Alternative higher education budgeting models: Pros, cons, and implementation

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.

Insights into alternative budgeting models

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.

Activity-based budgeting (ABB)

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.

Pros

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.

Cons

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:

• Strong leadership support
• Clear communication