Strategic Resource Allocation...Process Assess all ppgrograms on finance / mission and market trends / competencies Plot finance / mission result on quadrantsPlot finance / mission

Strategic ResourceStrategic Resource Allocation / Assessment

CSU FullertonCSU Fullerton

Larry Goldstein

September 23, 2008 © Campus Strategies 1

yPresident, Campus Strategies

AgendaAgenda

Resource allocation through budgetingResource allocation through budgetingVarious budgeting modelsO h i ll iOne approach to strategic resource allocationAssessment through performance measurementOutcome measuresQuestions, comments, and reactions


Resource Allocation


Ideal ApproachIdeal Approach

Relies on a broadly participative processRelies on a broadly participative processIntegrates resource allocation with planning and assessmentand assessment– Planning driven by established vision

All allocation decisions driven by planning– All allocation decisions driven by planning prioritiesResults of allocations assessed regularly and– Results of allocations assessed regularly and consistently

Emphasizes accountability versus controlSeptember 23, 2008 © Campus Strategies 4

Emphasizes accountability versus control

VisionVision


What Really Matters?What Really Matters?

ResourcesResources– Dollars

P iti– Positions– Space– Technology

Planning, resource allocation, and g, ,assessment must address all four

September 23, 2008 6© Campus Strategies

BudgetingBudgeting

Most familiar aspect of resource allocationMost familiar aspect of resource allocationOther aspects of resource allocation

S i– Space assignment– Establishment of technology priorities– Process for assigning new positions– Any reallocation processAny reallocation process

Dollars, faculty or staff positions, space, equipment etc


equipment, etc….

Budgeting (contd )Budgeting (contd.)

Budget as predictorBudget as predictor– Integration with GAAP reporting

i k i i iLink to activities statementLink to balance sheet

Driver of planningApplication of ratio analysisApplication of ratio analysis– Use budget to project Composite Financial

Index (CFI) and its componentsSeptember 23, 2008 © Campus Strategies 8

Index (CFI) and its components…

Budgeting (contd )Budgeting (contd.)

All-funds budgetingAll-funds budgeting– Unrestricted

i d ( if d i– Restricted (e.g., gifts, endowment income, sponsored research)

Approved budget is only a snapshotProcess is continuousAlways responding to new information

Plans assessment results etcSeptember 23, 2008 © Campus Strategies 9

– Plans, assessment results, etc.

Questions?


Budget Models


Types of BudgetsTypes of Budgets

OperatingOperatingCapitalS i l i i i iSpecial initiativesRestrictedProjectDepartmentalDepartmentalAnd many more


Budget ModelsBudget ModelsIncrementalF lFormulaZero-basedResponsibility centerPlanning, programming, and budgetingg, p og g, d budge gSpecial purpose

Initiative basedInitiative-basedPerformance-based


Hybrid

IncrementalIncremental

All budgets are adjusted by a specifiedAll budgets are adjusted by a specified percentage—either up or downEasy to administer most efficient modelEasy to administer, most efficient modelFlawed because it assumes existing allocations

iare appropriateNot linked to plans and no priorities are setMaintains status quo / mediocrityFails to leverage opportunities


Fails to leverage opportunities

FormulaFormula

Resource allocations driven by purelyResource allocations driven by purely quantitative factors

Enrollment employment space etc– Enrollment, employment, space, etc.More common among public institutionsRelatively efficientFlawed unless formulas adjusted for prioritiesj pFormulas frequently become outdated


Zero-basedZero based

Assumes no history and builds from thereAssumes no history and builds from thereIdentifies activities and related costs

C b d diff i i i d– Costs vary based on differing anticipated outcomes

Decisions are made based on the packages of activities and what they’ll accomplish…


Zero-based (contd )Zero based (contd.)

Fairly labor and paper intensiveFairly labor and paper intensiveDifficult to apply consistently

iff b d i i i d– Difference between administrative and academic activities

Rarely applied completelyOccasionally used on a cyclical basisy y


Responsibility CenterResponsibility Center

Numerous terms to describe system of “everyNumerous terms to describe system of every tub on its bottom”Revenue centers “own” revenues they generateRevenue centers “own” revenues they generate – Responsible for expenses—both direct and

i di dindirect—and pay taxesCost centers funded from central revenues and taxes…


Responsibility Center (contd )Responsibility Center (contd.)

Incentives generally less meaningful for costIncentives generally less meaningful for cost centers than revenue centersRisk that some units will act in ways notRisk that some units will act in ways not beneficial to larger institutionG kGovernance structures take on greater significanceRarely applied universally


Planning, Programming, andBudgeting System (PPBS)

Focuses on centralized decision-making, a long-range orientation, and systematic analysis of alternative choices based on relative costs and benefitsSeeks to link costs to alternative approaches for achieving goals for each major activityg g j yPositives include ability to group activities by function to obtain output-oriented cost datafunction to obtain output oriented cost data…


PPBS (contd )PPBS (contd.)

Provides ability to estimate future expensesProvides ability to estimate future expenses when making multiyear commitmentsEmploys quantitative evaluation supportingEmploys quantitative evaluation supporting selection among competing prioritiesSi ifi bl i l d d fSignificant problems include need for strong centralized management—doesn’t work with h dshared governance

Difficulty in HE to agree on program and outcomes or assign costs to programs


Initiative-basedInitiative based

Special purpose budget modelSpecial purpose budget modelUsually focused on priorities established through planning processthrough planning processFunds taken “off the top” or generated through

ll ireallocation processUsually applied using one-time funds versus continuing commitments…


Initiative-based (contd )Initiative based (contd.)

Competitive process used to distributeCompetitive process used to distribute resources

Sometimes separate pools for academic and– Sometimes separate pools for academic and administrativeP i i i id ifi d i i bli h d– Priorities identified, criteria established, proposals received

– Awards madeMust incorporate assessment process


p p

Performance-basedPerformance based

Special purpose budget modelSpecial purpose budget modelMost common within public settings

f i i bli h d b– Performance criteria established by state department or system office

Frequently operates as “flavor of the day”– That is, whatever issue is drawing attention , g

politically…


Performance-based (contd )Performance based (contd.)

Portion of available resources reserved forPortion of available resources reserved for distribution to entities achieving certain levels of performanceof performanceUsually only a small amount of total resources 1 or 2 percentresources—1 or 2 percentIntended to drive specific accomplishmentsRarely results in sustained improvement


HybridHybridVery few “pure” budget models in useVery few pure budget models in use Most are variations or combinations of the models just describedmodels just described Some work in combination

I t l ith i ti b d– Incremental with incentive-based– Formula with zero-based on a rotating basis

Others simply a hodgepodge that varies from year to year


Questions?


Tool for Strategicll iResource Allocation


Strategic Resource AllocationStrategic Resource Allocation

Multiple approaches possibleMultiple approaches possibleRobert Dickeson’s prioritization model

l bl b f h li i h– Valuable because of holistic approachStrategic Financial Analysis for Higher Education, Sixth Edition, KPMG, Prager Sealy & Co., LLC, and BearingPoint– Focuses solely on academic programs

Illustration using sixth edition


Illustration using sixth edition

Relationship of Finances t Mi i (Q d t )to Mission (Quadrants)

Q3Important

Q1Critical

Q2Q4

FinancialPerformance

Q2Very

Important

Q4Less

Important

Mission


Relationship of Markett C t i (S t )to Competencies (Sectors)

S3Important

S1Critical

S2S4

MarketTrends

S2Very

Important

S4Less

Important

Internal Competencies


ProcessProcessAssess all programs on finance / mission and p gmarket trends / competenciesPlot finance / mission result on quadrantsPlot finance / mission result on quadrantsPlot market trends / competencies result on sectorssectorsOutcome is one of 16 possible combinationsUse the results to make investment / disinvestment decisions


ApplicationApplication

Q3 – S3Important

Q1 – S1Critical

FinancialPerformance

Q2 – S2Q4 – Q4

CriticalPerformanceand

Market Q2 S2Very

Important

Q4 Q4Less

ImportantTrends

Mission and Internal Competencies



Q1-S1: CriticalQ1-S1: Critical– High on all (mission / finances; market

trends / internal competency)trends / internal competency)Star programsDefine the institutionEstablish favorable reputationpUsually first priority for fundingAssess regularly but never cut


Assess regularly, but never cut


Q3 – S3Important

Q1 – S1CriticalFinancial

Q2 - S2Q4 – S4

Performanceand

MarketVery

Important

Q4 S4Less

Important

Market Trends

p




Q2-S2: Very ImportantQ2-S2: Very Important– High on mission / competency; low on

finances / market trends)finances / market trends)Past success; now a resource drainExcellent candidates for partneringIf not essential to identity, consider f y,eliminating unless future success can be assured



Q3 – S3Important


Performance

Q2 - S2Q4 – S4

pPerformanceand

Market Q2 S2Very

Important

Q4 S4Less

ImportantTrends




Q3-S3: ImportantQ3-S3: Important– High on finances / market trends; low on

mission / competency)mission / competency)“Cash cows”Pose a dilemma– They provide resourcesy p– Not consistent with priorities

Can you afford to abandon?September 23, 2008 © Campus Strategies 38

Can you afford to abandon?


Q3 – S3Important


P f

Q2 - S2Q4 – S4

Performanceand

Market Q2 S2Very

ImportantLess

ImportantTrends

p




Q4-S4: Less ImportantQ4-S4: Less Important– Low on all (mission / finances; market

trends / internal competency)trends / internal competency)Requires critical assessmentWhy does it exist?Is there a reason to expect future psuccess?– If not consider eliminating


If not, consider eliminating

Questions?


Assessment


AssessmentAssessment

Planning and resource allocation withoutPlanning and resource allocation withoutassessment are haphazard at bestNeed assessment to ensure correct decisionsNeed assessment to ensure correct decisions are being madeB h li i d i iBoth qualitative and quantitativeQuantitative provides greatest valueSome subjective assessments will always be needed


Performance ManagementPerformance Management

Unique to an institutionUnique to an institutionFocuses on resultsA i i iAction orientationBased on measurable facts (i.e., data) whenever possibleIf subjective, strive for consensusj ,


What Metrics Can DoWhat Metrics Can Do

Bring clarity to visionBring clarity to visionFocus attention on strategy as opposed to short term operational considerationsshort-term operational considerationsAvoid resource allocation decisions focused

l l h b d d / isolely on short-term budget needs / issuesHighlight strategies to ensure incentives are appropriate


Why Metrics Are Not UsedWhy Metrics Are Not Used

Tendency to focus on projects rather than bigTendency to focus on projects rather than big pictureConcern about scrutiny of “pet” initiativesConcern about scrutiny of “pet” initiativesHistorical lack of accountability or penalty f ffor poor performanceVulnerability to attack and misinterpretation if not done effectively or misused…


Why Metrics Are Not Used (contd )Why Metrics Are Not Used (contd.)

No executive championNo executive champion Measurement is difficult

f f fiMost common measures from for-profit sector don’t fit higher educationSome activities not susceptible to routine quantification


Effective AssessmentEffective AssessmentEnhances communication about strategyEnhances communication about strategyLeads to better focus / alignment of activities with strategieswith strategiesEnables organizational improvement F th t d i iFurthers progress toward visionPuts focus on priorities; improves resource allocation decisions


Mission MeasuresMission Measures

Assess effectiveness of mission-basedAssess effectiveness of mission-based outcomesUnique to each institution based on its specificUnique to each institution based on its specific mission / visionWh i i i blWhen mission is not measurable– Establish goals representative of mission

accomplishment and measure those


How Metrics are UsedHow Metrics are Used

Link budgets to plansLink budgets to plansCompare to peers / aspirantsC d l i di l l iConduct longitudinal analysisEffect mid-course corrections–take actionReport / discuss with management, internal stakeholders, and interested external ,constituents


Questions?


Outcome Measures


Outputs

Services or products provided by the i i iinstitution– Output measures tend to be easy to

quantifyGenerally focus on quantity of service y q yor product providedMay or may not address concept ofMay or may not address concept of quality


Outcome

An institution’s impacts on the external i h l i id h henvironment or the value it provides through

its products or services– Outcome measures consider impacts and

accomplishments resulting from providing a service or product

Key word is resultsy


Assessment

Requires the generation of data– Data can be objective or subjective / hard

or softHard objective data include facts and “actual” measures related to the activity– E g number of graduatesE.g., number of graduates


Assessment (contd.)

Soft objective data include estimates or j i f l d hprojections of measures related to the

activity– E.g., estimated number of graduates

in 2010


Assessment (contd.)

Hard subjective data include i i d i iperceptions, attitudes, opinions, etc. as

measured by validated instruments– E.g., results of written satisfaction

surveys conducted with alumni five years after graduation


Assessment (contd.)

Soft subjective data include qualitative i f i d i i finformation presented in narrative form– E.g., a report of the results of

interviews with graduates conducted immediately following graduation


Developing Outcome Measures

Outcome measures can be hard or soft / bj i bj iobjective or subjective

Process requires a forward / backward focus– Forward focus identifies the desired

impacts / value soughtp g– Backward focus starts with identified

impact / value then considers what effortimpact / value, then considers what effort will produce that impact


Questions


IllustrationIllustration

SituationSituation– Booming region

S b i l d f C A i– Substantial need for CPAs, investment bankers, and financial analysts

– Successful individuals with these skills tend to be well compensated

– If they have a good educational experience, likely to become generous donors to schooly g


Illustration (contd )Illustration (contd.)

OpportunityOpportunity– Created by the fact that there is no

established business program in the regionestablished business program in the regionStrategy– Develop a first-rate business program to

meet the region’s needs for financial professionals



Output measure: number of graduates withOutput measure: number of graduates with business degrees (objective / hard)Outcome measure: number of graduatesOutcome measure: number of graduates obtaining local jobs in financial industry (objective / hard)(objective / hard)Outcome measure: estimated number of

d i d h l i 2010graduates pursuing graduate school in 2010 (objective / soft)…



Output measure: number of graduates takingOutput measure: number of graduates taking CPA exam (objective / hard)Outcome measure: number of graduatesOutcome measure: number of graduates passing CPA exam (objective / hard)O b f dOutcome measure: number of graduates receiving top score on CPA exam (objective / h d)hard)…



Outcome measure: results of writtenOutcome measure: results of written satisfaction surveys taken by employers with graduates from business program three yearsgraduates from business program three years after graduation (subjective / hard)Outcome measure: report of annual employerOutcome measure: report of annual employer forum conducted to assess performance of graduates from business program (subjective /graduates from business program (subjective / soft)



Outcome measure: reduced incidence ofOutcome measure: reduced incidence of bankruptcy in the region (objective / hard)Outcome measure: reduced indictments forOutcome measure: reduced indictments for corporate fraud in the region (objective / hard)O d i i f iOutcome measure: designation of region as preferred locale for startup businesses by

’ Offi f E i D lstate’s Office of Economic Development (subjective / soft)


Strategic ResourceStrategic ResourceAllocation / Assessment

Questions, Comments,and Reactions

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Strategic Resource Allocation...Process Assess all ppgrograms on finance / mission and market trends / competencies Plot finance / mission result on quadrantsPlot finance / mission