How can college presidents improve financial performance and ensure support/funding of their strategic plans?
Two things that all college presidents (small and large) have in common are (1) making sure that the entire institution is supporting and executing their strategy, and (2) identifying ways of improving both the financial performance and the health of the institution. These are inter-related objectives.
One way to address both of these objectives simultaneously is to improve the budgeting and planning process. No, this is not just an issue for the CFO. It is an institution-wide issue that can have a profound impact on the above factors.
There is no constituency better suited for improving the strategy and financial performance of the institution than the people who actually run the individual departments within it. And the budgeting process should be considered more of a communications process than a financial one. So getting greater participation in, and ownership of, the objectives and numbers in the process should be mission critical to the college president.
And in this case – size does matter. The smaller the institution, the more important this issue is and the more impact it can have.
Yet the budgeting process in most institutions is a cumbersome process, done in a two-dimensional spreadsheet, which is fraught with the potential of errors, manual intervention and lack of flexibility to handle the needs above. Doesn’t that frighten you? It should.
Experience with this issue shows that there are a set of guidelines that college presidents should follow to better exploit this opportunity for strategic support and financial performance.
In a recent survey of college presidents, here were the top four complaints about their budget process:
1. Budget didn’t tie to strategy
2. Process took too long
3. They were worried about errors or lack of participation and ownership by faculty and staff
4. They could not get their questions answered quickly enough
Here are some questions that can be asked of the process:
- What other institutions (like us) have done a better job of this and replaced their budget process? What were their results? What is the industry standard for higher education budgeting?
- Can this be done in a cost effective manner?
- Should we/can we change our process?
- What is the best way to engage faculty and staff? Engagement is the best way to improve financial performance; is this achieved by more features or through a better user experience?
- What is the best, easiest, and most cost-effective way to get my questions answered about the budget and the variances in a timely and meaningful manner?
- How do I get proof that the budget ties to my institutional strategy?
- What happens if we don’t achieve our revenue targets? Do we have alternative plans?
- Are there potential “time-bomb” errors in our budget that I may be unaware of (or we all may be unaware of)? How do we eliminate them?
- Are there other risks in our current process? What are they?
So, what can be done? There are some “best-practice” guidelines to consider that will address all of the above:
- The first and most important guideline is to ensure that the budget process is considered “mission critical” to the institution. If it is not highlighted as important, it won’t be treated as such.
- It’s important that the entire institution understands that they are required to budget to the strategy of the institution and not simply budgeting to history or politics. This requires a number of capabilities that will be discussed below.
- Focus on institutional problems, not features. Many in the budget department (finance) will immediately want to provide a features checklist. This is fairly archaic and does not necessarily deal with the fundamental challenges of the president. Making a list of key challenges that need to be addressed is a far better way to deal with the issue.
- Focus on the needs of the faculty and staff and have them own the numbers and plans. In today’s world of computing, people are used to user-oriented applications from Apple and Google and expect the same of their business applications. Functionality is no longer the driver of success, usability is. Users will put up with less crap today and if the budgeting process is not designed for the faculty and staff, it will not succeed.
- Make sure that the budgeting solution addresses the specific needs of the faculty and staff from a functional perspective – allowing people to budget their departments the way they think about their departments. One size does not fit all. The library budgets differently than the athletics department…which budgets differently than the math department…which budgets differently than the admissions office…
- It is critical to have total integrity in the budget process. It is critical to eliminate all reasonable possibility of errors. Excel spreadsheets are filled with errors and the possibility of errors. Recent studies at the University of Hawaii show that 95% of all spreadsheets have at least one error in them. Do you really want your personal credibility on the line with a 95% chance of errors in the budget you submit to the board?
- The best way to budget to strategy is to perform Special Initiative Budgeting. This is a concept of making sure that all major initiatives are not simply buried in the account structure of the departmental budget, but are instead called out as initiatives.
- The best way to ensure integrity is to improve the approval, documentation and justification process in the budget. This allows more productive discussions and fewer questions about what’s behind the numbers.
- The institution should proactively deal with readily available alternative plans based on enrollment, endowments and other funding. Most budgets are out of date the day the freshman class shows up. That is unacceptable.
- The budgeting process is currently too cumbersome to do multiple times a year. But it is imperative to keep it fresh – as actual results will vary! So having the ability to perform Forecasting, which is the process of marrying together actual results with budgets and performing adjustments is critical.
- Overall risk mitigation…who else has done this? Choose a solution that has proven experience in higher education – including practical experience with ERP provider integration.
- Reporting is essential, but without a budget owned by the department heads, it is irrelevant since the numbers will be garbage. So it is part of the process, not THE process. Successful budgeting requires pragmatic reporting without complex maintenance and manipulation.
- The ability to perform “what-if’s?” is absolutely essential. But this has to be simple and pragmatic – isolating the 2-3 common questions asked in the process, versus trying to cover all possible situations (which leads to over-engineering and poor usability for the people trying to ask the questions).
In addition, all of these objectives should be achieved in a cost-effective solution, and it should not be over-engineered. While budgeting in higher education should be considered “mission critical” there is no sense over-spending on this. The most complex system or the most expensive one is not necessarily the right one for you.
An improved budget process can dramatically help the financial performance of the institution as well as ensure that the faculty and staff are supporting the strategic plan of the institution. But the process won’t change or improve until it is deemed “mission critical” by the president.
