May 14 2019
In order for leadership to most appropriately weigh the funding of strategic initiatives and all other budget inputs, the institutional budget should be built each year on a zero-based budget philosophy, with focus on a “repeatable process … to rigorously review every dollar in the annual budget, manage financial performance on a monthly basis, and build a culture of cost management among all employees.”
In the institutional context, a zero-based budget starts with the strategic plan and mission of the university and identifies its core elements. Once those elements are funded and layered appropriately, then all other items can be added that are essential to student learning and operational success. With a focus on creating a culture of accountability and intentionality around expenses, each department and division is asked to rebuild its budget from the ground up and justify line item inclusions annually. That which does not fit is eliminated, modified in scope, or held in abeyance until enrollment numbers are solidified. A zero-based approach provides the discipline to carefully consider first what is truly necessary to accomplish the mission and strategy. This careful consideration means the budget process for each year is longer, starts earlier, and must be based on solid data analytics regarding revenue generated, expenses, future trends, and a clear understanding of the priorities of the institution.
In Maryville’s case, the board and the leadership were serious about bringing clarity, focus, and attention to the financial life of the institution, while they continued to keep students at the center of their focus. When clear financial accountability and agile decision-making around zero-based budgeting were integrated into the culture, surpluses became normal.
Vice President for Finance Steve Mandeville says, “Our budgeting process starts with the strategic plan. We look at what each goal and objective will cost, and we divide the budget accordingly. Then we look carefully at what we are contractually obligated for. We revisit things each year to be sure they are still relevant and valuable, and we give funding first to the identified priorities in the strategic plan. It’s important for budgeting to be an educative process so the campus community understands why surpluses are so important for the growth of the institution and required in order to provide better service to our students.” How many strategic priorities have gone unfunded at institutions across the country because leaders have lacked the courage to stop doing something that is no longer relevant or critical? At Maryville, aligning funding with strategic initiatives and working toward the greatest return on those investments has been critical to success.
Many universities are experts at adding onto the budget, but not at reorienting priorities year-to-year. For example, if it is determined in the strategic plan that tablet technology in the classrooms and new learning spaces are essential, then money must be earmarked to accomplish that goal first. Essentially, we can’t agree something is a priority and then try to find the money as an add-on to everything else. If everything is a priority, then nothing is a priority. Zero-based budgeting is critical because it forces everyone to assess value continuously, not just once. It forces all members of the campus community, over time, to tie everything to the strategic plan, and ultimately to investment in students and their learning first.
No Margin, No Mission Challenge Questions
- Are strategic initiatives funded before anything else in the budgeting process?
- Do you annually set aside money for contingencies in your budget?
- Are your faculty and staff fully informed and knowledgeable about your budgeting process?
- Do your faculty and staff have institutional financial literacy?
- Have you had a budget surplus in the last three years?
- Is surplus in the budget reinvested strategically in mission-centered initiatives?
- In a budget deficit, are adjustments made that create efficiencies in the organization rather than impact to learning?
- Is each department or division at your institution asked to rebuild and justify its budgets annually?
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