in Response?
Higher education requires both budget reporting and monthly management reporting. As such, a good system should have pre-packaged report formats, ad-hoc reporting and fully user customized production reporting that does not require the users to learn a new report writing environment
6. There are divergent needs across institutions in the way people think about and develop their budgets. This is a doubly complex issue. First, the needs of the English department do not match the needs of the Mathematics department, which do not match the needs of the music department. Each has a unique way of looking at their financial needs. This is all made more complex by the fact that higher education also has to consider diverse needs like housing, food services, athletics, facilities maintenance, alumni relations, admissions and other non-academic departments.
What’s Needed in Response?
Flexibility to deal with the challenges of diverse departmental needs so that each faculty member or staff involved in the budget process can budget the way they think, but do so in a well controlled environment.
7. Often budgets are prepared without full knowledge of what actual enrollments will be or what grants might be approved or what gifts are received. This presents a major challenge. Colleges and universities therefore often need to prepare multiple versions of the budget and then select the scenario in September that most closely matches the reality of the school year.
What’s Needed in Response?
Multiple Scenarios/Versions and a system that manages them. For example, a college might want to budget a Worst Case, Best case and Most Likely scenario. The system should accommodate that, and also make it easy for faculty and staff to then submit the “Final” budget which may incorporate elements of all those scenarios.
8. Senior executives expect fast answers to practical questions like “What’s the impact if we reduce tuition increases from 5% to 2%” but anyone working in Excel knows how hard it is to produce those answers with any real accuracy. And there’s a practical side to that “what if” line of questioning. Higher education users want to be able to achieve updated financial targets from the President without necessarily going in to make significant account changes. So, the budget process needs to allow for structured and practical “what-if” capabilities that allow users to test assumptions on high level strategies to determine their impact on the budget.
What’s Needed in Response?
Practical What-If capability that makes it easy for Finance to see the impact of changing key levers of the budget and indentify ways to “close the gap” quickly.
9. The operational review and approval process is inconsistent across the organization. Finance has no way of knowing which budgets have really been operationally scrutinized and scrubbed by Deans and VPs and which ones haven’t. This leads to an equally inconsistent quality of budgets being submitted and consolidated; and ultimately to rework.
What’s Needed in Response?
Budget workflow – Both finance and administrators want a budget process that allows for organizational budget review and budget approval of departmental budgets up the organization chain of command. This can dramatically reduce the time that it takes to get to a final budget, allows for greater ownership of the budget and can dramatically increase the quality of the budget numbers.
10. Faculty and staff really want everything that they need for a budget on one singular screen, but this is really impossible with Excel. They have to go to multiple files, multiple tabs, and this can lead to confusion, frustration and rework.
What’s Needed in Response?
A Budget Map. This map should lay out all the accounts I need to budget for and present them in a way that’s easy to digest and understand. It should answer questions at-a-glance like: which department am I budgeting for, which version of the budget are we working on, which accounts am I responsible for, what options do I have to both create and spread my budget numbers, what is my current budgeted headcount for the year and what final targets am I being asked to achieve.
Wrapping Up
We’ve all seen the headlines. While operating expenses continue to rise, the days of simply passing on those increases in the form of rising tuition seem rather long ago. Students (and their parents) need leadership in higher education to find a way to do more with less – that’s the new normal. Budgeting, and effective resource allocation, is at the heart of addressing the new normal, and must be a priority. Yet the budgeting process in many colleges and universities is anything but effective, because of the problems outlined in this blog.
So the question really boils down to… are you going to live with these problems or are you going to step up and lead?
