Management of unit budget surpluses represents a significant opportunity to reallocate resources at most colleges and universities. Many institutions utilize a 100% carry-forward policy, where units retain all year-end surpluses. However, this often results in units accumulating massive reserves while the center struggles for funds.
Conversely, other institutions manage unit budgets with a use-it-or-lose-it approach that pulls all year-end surpluses to central administration. This policy often creates a perverse incentive for unit leaders to spend down the balance of their budget at the end of the year to avoid losing funds.
Finding the middle ground: Combining advantages from both extreme approaches
The optimal middle ground between use-it-or-lose-it and carry-forward is gainsharing. Under this approach, units split any budget surplus with central administration. This “compromise” method benefits both units and the institution and combines the advantages of the two more extreme approaches. Because units retain a sizable portion of their surplus, they are incented to find cost savings and better steward resources. Likewise, because a portion of any surplus returns to the center, the institution can grow much-needed funds for larger strategic priorities.
Percentage of Budget Surplus Retained by Unit
Related: Crash Course on Structuring and Transitioning to Impactful Gainsharing
How to adopt a gainsharing model
Despite its advantages, only 10% of institutions use a form of gainsharing to manage academic unit surpluses. To help business executives better manage unit budget surpluses, our new study details how institutions can successfully adopt a gainsharing model. The first section of the publication details two options for structuring gainsharing agreements, and the second section offers two potential transition paths to move to gainsharing over time while mitigating campus resistance to change.
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Structuring and Transitioning to Impactful Gainsharing