A Strategic Approach
to Budgeting
MSU Planning/Budgeting Retreat
August 15, 2005
Larry Goldstein
President, Campus Strategies
August 15, 2005
© Campus Strategies
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Agenda
General considerations regarding budgeting
Budget models
Other issues
Questions, comments, and reactions
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Caveats
One size does not fit all
No perfect system / process
Institutional character dictates approach
– Culture / climate / history
– Size / mission
– Centralized / decentralized
– Standalone, part of a system
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Ideal Approach
Budgeting should be integrated with planning
and measurement
– Approved budget is only a snapshot
Process is continuous
Always responding to new information
All-funds budgeting
Focus on accountability versus control
Broadly participative process
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Premise
Planning is the hard part
– When it’s done well, budgeting and
measurement are easy
Effective planning identifies what is important
and what’s not
Budget is the quantitative representation of
what’s important
All resource allocation decisions should
support what is important
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Overall Objectives
Satisfy mission
Improve while achieving specific goals
Maintain financial equilibrium
– Achieve a balanced budget
– Develop and nourish human capital
– Preserve physical assets
– Protect endowment purchasing power
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What Really Matters?
Resources
– Dollars
– Positions
– Space
– Technology
Planning, budgeting, and measurement
must address all four
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Budget Models
Incremental
 Formula
 Zero-based
 Responsibility center
 Special purpose
 Initiative-based
 Performance-based
 Hybrid

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Incremental
All budgets are adjusted by a specified
percentage—either up or down
– Easy to administer, most efficient model
– Flawed because it assumes existing
allocations are appropriate
– Not linked to plans and no priorities are set
– Fails to leverage opportunities
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Formula
Resource allocations are driven by
quantitative factors such as enrollment,
employment, space, etc.
Tends to be more common among public
institutions
Relatively efficient
Flawed unless formulas adjusted for priorities
Formulas frequently become outdated
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Zero-based
Assumes no history and builds from there
Identifies activities and related costs for each
assuming certain outcomes
Decisions are made based on the packages of
activities and what they’ll accomplish
Rarely applied completely
Occasionally used on a cyclical basis
Fairly labor and paper intensive
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Responsibility Center
Numerous terms to describe system of “every
tub on its bottom”
Revenue centers “own” the revenues they
generate and must fund their expenses—both
direct and indirect—and pay taxes
Cost centers funded from central revenues and
taxes
Risk that some units will act in ways that are
not beneficial to larger institution
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Initiative-based
Special purpose budget model
Funds taken “off the top” or generated through
reallocation process; usually one-time funds
Competitive process used to distribute
resources
– Priorities identified; criteria established;
proposals received
– Awards made, with appropriate follow-up
August 15, 2005
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Performance-based
Special purpose budget model
Most common within public settings with
performance criteria set by state or system
Portion of available resources reserved for
distribution to those that achieve certain levels
of performance
Usually only a small amount—1 or 2 percent
Intended to drive specific accomplishments
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Hybrid
Very few “pure” budget models in use
Most are variations or combinations of the
models just described
Some work in combination
– Incremental with incentive-based
– Formula with zero-based on a rotating basis
Others simply a hodgepodge that varies from
year to year
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Contingencies
Recognize that projections will not be 100
percent accurate
Establish a contingency to address
unanticipated revenue shortfalls, expense
overruns, other budgetary impacts
– If contingencies don’t materialize, consider
special year-end allocations linked to plan
or additions to reserves
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Budget Contraction
No across-the-board reductions!
Resist temptation to increase deferred
maintenance
Focus on plan and priorities
Strategically use reserves
Less important programs take relatively larger
cuts to protect priority programs
Avoid cost-shifting within the institution
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Multi-year Budgets
Planning horizons vary
Budget period should be tied to planning cycle
Develop summary budgets matching planning
horizon
Detailed operating budgets for at least two
years
Capital budget covering all approved projects
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Guiding Principles
Information is most valuable when shared—
especially financial information
Maintain all performance data in one
repository
Avoid focusing solely on net amounts—
especially for auxiliary units
Budget, financial, and management hierarchies
should be congruent…
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Guiding Principles (contd.)
What gets measured, gets managed
– Measure what’s important
Strive for accountability versus control
Level of decentralization should correspond to
organization’s size / complexity
Across-the-board increase / decrease is
capitulation!
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A Strategic Approach
to Budgeting
Questions, Comments,
and Reactions
Larry.Goldstein@Campus-Strategies.com
540.942.9146
August 15, 2005
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