“Collaborative Budgeting” is a hot concept in higher education. It is the process of gaining more participation in and ownership of the budget by faculty and staff department heads, providing more transparency to the budget and showing how the department heads will support the institutional strategy as opposed to simply budgeting to history or politics. It is collaboration between various constituencies who all want to see the institution do better.
Collaborative Budgeting is critical in higher education for several reasons. First, higher education has been under financial stress for the past several years. It is no longer possible to pass along cost increases to higher tuition costs – as there is continued focus on this particular issue. Other funding sources are also not as readily available as was the historical case. And, college presidents are trying to sharpen the institution’s focus and strategy while showing value to students and parents. This all puts pressure on the budget process, which is now more “mission critical”. Budgeting in higher education has historically been more of a mechanical rather than strategic exercise.
Collaborative budgeting makes sense in today’s higher education world. One might ask “Why has this been missing in the past?” Well there are several reasons and some were listed above. These reasons are combined with the dearth of available solutions for higher education.
The financial transaction systems used by higher education do not inherently understand the budget process. They are inflexible and basically allow people to put numbers into forms – which is not true “budgeting”. Financial transaction vendors are good at debit and credit related applications and impose strict financial controls. But budgeting is an end-user application that requires a balance of flexibility and controls and is account balance based, not transaction based.
So, financial professionals in higher education have tried to implement Microsoft Excel based budgeting. This improves the flexibility and user experience slightly, but does not solve the underlying problem while introducing a whole host of other issues for the institution – like the lack of a true database, manual data collection, manipulation and reporting, all of which increase the probability of spreadsheet errors throughout the process. Plus Excel based systems lack version control, budget workflow, and most importantly – budget intelligence (because you are dealing with a two-dimensional data entry form that does not inherently understand the budget process).
Excel poses another less obvious challenge to higher education: it is basically free. So higher education institutions have discounted the value of the budget process and do not treat it with the same respect that, for instance, is applied to the general ledger or other systems. This leads to a cultural issue that must be overcome before an institution can consider budgeting either “collaborative” or “mission critical”.
IT has, unfortunately, taken a “hands-off” approach to this strategic need as well. There are insufficient resources available for IT to want to tackle new challenges, even one as critical as this. This has left the finance team to deal with the challenges of budgeting alone.
Despite these underlying budgeting challenges, institution administrators have increased their demands on the finance team with requests for things like:
- Budgeting to institutional goals and plans rather than filling out forms
- Better documentation and justification built into the process to show how the budget will tie to strategy
- Greater fidelity in the process and the move to preparing monthly budget numbers – as opposed to annual budgets for each account by department to improve monthly variance reporting
- Greater accuracy in headcount, salary and benefit calculations
- More flexibility in preparing budgets that accommodate the needs of individual departmental differences (the library does not budget the way athletics does, which does not budget the same way science does, which does not budget the way admissions does…)
- More accuracy and fidelity in equipment planning to make sure that this critical piece of budgeting is properly done
- Understanding where everyone is in the process to avoid last-minute chaos and have the budget process be corrupted.
- Additional frequency in updating budgets (forecasts) based on the reality of how the year is shaping up to keep the planning fresh
- Better revenue planning for estimating student acceptance, matriculation, tuition mix and related items.
These changing demands have dramatically upset the process in institutions large and small, particularly for the smaller to mid-sized ones. These are the institutions most likely to be using a mass of Excel spreadsheets to try to budget, and also these institutions are most likely to have smaller financial staffs and less access to IT support for this application area.
What would an ideal solution look like? It would have:
1. A Turbo-Tax-like interface to help guide faculty and staff through the budget process to make it more palatable and entice the users into the process
2. Situational budgeting to increase flexibility to make sure that individual departments can budget their areas the way they think about them
3. Scenario management to account for various revenue and expense assumptions to achieve the desired financial performance
4. Electronic interfaces to general ledger, payroll, HR or Position Control systems for personnel planning, and fixed assets systems for equipment planning to eliminate keying of redundant data
5. Automatic monthly spreading of an annual budget number to provide more fidelity in monthly management reporting (no one wants to compare a monthly “actual” to an annual budget divided by 12)
6. Easy inclusion of notes, annotation and justification for better documentation of requests into the process and to proactively explain how the budget ties to the strategic plan
7. Special initiative planning to allow department heads to propose ideas thatrequire funding but can improve the performance of the institution
8. Better budget reporting, consolidation reporting and variance reporting to help explain the budget and quickly and easily answer questions about it
9. Approval workflow to ensure that budgets are being reviewed by appropriate levels in the organization
10. Transparency as to where everyone is in the budget process to avoid budget chaos
11. Simple consolidation to easily and accurately roll-up the numbers with confidence
12. More accurate personnel planning to account for salary changes, benefits and payments for personnel who may be paid over a 9-10 month period, versus 12 months
13. Pragmatic “what-if” to test various expense assumptions in the budget process to improve analysis
14. Easier and more flexible forecasting that can provide for more accurate budget updates to keep the budget fresh
15. Quick, easy and cost effective implementation to account for lack of finance or IT resources available for this application area
16. No IT support requirements (cloud-based computing)
17. Cost effective pricing to accommodate the limited financial ability of small to medium sized higher education institutions (e.g., this can’t cost $75k per year)
18. Safety of solution: implemented at a variety of higher education institutions by a vendor with the right higher education experience
The key thing for financial professionals to recognize is that collaborative budgeting means that the solution needs to have as much, if not more, appeal for department heads than for finance itself. This is tough for financial professionals who see the world through the eyes of a chart of account spreadsheet. Non-financial professionals do not see the world this way and want to budget their departments the way they think about their departments. This requires a different user experience as well as improved flexibility and specific functionality for key areas of the budget. As long as financial professionals are stuck in the spreadsheet mindset, collaborative budgeting will be difficult to achieve.
Fortunately, there are solutions to this problem and hundreds of smaller to medium sized higher education institutions have discovered how to deal with the myriad of challenges imposed by the “new normal” in budget preparation. Cloud-based budget-specific applications for higher education are available that possess the right intelligence, flexibility and usability to help the faculty and staff department heads build better plans. These solutions are easy to implement and cost effective to use, and do not require IT support. They also free up thousands of hours of finance resources, as they are true application with a structured database. This eliminates the need for finance to build cumbersome “macros” or manually collect, manipulate, consolidate and report data. They are easy to administer for changes, electronically communicate with the appropriate transaction systems and improve both the efficiency and effectiveness of the budget process – ultimately helping to improve the financial performance of the institution without adding headcount to the process.
Benefits of collaborative budgeting for higher education include:
- Better participation in the budget process by faculty and staff department
- heads as well as better ownership of the numbers
- A more accurate budget that the institution can have confidence in
- A budget that better reflects and supports the institutions strategy
- Better flow of ideas for discussion
- Better overall financial performance
All higher education institutions will adopt smart and “collaborative budgeting” over the next few years. The only question is when. The leaders are paving the way for the followers. There is growing evidence that the leaders who embrace “collaborative budgeting” are outperforming the institutions that are slower to grasp this important concept.
