O FF I C E O F T H E C H A N C EL L O R FI N A N C E D I V I SI O N 500 W EL L S FA RG O P L A C E 30 E A ST SEV EN T H ST REE T ST . PA U L , M N 5 510 1- 494 6 p h 651. 296. 8012 f x 651. 297. 5550 w w w . m n sc u . ed u December 2008 TH E TOP TEN ELEM EN TS OF GOOD BUD GET A D M I N I STRA TI ON One of the many challenges for a new president is mastering the college or university budget. College/ university progress and change happen w hen the budget supports the strategic plan and the work plan of the organization. This is possible if the college/ university leadership understands and leverages the pow er of the budget process to make desired investments. Everyone on the president’s cabinet should understand the important elements of the institution’s financial operations and the role each person plays in the financial performance of the institution. Good budget administration requires planning and monitoring before the year begins, throughout the year, and at the close of the year. The follow ing elements are critical to an effective planningbudgeting-reporting cycle. 1. The annual budget process reflects a college/ university’s priorities either actively or passively. A n active budget process uses the college/ university strategic planning and w ork planning process to identify areas for investment and then finds the resources to support the activity. Set goals and reflect them in the allocation of resources. 2. The annual operating budget is one of the President’s most pow erful tools. H e or she should have a full understanding of the budget and the forces that influence revenues and expenses. Leadership can influence every line on the budget, understand how to do so. Look at all funds available, not just the general fund. 3. Start the budget process w ith a very high level outlook. Seek to understand the variables w ith the biggest influence on the budget. Begin w ith a biennial view since appropriation and tuition are largely know n for the upcoming tw o years. M odel revenue changes using different assumptions, expenditure changes using different assumptions, reserves (and other balances) outlook, alternative enrollment forecasts and any other large influences. Get a feel for w hat the college or university is facing before digging into the details. Set overall financial objectives at the highest level before beginning detailed budget w ork. The M innesota State Colleges and Universities System is an Equal Opportunity employer and educator. 4. The annual budget for the w hole college/ university should be established before the beginning of the year. The beginning budget should address all expected revenues and all expected expenses. A ll funds/ activities should have an annual budget established. Develop an estimate of resources remaining at the end of the year. This is the benchmark for the rest of the year. A t year end analyze the differences betw een beginning and actual final budget reports. 5. The budget approved at the start of the year should be w idely distributed and time taken to familiarize staff w ith the impacts at the unit level. Communicate w ork plan objectives and financial objectives. The entire college/ university community should also have a general understanding of the overall financial condition of the school. Periodic communications should keep staff informed. 6. Consider establishing a contingency budget account at the college/ university level. This account w ould be used to add budget items during the year that w ere not provided for in the beginning budget. A ccess to the contingency account should be controlled and highly visible. One method is to require the president’s approval of contingency use after cabinet review . The objective is to encourage complete budgets at the start. Contingency budgets can provide a little flex for several years until the base line budget process is improved. 7. Once the w ork plan and budget are established consider giving cabinet officers freedom to administer the approved budgets. They should have flexibility to move non salary related operating budget betw een line items w ithout additional approvals. Changes can be reported as part of the monitoring activity. 8. The cabinet should regularly review w ork plan progress and budget monitoring reports. Review at both the summary level and at the detail level. H old cabinet members accountable for department budgets. The budget is supposed to support the w ork plan. A re they staying in alignment? 9. The cabinet should develop measures of effectiveness for the principal activities of the college/ university. The activities should be measured against the college/ university strategic plan. H ow do you know the spending w as effective? 10. A w ell run budget process puts new and continuing resources against the highest priority activities. Resources remaining at the end of the year represent activities that w ere not completed or completed under budget. The President should review all balances at year end and either re-direct budget to new purposes or authorize the completion of the past year’s activities.