Budgeting Best Practices

Now it is required of stewards that they be found faithful.”
~ 1 Corinthians 4:2 Berean Study Bible

Which budget conversation is more profitable?  One characterized by cost control, turf protection, short-term thinking, and a survivor mentality, or one focused upon strategic priorities, value, student learning, and sustainability.  Too many private colleges spend their time having the first conversation that produces little hope for a vibrant future.

A survey of 56 CFO’s of Christian colleges found that approximately 80% use an incremental or modified incremental budgeting process which tends to reinforce the status quo.  Many want to change but are not sure what to do.

I recommend three changes that will foster a robust conversation about the health and vitality of the institution.  They are:

  1. Ask strategic questions.
  2. Improve the budgeting process.
  3. Reframe the budget.

Ask Strategic Questions
My recommendation is that campus leaders and trustees work together to answer these questions:

  1. What is the institution’s response to affordability?
  2. How does the institution differentiate itself?
  3. Is the curriculum compelling to prospective students?
  4. Is the curriculum delivered in relevant ways using current technology?
  5. Are faculty deployed strategically and cost effectively?
  6. Are courses designed and delivered to ensure consistency and high quality?
  7. Do faculty interact in ways that impact students’ lives and add significant value?
  8. How can the cost per student be significantly decreased and quality increased?
  9. Is the use of existing facilities maximized?
  10. Are leaders comfortable with the level of student debt?
  11. How will the institution respond to online learning technology and the expansion of online providers?
  12. Does real learning occur? How do you know?
  13. Do graduates possess the skills employer’s desire? How do you know?

Improve the Budgeting Process
I recommend a participatory budgeting process characterized by:

  • Using a budget committee that the CFO doesn’t chair.
  • Set clear expectations and clarify roles.
  • Start early and allow enough time.
  • Provide timely data.
  • Schedule campus-wide meetings during the process.
  • Involve trustees early and often.
  • Appoint overlapping membership between budget committee and other governing bodies.
  • Link the budget to the strategic plan.

Reframe the Budget
There is a need to reframe the budget using margin-based budgeting which holds revenue-producing unit leaders at the college, school, program and department levels responsible for achieving a pre-determined margin based on direct income and direct expenses—before the allocation of central administration. Non-revenue producing units are expected to keep costs within a stated percentage of total income.

The benefits of using margin-based budget include:

  • Delegating responsibility and accountability
  • Empowering academic leaders
  • Pushing decision-making down to the program level
  • Increasing transparency
  • Facilitating the establishment and use of metrics
  • Budgeting stays in equilibrium regardless of enrollment
  • Forcing discipline and breaking free of tradition

I believe these three changes—asking strategic changes, implementing a participatory budget process, and reframing the budget to be margin-based—can make a significant difference in the budgeting conversation on any campus and the basic business principles may be put to use in other types of organizations.

[1] Adapted from a presentation I made to the Association of Business Administrators of Christian Colleges in February 2013.

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