with Daniel Fusch and Amit Mrig contributing (Academic Impressions)
The Story: A Remarkable Turnaround
Anoka Technical College recently instated an annual collaborative budgeting process that took the college from a projected $1.4 million operating budget deficit over two years to a $500,000 (and growing) operating surplus. The process by which we did this was counter-intuitive and unusually inclusive. There are some key takeaways for other institutions.
The Context: What Anoka Tech’s Budget Looked Like in FY2013
Prior to the arrival of the current president and chief financial officer, Anoka Tech’s executive leadership had a long history of managing the college’s finances with limited transparency. The operating budget was managed by the president and the CFO with occasional input from a few deans. Few stakeholders were invited to the table, and there was little communication about how decisions were being made or how the budget was handled.
Upon arrival at the college in 2013, President Kent Hanson and CFO Don Lewis recognized that Anoka Tech had an acute need for a more sustainable financial model, namely:
- The college lacked any consistency in its budgeting process or whether it was producing or maintaining a surplus.
- Historically, the college hadn’t budgeted for reinvestment in its programs. In the absence of reinvestment, a number of academic programs had been left financially unsustainable.
On top of this, we inherited an approved $17.5 million operating budget for Anoka Tech with an end-of-the-year projected $400,000 deficit.
To turn this situation around, we took two significant, counter-intuitive steps: We slowed down, and we got faculty and staff involved throughout the process.
Step 1: Slow Down the Process
Facing that $400,000 deficit, we deliberately decided not to make any knee-jerk decisions. This was not the time for panic or short-term, reactive thinking. Instead, we adopted a measured and methodical approach, taking initial steps to ensure the institution’s long-term financial sustainability.
For example, we didn’t suddenly fire three advisors and an admissions counselor just so that we could balance the budget. Instead, we looked for the initial steps we could take to start closing that gap without making quick choices that would compromise the academic integrity of a program. For instance, we slowed down some acquisitions in the library for that particular budget cycle. We also did some general belt-tightening, however we also announced very clearly that we would not make cuts that would impact day-to-day pedagogy in the classroom. If you still needed shop supplies for automotive classes, we didn’t stop buying those. Instead, we asked, ‘Is it vitally important that we acquire this software package today, or could it wait for April or next September? Can we delay this construction six months or a year? Could we hold this open administrative position for a few months?’
The primary criterion driving those short-term budgeting decisions was: How will this impact the students? Asking this question did a lot to alleviate panic and anxiety, and to send a clear signal that faculty, staff, and students had input into the budget.
Step 2: Get Everyone Involved
It was so crucial to empower the faculty and staff with influence and a sense of control. We recall one conversation in which Don Lewis advised the employees, “If you have money left over in your budget close to the end of the fiscal year, please let us know so that we can use it to make a positive impact on the year-end amount.” The leadership let faculty know that they could take action to influence positive change, that they could advise the president and CFO, that the leadership would listen, and that faculty would have a voice and influence in the budgeting and resource allocation process. This feeling of empowerment really turned things around. Previously, faculty and staff didn’t feel that they had any control or ability to help turn the college around.
We needed to hold painful conversations, together. The new leadership had inherited a recently-established and representative budgeting committee of twelve members, including administrators, faculty, students, and representatives from three bargaining units as well as faculty members. Previously, this committee did not have any decision making authority; the committee had simply been informed of top-down decisions. Now, for the first time, the committee was empowered to ask tough questions and engage in often painful conversations about the future of various academic programs—but we worked through these conversations together.
To get everyone engaged—and to build that trust over the course of the first year—we needed to share consistent, accurate budget information. We needed to spend much of that first year educating the budget committee, the faculty, and the rest of the campus about how the budget operated and where they wanted to take the institution in the years to come. Slowing things down and taking the time to create transparency were the critical first steps upon which all the rest depended.
We held periodic open forums which were open to all faculty and all staff. The CFO attended each of these, sharing the budget realities, the forecast for the year, and the plans for how an operating surplus would be used. At these events, attendance and participation was strong, but skepticism was initially very high. This changed after the first nine months as people came to expect consistent trustworthy reporting. This was not an overnight event.
This was the first time the employees felt they had the budget information and could trust it. Previously, the stories had changed too often, and the faculty and staff didn’t trust that there was a firm grasp on the budget.
Only after that initial work of increasing transparency and bringing more stakeholders into the budget process did we create an expense reduction plan. We did so through a truly collaborative budgeting process, and that plan went through six revisions – with review and recommendations from unions, students, and faculty – to produce final recommendations. Anoka Tech was projecting a $800,000 budget deficit for 2014 and a $600,000 deficit for 2015: a total of $1.4 million over two years. The college needed to successfully cut $1.4 million over two years (reducing expenses by 12%) and plan to continue those expense reductions on an annual basis in order to have end-of-year operating surpluses to reinvest in key academic programs.
We set the goal for Anoka Tech of breaking even by the end of fiscal year 2015, and having 3% of revenue ($500,000) at the end of fiscal year 2016 for reinvestment in the college. However, by reallocating resources across programs (without closing any), eliminating 5-6 full-time staff and 2 faculty positions, and optimizing faculty workload, we exceeded these goals, ending FY2015 with a $200,000 operating surplus. Anoka Tech ended FY2016 with a $550,000 surplus and an additional $500,000 reinvested in the college. The operating budget is now $16 million, and Anoka Tech is continuing the same annual academic program review and collaborative budgeting process.
We achieved all this by slowing down the budgeting process, including more stakeholders, educating the campus community, and adopting a methodical approach to expense reduction. This is not how most college leaders think about approaching a budget turnaround—but it’s what works.