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Linking Strategic Planning and Budgeting Dennis P. Jones Presented to Minnesota State Colleges and Universities January 11, 2001 National Center for Higher Education Management Systems P.O. Box 9752 Boulder, Colorado 80301-9752 (303) 497-0301

Linking Strategic Planning and Budgeting

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Linking Strategic Planning and Budgeting. Dennis P. Jones Presented to Minnesota State Colleges and Universities January 11, 2001. National Center for Higher Education Management Systems P.O. Box 9752 Boulder, Colorado 80301-9752 (303) 497-0301. Planning. - PowerPoint PPT Presentation

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Page 1: Linking Strategic Planning and Budgeting

Linking Strategic Planning and Budgeting

Dennis P. Jones

Presented to

Minnesota State Colleges and Universities

January 11, 2001

National Center for Higher Education Management SystemsP.O. Box 9752 Boulder, Colorado 80301-9752 (303) 497-0301

Page 2: Linking Strategic Planning and Budgeting

Management Cycle

Strategic Management —The allocation of resources to programmed activities calculated to achieve a set of goals.

Resource Allocation

Assessment

Planning

Page 3: Linking Strategic Planning and Budgeting

The Management Cycle in a Public Institution

State

Planning

Institution

State

Assessment

Institution

State

Resource Allocation

Institution

Page 4: Linking Strategic Planning and Budgeting

Planning

Making Decisions about OrganizationalPriorities that Specify What Changes in Intentions, Competencies, or Behaviorsthe Organization Will Pursue

The Mechanism Through Which Organizational Values and Methods of Identifying Them Are Affirmed

NOTE:> Planning must result in Decisions.

> It is fundamentally a Change Process.

Page 5: Linking Strategic Planning and Budgeting

Strategic Decision Areas

Basic Mission

Clientele

Program/Service Mix

Comparative Advantage

Assets

Objectives

Basic Purposes of the Enterprise and its Guiding Principles for Behavior

Target Audiences of the Institution

Program Offerings and Priorities of the Institution

“Differential Advantage” Sought Over Other Organizations Engaged in Similar Activities

Changes Needed in Human, Physical, Information or Intangible Assets of the Enterprise

What the Organization Must Accomplish in Order to Move from Existing to Desired State of Affairs

Page 6: Linking Strategic Planning and Budgeting

The Product of the Strategic Planning Process—Institutional Priorities/Strategic Themes

Institutional Issues

> Cannot Be Addressed by a Single Unit

> Cannot Be Identified by Finding Common Elements in Unit Plans

Long-Term—Cannot Be Resolved in a Single Year

Require Responses Through Basic Institutional Processes—Are not Programmatic “Add-Ons”

Characteristics

Page 7: Linking Strategic Planning and Budgeting

Examples of Strategic Themes

Become More Client-Centered> Students> Employers> Communities

Address the Particular Needs of Underserved Clients> Minorities> Geographically Remote Areas> Academically Poorly Prepared

Improve Retention and Graduation Rates

Incorporate Use of Technology in All Institutional Functions

Page 8: Linking Strategic Planning and Budgeting

What Is Budgeting?

Making Decisions

That Distribute Resources

To Enable Action

Page 9: Linking Strategic Planning and Budgeting

What Is Budgeting? (cont.)

The Budget Is the Primary Device by Which an Organization:> Carries Out Its Plans

> Signals Its Priorities

Other Mechanisms Include:> Organizational Alignment

> Regulation/Procedures

> Accountability

The budget is the mechanism through which positive incentives for change can be created.

Page 10: Linking Strategic Planning and Budgeting

The Typical Budget Process

Starts with Revenue Estimates

Involves Budget Guidelines Focused on Price Changes> Salary Increases> Operations/Utilities> Equipment

Invites Units to Submit:> Budgets Within These Guidelines> Special Requests

Involves “Triage” at Every Step up the Organizational Structure

Page 11: Linking Strategic Planning and Budgeting

Linking Planning and Budgeting...

Planning Is Typically Conducted at the Strategic Level

Budgeting Is Typically Focused at the Operational Level

We need to develop an approach to strategic budgeting.

…Is So Difficult Because:

Page 12: Linking Strategic Planning and Budgeting

Decisionmaking

Creation and Maintenance of Institutional Capacity

Utilization of that Capacity in Ways Designed to Accomplish Specified Purposes

Strategic Decisions Focus on the:

Operational Decisions Focus on the:

Page 13: Linking Strategic Planning and Budgeting

The Focus of Budget Decisions

What Kinds Will We Have/Own?

In What Quantities/How Many?

With What Characteristics?> Quality> Appropriateness

At What Price?

What Are Assumptions about Levels of Utilization?

Assets

Page 14: Linking Strategic Planning and Budgeting

The Focus of Budget Decisions (cont.)

In What Quantities? At What Prices?

Consumables (Utilities, Insurance, Supplies, etc.)

Revenues In What Amounts? From Which Sources?

Allocation To Which Units? To What Ends? (the Basis of Accountability)

Page 15: Linking Strategic Planning and Budgeting

One Set of Trade-Offs

Unit Total Total RevenuesQuantity Characteristics Utilization Cost Cost $ Rev. $ Sources

AssetsPersonnelFacilitiesEquipmentCollectionsStudentsFinancesProgram

ConsumablesServicesSuppliesUtilities

Contingency

New Initiatives

=

TuitionAppropriationsGovt. GrantsPrivate GiftsEndowmentSales & ServicesOtherReserves

Page 16: Linking Strategic Planning and Budgeting

A Second Set of Trade-Offs

Assets(Personnel, Equipment, etc.)

Organizational Units

College ADept. 1Dept. 2...

College BDept. 10Dept. 11...

Administrative Units

Consumables

Page 17: Linking Strategic Planning and Budgeting

1. The budget be given a structure that explicitly reflects the areas of responsibility of strategic level decisionmakers—that it contain the following components:

2. The budget process be such that guidelines are established around each component prior to initiating unit level budget-building.

Structure of the Budget

Base/Continuation—the Status Quo Adjusted for Price Changes

Strategic Initiatives

Contingency

Asset Maintenance

Asset Creation/Deletion—Intentional Changes in the Asset Structure

In order for the budget to respond to the responsibilities of institutional leaders and link to the strategic plan, it is suggested that:

Page 18: Linking Strategic Planning and Budgeting

To Evaluate the Budget, Ask Questions

About Changes in the Asset Structure

> How will staffing patterns change?

> How will materials acquisitions be affected?

> How will the stock of equipment/technology change?

About Asset Maintenance

> What is relationship between expenditures on renovation and renewal of plant and replacement value of plant?

> What is rate of replacement of equipment?

> What is the ratio of personnel development to compensation?

> What is trend in expenditures on curriculum development?

> What level of financial reserves is being maintained?

> How effective is the investment in student financial aid?

Page 19: Linking Strategic Planning and Budgeting

To Evaluate the Budget, Ask Questions(cont.)

About the Contingency Fund

> How large is the contingency fund relative to the operating budget?

About the Consequences of Resource Utilization

> What is the evidence that the institutional priorities are being achieved? That the institution is fulfilling its mission?

> What is the evidence that the state/system priorities are being achieved?

Page 20: Linking Strategic Planning and Budgeting

The Role of the CFO

Assemble the Data> Revenues> Maintenance of Assets> Consumables> Investment in Strategic Initiatives> Contingency

Calculate the Size of the Gap—The Unmet Need

Compile Benchmark Data> Staffing> Faculty Productivity> Etc.

(continued)

Page 21: Linking Strategic Planning and Budgeting

The Role of the CFO (cont.)

Make Clear the Nature of the Tradeoffs—What Would Have to Be Given Up to Balance the Budget?

> What % of Facilities Renewal?

> What % of Equipment Investment?

> How Many Positions?

> What % of Operating Budgeting?

Engage the Cabinet in Making the Decisions—This Is the Job of Institutional Leadership, not Just the CFO.