Delegated Budgeting:
Strategies to Increase
Institutional Buy-In and to Save
Money
Dr. Ed Ericson III
CAO, John Brown University
Ms. Pat Gustavson
Former CFO, John Brown University
Dr. Cal Piston
Assoc. Dean of Institutional
Effectiveness, John Brown
University
Overview
• Key Questions
 How do we make resource decisions that will have
buy in from the entire institution?
 How do we give faculty and staff budget
information that they can handle, digest, and
respond to appropriately?
• Case Study in
 Creating campus-wide input and resourceallocation processes in response to a budget crisis at
John Brown University
 Three examples: Cost Allocation Models, Operating
Budget Input Systems, & Ancillary Budget Processes
• Closing Thoughts and Discussion
The Need
• Difficult Economic
Circumstances
• Require Creative and
Collaborative Solutions
• Goals are more efficient
allocation of resources &
greater institutional buy-in
JBU’s Case Study
• John Brown University’s CounterCyclical Success Story . . . OR
• Why JBU had a crisis when others
did not and why we appear to be
avoiding a crisis when others are
experiencing one.
• And it’s not just because we are a
partially-owned subsidiary of . . .
Wal-mart!
JBU’s Non Crisis
• $3mill reserve (10% of Undergraduate budget)
• $1mill operating surplus (2.5% of overall
budget)
• CFI (Composite Financial Index) in the top 10%
of the CCCU
• Annual average fund-raising in the top 5% of
the CCCU
• Enrollments are stable (though discount is up a
point)
• Adding programs and positions (though less so
this year than last)
• Two new buildings on track
JBU’s 2005-07 Crisis
• 10% incoming
undergraduate enrollment
shortfall
• 25% spike in health care
costs
• Flying “blind” with no
“controls”
JBU’s Revenue Changes
• Strategic Focus
• New Markets Initiative
• Student Scholarships
Initiative
• Paperless Office
JBU’s Expense Changes
• Leveraging the crisis (targeted
reductions instead of across
the board cuts)
• Setting up basic guidelines
(size of majors, size of courses,
student-faculty ratios, % of fulltime faculty, % of aid to offcampus programs, % of
teaching hours to total hours)
Delegated Budgeting
• Cost Allocation Models for
Each JBU “Boat”
• Input Systems for Basic
Operating Budgets
• Ancillary Budget Process
for Costs on the Margins
Underlying Principles
• Principle #1– Accuracy & Fairness
Each budget group needs to know what
the “rules” are regarding budget decisions
• Principle #2 - “Wisdom of the Crowds”
Superior decision making by aggregating
diverse opinions that are independently
derived and based on decentralized
“local” knowledge
• Principle #3 - Subsidiarity
Matters ought to be handled by the
smallest, lowest or least centralized
competent authority
Cost Allocation Models
1. Incubation Approach
•
•
Support is undefined, minimal
Has potential value to mission
2. Direct Incremental Cost
Approach
•
Support is partially quantified –
mainly staff hours
Cost Allocation Models
3. Taxation Approach
•
•
Can combine with direct cost
assignment
Percentage of revenue or
expense or per unit amount
4. Full Overhead Costing Approach
•
•
Attempts to quantify all costs
Theoretical “stand-alone” model
Revenue Centers at JBU
 Traditional Undergraduate
• 1,200 FFTE
• $26 MM Budget
 Auxiliaries
•
•
•
•
•
Residence Halls
Food Service
Bookstore
Health Complex
$5 MM Budget
Revenue Centers at JBU
 KLRC
•
•
•
•
Noncommercial FM, funded by gifts
Provides internships
Regional ministry
$700 K Budget
Revenue Centers at JBU
 Adult Degree Completion
• 3 sites, 3 degree programs
• 400 FFTE
• $4 MM Budget
 Graduate
• 3 departments, 2-3 degree
programs apiece
• 200 FFTE
• $2 MM Budget
Revenue Centers at JBU
 Centers (heavily endowed, selfsupporting, 1998)
• Center for Relationship Enrichment
• 8 staff
• $ 1 MM Budget
• Soderquist Center for Leadership &
Ethics
• 20 staff
• $2 MM Budget
Allocation Tiers - Plant
Costs allocated:
Plant Administration
General Maintenance
Custodial
Grounds & Landscaping
Utilities
Central Plant
Minor annual
renewal/replacement/renovation
Security
Allocation Tiers - Plant
Allocation basis:
Square Footage
(1 FTE “office” = 200 SF)
(Direct costs excluded)
(Plant SF excluded)
(Allocated to Gen. Inst., Academic
Support)
Allocation Tiers – General Institutional
Costs allocated:
President’s Office
Board
Business Office
IT Departments
Print Services (net)
Unallocated Benefits
General Costs – Audit, Legal, Insurance,
Net services (eg. Fleet, mail room)
Allocation Tiers – General Institutional
Allocation basis:
Staff / Faculty FTE
(includes adjunct faculty)
(excludes work-study, graduate
assistants)
(Plant, Gen. Inst. Staff FTE excluded)
Allocation Tiers – Academic Support
Costs allocated:
General Academic Administration
Registrar
Library
Financial Aid Office
Faculty Development
Allocation Tiers – Academic Support
Allocation basis:
Student FTE
(adjusted for adult degree
completion, graduate)
(not allocated to Centers, KLRC)
Allocation Tiers - Misc.
Not allocated / presumed fully
Traditional Undergraduate or
Direct-Costed
Undergraduate Academic
Administration and Support
Admissions (3 departments)
Student Development
University Advancement
Revenue Center Offset Credits
• Graduate scholarships provided by
2 Centers
• 50% rebate of General Institutional
for Centers, KLRC
• 33% rebate of Academic Support
for Adult Degree Completion,
Graduate
• Annual review of “soft dollars” with
Centers
Budgetary Input Systems
• Budget prioritization
models
• “Rule” by CAO/CFO
Mandate
• “Rule” by Committee
Consensus
Budgetary Input Systems
•
Alternative Approach –
“Wisdom of the Crowds”
• Diverse opinions
• Independently derived
• Based on local knowledge
• Aggregated centrally
Budgeting by Secret Ballot
• Academic Councils for Undergraduate,
Graduate, and Degree Completion
• Councils hear relevant academic
operating budget requests
• CAO provides his priority order and
rationales
• Council members respond to a
prioritization survey with their lists
• Results are tabulated and brought to
cabinet as the “final” order
2009-10 Examples
• 27 undergraduate requests
•
•
•
•
•
•
•
9 Replacement Faculty Lines
3 New Faculty Lines
Ancillary Budget of $130,000
An “extra” 1% salary increase
4 part-time slots or load increases
New initiative for student research
8 catalog copy and departmental
budget increases
2009-10 Examples
• 12 of 27 items currently funded
• 8 of 9 Replacement Faculty
(meaning we let one person go)
• Ancillary Budget
• Part of the “extra” salary increase
• 2 of the part-time or load increases
• Next fall, we may get another
“bite” at the apple
Ancillary Budget Process
• Purpose of Funds
• Able to be saved – rolled over to
the next fiscal year
• Budgetary Decisions on the Margins
• Student and Faculty Projects
• Special Equipment Needs
• Offering of Low-Enrollment Courses
• Pilot operations
• Focus on Divisional Goals and
Student Learning Outcomes
Ancillary Budget Process
• Amount of Funding
• $130,000 per year
• 7 Academic Divisions @ $10K - $20K
• 5 Support Units @ $5K - $10K
• Allocated on competitive and
benchmark basis
• Incentives for Improvement
Ancillary Budget Process
• Analysis of Academic Divisions
• Point Systems Developed in Six
Areas
• Student Numbers
• Majors, Completions,
Student-Faculty Ratio
• Teaching
• Student Evaluations, Formal Faculty
Evaluations
• Scholarship
Ancillary Budget Process
• Analysis of Academic Divisions
• Service
• Advising, Institutional Citizenship,
Service to the World
• Spiritual Modeling
• Academic Rigor
Ancillary Budget Process
• Other Factors
• Deductions
• One-half cost of adjunct for
• Courses with 4 – 7 students
enrolled
• Multi-section courses with extra
section
• Full cost of adjunct for courses with
less than 4 students enrolled
• Additions for courses with
enrollment over cap
Ancillary Budget Process
• Extensions to Academic Support
Units
•
•
•
•
•
Honors Scholars Program
Student Support Services
Library
Faculty Development
Leader Scholars Institute
Dangers & Complications
1.
Arbitrary judgments must be made
2.
Difficulty of unwinding
3.
Encourages cost analysis, consideration
of outsourcing
4.
Takes administrative time
5.
Does not resolve unequal demands
6.
Creates transparency, more
accountability
Advantages
1.
Necessary for accurate cost knowledge
2.
Creates transparency, requires more
accountability
3.
Raises cost consciousness, motivates cost
control (space, staffing)
4.
Allows centralization of technical
expertise and insights
5.
Generates useful data for other purposes
Questions for Discussion
• How do you build systems of communication
on resource issues in an institution that hasn’t
had such dialogue in the past?
• What is the budget planning culture at your
institution and how does that culture affect
your pragmatic allocation decisions?
• How can you define the nature of your
resource concerns, especially when you have
multiple sources of revenue and expense, such
as both traditional and adult programs?
• How much of the reallocation of your resources
should follow “mission” priorities as opposed to
more pragmatic concerns?