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:
- Ask strategic questions.
- Improve the budgeting process.
- Reframe the budget.
Ask Strategic Questions
My recommendation is that campus leaders and trustees work together to answer these questions:
- What is the institution’s response to affordability?
- How does the institution differentiate itself?
- Is the curriculum compelling to prospective students?
- Is the curriculum delivered in relevant ways using current technology?
- Are faculty deployed strategically and cost effectively?
- Are courses designed and delivered to ensure consistency and high quality?
- Do faculty interact in ways that impact students’ lives and add significant value?
- How can the cost per student be significantly decreased and quality increased?
- Is the use of existing facilities maximized?
- Are leaders comfortable with the level of student debt?
- How will the institution respond to online learning technology and the expansion of online providers?
- Does real learning occur? How do you know?
- 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.
 Adapted from a presentation I made to the Association of Business Administrators of Christian Colleges in February 2013.