Survey Report (Part 1): Meeting the Challenges of Integrated Planning and Budgeting

Strategic planning at a college or university is difficult work. Institutions are large, complex, and highly decentralized environments. Too often, institutions of higher education approach strategic planning reluctantly and without meaningfully seeking input and commitment from key stakeholders, which unfortunately leads to plans that are disconnected from budgets and plans that don't get implemented.

In November 2010, Academic Impressions surveyed presidents, chief financial officers, and academic leaders at a variety of public and private institutions to learn how the majority of institutions are approaching strategic planning and budgeting, and to discover what key challenges they are facing; more than 50 institutional leaders responded.

Key Finding: Difficulties in Aligning Budgets with Plans

Here is what we learned when we asked institutional leaders what they find most challenging. When asked about the most significant challenges faced with respect to strategic planning, respondents told us:

  • integrating the planning and budgeting process (72%)
  • prioritizing what to invest in and limiting the plan to a reasonable number of priorities (46%)
  • creating transparency around the process and decisions (42%)
  • establishing appropriate success measures (42%)

Here are the most significant challenges colleges and universities face with respect to resource allocation:

  • ensuring budgets support plans (74%)
  • creating transparency around the process and decisions (49%)
  • lack of appropriate prioritization leading to insufficient resources to fund plans (46%)

And here are the most significant challenges colleges and universities face with respect to assessing success:

  • systematizing assessment at all levels of the institution (58%)
  • crafting measurable goals (49%)
  • identifying measures (40%)
  • using assessment data to support decision making (40%)

Though the sample size was relatively small, the responses are noteworthy. Three-quarters of the institutional leaders who responded recognize the key challenge as integrating planning and budgeting. In response to another survey question, only 16% noted that their institution's stated priorities (as defined by written plans) were aligned with their actual priorities (as defined by how resources are allocated):

Stated & Actual Priorities

For comment on these findings, we turned to Larry Goldstein, president of Campus Strategies, LLC and past chief financial officer for the University of Louisville. Goldstein offers these key strategies for ensuring that planning and resource allocation are aligned.

How Plans Need to Drive Budgets

Many institutional plans do not set actual priorities for investment -- they do not specify, for example, which objectives are most critical to the success of the institution and the achievement of its mission, and they often do not specify what the institution is not willing to invest in (i.e., what will not move the institution forward). Goldstein advises making these priorities explicit.

"Given the paucity of resources, it's critical to establish priorities in terms of what you are willing to invest in. Not everything can be a priority. You have to be willing to say what areas are no longer a priority, and that you are willing to emphasize and resource some areas and not others."
Larry Goldstein, Campus Strategies, LLC

Quoting an adage attributed to Michael Porter of the Harvard Business School, Goldstein reminds us that a tough decision is what to do, a tougher decision is what not to do, and the toughest decision of all is what to stop doing: "the planning committee or task force has to be willing to take a hard look at the data, the marketplace, the mission, and the institution's own strengths and weaknesses." These decisions need to be made explicit at the planning stage, in order to guide reallocation of resources.

BUILDING BUY-IN FOR DIFFICULT DECISIONS

For tips on engaging the campus community in a broadly participative process to build institutional trust and increase the likelihood of successful implementation, review the second part of this survey report.

According to Goldstein, explicit decision-making about what not to invest in may take two directions:

  • You might opt to maintain the same level of resources in a low-priority area because that area, while important to your institution, is currently doing well. In this case, you are not abandoning the area; you are assigning it low priority in terms of resource allocation in order to increase your investment in other areas that represent growth opportunities.
  • You might opt to discontinue all investment in certain low-priority areas, because the data reveal that these areas are no longer adding value to your institution's mission and strategic objectives.

"The second case will often be a politically unpopular decision," Goldstein remarks, "but in disciplined planning, you have to be willing to identify what is and isn't worth investing in."

CRITERIA FOR PRIORITIZING ACADEMIC AND ADMINISTRATIVE PROGRAMS

Refer to the article "Prioritize Academic and Administrative Units" in our October-November issue of Higher Ed Impact: Monthly Diagnostic, for Bob Dickeson's advice on criteria for rigorous and responsible program prioritization.

Adopting a Strategic Resource Allocation Model

This approach to planning necessitates abandoning an egalitarian incremental budgeting model. In truly integrated planning and budgeting, rather than increase the budgets of all departments by a given percentage, an institution increases the resources allocated to growth areas and to efforts that are adding value to the institution's strategic objectives, and decreases resources allocated to areas that are not adding value.

Goldstein argues that traditional, incremental budgeting relies on two flawed assumptions:

  • That the amount of resources the institution has devoted to a given activity relative to all other activities within the institution is already optimal
  • That, given the same incremental increase in their budget, all departments will accomplish the same amount for the benefit of the institution

"That doesn't make any sense," Goldstein warns.

SCENARIO: THE SCIENCE AND TECHNOLOGY UNIT

"Let's say Unit Y is the science and technology unit. In our plan, we have determined that this is a high-priority area. We have high-quality researchers, high growth potential, and this unit is already performing above the level to be expected given their resources. In this case, we need to assume that if we gave this unit more resources, it would perform even better. Now consider Unit X, which is meeting its objectives but is not over-performing, and is not a growth emphasis area for the institution. Not only should we not increase both budgets incrementally; we may need to take money away from Unit X to increase the growth for Unit Y."
Larry Goldstein, Campus Strategies, LLC

To be successful, a strategic resource allocation model requires:

  • Clearly defined parameters around what the institution will and will not invest in
  • The budgeting cycle needs to closely follow the operational planning; the two need to be linked in one sequential process
  • One committee or task force to oversee both planning and budgeting processes -- not two separate groups

Moving to a single committee is essential. Goldstein warns that:

  • If one group plans and a different group reaches decisions about allocating resources, then the planning committee will likely be prioritizing without necessarily understanding the constraints on the institution's resources.
  • Individuals making decisions about resource allocation who were not on the planning committee may not have a good understanding of what the strategic plan entails, and accordingly, may misallocate resources, under-allocating in some areas and over-allocating in others.

"You need one committee that fully understands the priorities set forward in the plan and the resources it will take to make those priorities happen. In terms of institutional effectiveness, this is the best approach."
Larry Goldstein, Campus Strategies, LLC

Measure the Return on Your Investments

Also, be ready from the outset to measure the return on each investment of your institution's finite resources. Decide early in the planning process what the measures of success will be for your institution. For example, if you are prioritizing investments in improving enrollment effectiveness, then you might need to ask assessment questions such as:

  • If we are spending $120,000 to improve net tuition revenues after distributing financial aid, are we seeing more than a $120,000 increase in net revenues?
  • If we are spending X to improve the quality of our class, can we demonstrate through quantitative measures that we improved the quality of the class?

It may be relatively easy to quantify indicators such as average SAT/ACT scores, class rank, and GPA, but can you also set quantitative measures, based on demographic data, around diversity in race, religion, or socioeconomic background? If increasing the diversity of the entering class is a high priority for the institution, then you may see reason to invest more irrespective of financial return -- but you must be able to quantify the non-financial return.

Consider these two aspirational goals:

  • "To be among the strongest research universities in the country"
  • "To be among the top 25 research universities, as measured by the National Science Foundation's research and development rankings"

"Both of these goals are likely to drive the same behavior on campus," Goldstein observes, "but only one of these offers a way to measure its success. With the type of specificity shown in the second example, the institution can track its progress over time as the strategic plan is implemented. Most importantly, if assessment demonstrates that progress is lagging, then attention can be paid to the initiative to bring it back on track."