Article
Alternative higher education budgeting models: Pros, cons, and implementation
July 9, 2024 · Authored by Tammy Lohr, Scott Simpson
Loading...
Article
July 9, 2024 · Authored by Tammy Lohr, Scott Simpson
Higher education institutions are increasingly exploring alternative budgeting methods to navigate financial pressures, enrollment challenges, and shifting priorities.
Many institutions have relied on incremental budgeting but have found that it doesn’t allow them to effectively allocate resources, respond to environmental changes, or clearly link to performance and strategy.
As a result, institutions are turning to other budgeting methods, such as activity-based budgeting, performance-based budgeting, and incentive-based budgeting to better align resources with strategic priorities.
While traditional incremental budgeting methods are falling short for higher education institutions, alternative budgeting methods offer potential solutions, including the following examples. These methods require careful implementation and ongoing evaluation to ensure they align with the institution's strategic priorities and effectively allocate resources.
ABB is a budgeting method that focuses on the activities an institution performs and the resources required for those activities. This method helps institutions identify the most important activities and allocate resources accordingly.
ABB allows for better alignment of resources with activities, enhancing efficiency and effectiveness. It improves transparency, providing a clearer picture of the costs associated with individual activities.
This transparency aids in decision-making and increases accountability, as resources are linked to specific activities.
Implementing ABB can be time-consuming and complex, especially for institutions with a large number of activities. It requires comprehensive data collection, which can be challenging for institutions with limited resources.
Additionally, ABB can be inflexible, making it difficult to respond to unexpected changes in priorities or needs.
To effectively implement ABB, institutions should ensure:
PBB links funding to performance outcomes, allocating resources based on the achievement of specific performance goals and objectives.
PBB improves the alignment of resources with strategic priorities and increases accountability by linking resources to performance outcomes. It enhances transparency, providing insight into the performance of individual programs and activities. This transparency facilitates informed decision-making.
Implementing PBB requires careful planning and ongoing monitoring. It may also create pressure to meet performance metrics, potentially leading to a narrow focus on quantifiable outcomes at the expense of broader educational goals.
For effective PBB implementation, institutions should:
IBB — also referred to as responsibility centered management budgeting — provides financial incentives to departments or units based on their performance. The goal of IBB is to encourage departments or units to achieve specific performance goals by providing them with financial rewards for meeting those goals.
IBB aligns resources with strategic priorities by rewarding departments or units that achieve their performance goals. It increases accountability and enhances transparency, providing a clear picture of the performance of individual departments or units. This transparency aids in decision-making.
Implementing IBB requires careful planning, ongoing monitoring, and evaluation. It may also lead to competition between departments or units, potentially undermining collaboration.
To effectively implement IBB, institutions should
When thinking about its budget model, a higher education institution should consider the following factors:
By considering these factors, a higher education institution can develop a budget model that’s aligned with its strategic priorities, responsive to changes in its environment, and effective in allocating resources to achieve its goals.
