Why Budgeting is “Mission Critical” in Higher Education

You can’t pick up a newspaper without reading about how higher education is under pressure to keep tuition costs in line.  In the past, higher education institutions were able to pass along cost increases to students.  No more.  Now these institutions must learn to do more with the same resources or, in some cases, with less resources.   This puts pressure on the institution to make sure that it creates a financial plan that allows it to maximize its services at the most efficient cost.

In addition, college presidents are crafting strategies for their institutions.  These strategies are essential to meeting their short-term and long-term goals as administrators.  In the past, faculty and staff have been more prone to doing what they have always done rather than thinking about strategy.  They tended to budget to politics and history.

The budget process is at the vortex of this issue.   The budget must tie to the strategic plan.  It is the next 12 months operational plan of that strategic vision and plan.  If the budget does not tie to the strategy, it is essentially not doing its job.    Plus, the budget, being the blueprint for the next 12 months operational plan, is the place where institutions need to focus their attention in learning to do more with the same or less resources.

Most higher education institutions are limited in their budgeting process.  They still use Microsoft Excel spreadsheets as the basis of the budget process.  Excel was fine for the old days, but can not meet the needs of todays higher education institutions.  There are several reasons for this:

• Excel does not have “budget intelligence”.  It is a simple two-dimensional spreadsheet that does not inherently understand the budget process or workflow.  It does not understand accounts, departments, time periods, versions, spreading, salary planning, asset planning, users, consolidation, approval or many of the other functions required of more sophisticated budgeting.
• It is not a database.  So financial people become the database and must manually manage, consolidate and report data.
• It does not check for errors in the budget process and complex formulas, which can be difficult to understand even by their authors, can wreak havoc on the process.  Several institutions have reported submitting budgets to the board that had to be recalled based on the discovery of such errors
• Excel does not have the flexibility to let various faculty and staff members budget their unique departments the way they think about those departments.  The math department budgets differently than the music department, which are both different from how the library budgets, which is different than the admissions department, which is different from the athletics department, which is different from student housing and on and on.
• Excel does not easily account for documentation, justification or validation to strategic tenants.
• Upwards of 79% of a higher education budget is salary and benefits related.  Yet Excel does not inherently understand headcount and salary planning, how to give raises, calculate state and local taxes, benefits, special arrangements like recruiting fees, relocation and the like.

So the process needs to be upgraded to help colleges and universities better manage revenue and expenses and make sure that faculty and staff budget to strategy and not history or politics.

But higher education also is slow to change.  People are reluctant to improve their approaches and cling to past practices in spite of the need to do so.  So they limp along claiming that change is too difficult or that that their current approach is not “that bad”.  These institutions will fall behind in their ability to adapt to a changing world and the people who are reluctant to make the changes will be left behind.

All applications in all industries change over time.  The institutions that lead the change are the winners while the ones who resist these changes tend to be the ones who face crisis after crisis.

Budgeting is a “mission critical” and strategic application in higher education.  It must be treated as such.  And, institutions need to shed their reliance on spreadsheets if they want to keep pace with peer institutions.