Linking Strategic Planning and Budgeting

1. Linking Strategic Planning and Budgeting Dennis P. Jones Presented to Minnesota State Colleges and Universities January 11, 2001 National Center for Higher Education Management Systems P.O. Box 9752 Boulder, Colorado 80301-9752 (303) 497-0301

2. Planning Resource Allocation Assessment Management Cycle Strategic Management —The allocation of resources to programmed activities calculated to achieve a set of goals.

3. State Planning Institution State State Resource Allocation Assessment Institution Institution The Management Cycle in a Public Institution

4. Planning • Making Decisions about OrganizationalPriorities that Specify What Changes in Intentions, Competencies, or Behaviorsthe Organization Will Pursue • The Mechanism Through Which Organizational Values and Methods of Identifying Them Are Affirmed NOTE: • Planning must result in Decisions. • It is fundamentally a Change Process.

5. Strategic Decision Areas Basic Mission Clientele Program/Service Mix Comparative Advantage Assets Objectives Basic Purposes of the Enterprise and its Guiding Principles for Behavior Target Audiences of the Institution Program Offerings and Priorities of the Institution “Differential Advantage” Sought Over Other Organizations Engaged in Similar Activities Changes Needed in Human, Physical, Information or Intangible Assets of the Enterprise What the Organization Must Accomplish in Order to Move from Existing to Desired State of Affairs

6. The Product of the Strategic Planning Process—Institutional Priorities/Strategic Themes • Institutional Issues • Cannot Be Addressed by a Single Unit • Cannot Be Identified by Finding Common Elements in Unit Plans • Long-Term—Cannot Be Resolved in a Single Year • Require Responses Through Basic Institutional Processes—Are not Programmatic “Add-Ons” Characteristics

7. Examples of Strategic Themes • Become More Client-Centered • Students • Employers • Communities • Address the Particular Needs of Underserved Clients • Minorities • Geographically Remote Areas • Academically Poorly Prepared • Improve Retention and Graduation Rates • Incorporate Use of Technology in All Institutional Functions

8. What Is Budgeting? Making Decisions That Distribute Resources To Enable Action

9. What Is Budgeting? (cont.) • The Budget Is the Primary Device by Which an Organization: • Carries Out Its Plans • Signals Its Priorities • Other Mechanisms Include: • Organizational Alignment • Regulation/Procedures • Accountability The budget is the mechanism through which positive incentives for change can be created.

10. The Typical Budget Process • Starts with Revenue Estimates • Involves Budget Guidelines Focused on Price Changes • Salary Increases • Operations/Utilities • Equipment • Invites Units to Submit: • Budgets Within These Guidelines • Special Requests • Involves “Triage” at Every Step up the Organizational Structure

11. Linking Planning and Budgeting... …Is So Difficult Because: • Planning Is Typically Conducted at the Strategic Level • Budgeting Is Typically Focused at the Operational Level We need to develop an approach to strategic budgeting.

12. Decisionmaking • Creation and Maintenance of Institutional Capacity • Utilization of that Capacity in Ways Designed to Accomplish Specified Purposes Strategic Decisions Focus on the: Operational Decisions Focus on the:

13. The Focus of Budget Decisions Assets • What Kinds Will We Have/Own? • In What Quantities/How Many? • With What Characteristics? • Quality • Appropriateness • At What Price? • What Are Assumptions about Levels of Utilization?

14. The Focus of Budget Decisions (cont.) Consumables (Utilities, Insurance, Supplies, etc.) • In What Quantities? • At What Prices? Revenues • In What Amounts? • From Which Sources? Allocation • To Which Units? • To What Ends? (the Basis of Accountability)

15. One Set of Trade-Offs Unit Total Total Revenues Quantity Characteristics Utilization Cost Cost $ Rev. $ Sources Assets Personnel Facilities Equipment Collections Students Finances Program Consumables Services Supplies Utilities Contingency New Initiatives Tuition Appropriations Govt. Grants Private Gifts Endowment Sales & Services Other Reserves =

16. A Second Set of Trade-Offs Assets ( Personnel, Equipment, etc.) Consumables Organizational Units College A Dept. 1 Dept. 2 . . . College B Dept. 10 Dept. 11 . . . Administrative Units

17. Structure of the Budget In order for the budget to respond to the responsibilities of institutional leaders and link to the strategic plan, it is suggested that: • Base/Continuation—the Status Quo Adjusted for Price Changes • Strategic Initiatives • Contingency • Asset Maintenance • Asset Creation/Deletion—Intentional Changes in the Asset Structure 1. The budget be given a structure that explicitly reflects the areas of responsibility of strategic level decisionmakers—that it contain the following components: 2. The budget process be such that guidelines are established around each component prior to initiating unit level budget-building.

18. To Evaluate the Budget, Ask Questions • About Changes in the Asset Structure • How will staffing patterns change? • How will materials acquisitions be affected? • How will the stock of equipment/technology change? • About Asset Maintenance • What is relationship between expenditures on renovation and renewal of plant and replacement value of plant? • What is rate of replacement of equipment? • What is the ratio of personnel development to compensation? • What is trend in expenditures on curriculum development? • What level of financial reserves is being maintained? • How effective is the investment in student financial aid?

19. To Evaluate the Budget, Ask Questions(cont.) • About the Contingency Fund • How large is the contingency fund relative to the operating budget? • About the Consequences of Resource Utilization • What is the evidence that the institutional priorities are being achieved? That the institution is fulfilling its mission? • What is the evidence that the state/system priorities are being achieved?

20. The Role of the CFO • Assemble the Data • Revenues • Maintenance of Assets • Consumables • Investment in Strategic Initiatives • Contingency • Calculate the Size of the Gap—The Unmet Need • Compile Benchmark Data • Staffing • Faculty Productivity • Etc. (continued)

21. The Role of the CFO (cont.) • Make Clear the Nature of the Tradeoffs—What Would Have to Be Given Up to Balance the Budget? • What % of Facilities Renewal? • What % of Equipment Investment? • How Many Positions? • What % of Operating Budgeting? • Engage the Cabinet in Making the Decisions—This Is the Job of Institutional Leadership, not Just the CFO.