By Kaitlyn Maloney
In an era of limited resources, colleges and universities want to ensure strategic investments yield the greatest possible return. While institutions obviously aim to invest in projects with high ROI or high strategic importance (or both), not every investment pays off.
However, the more low-yield initiatives institutions can identify beforehand and preempt, the more resources are allocated to top priorities. Therefore, business executives should strive to rigorously evaluate all top-down, executive-driven investments and prioritize strategic investments that match institutional resources.
Common pitfalls of 'top-down' investments
There are two major pitfalls for top-down, executive-driven investments, and they represent two sides of the same coin. Business executives either overcommit or under-commit strategic dollars—failing to hit the sweet spot where they are investing all available strategic resources in projects with high ROI potential.
First, business executives typically overcommit strategic dollars. This is often a result of underestimating the cost of a project or partially funding too many initiatives, which causes most projects to underperform relative to expectations.
Conversely, the second pitfall is an under-commitment of strategic dollars. Institutions that find additional uncommitted money partway through the year often feel pressured to fund things that can be completed in the same budgeting cycle—typically low-priority pet projects.
Create a more accurate picture of total costs
Laurentian University avoids these pitfalls with a more accurate picture of initiative costs. Leaders cost out strategic initiatives across an eight-year period and only select goals they can fully fund across time, which prevents the institution from overcommitting dollars. This exercise also prevents the institution from under-committing dollars, as cost estimates allow leaders to approve goals up to available resources. There are four additional advantages to this approach:
1. Ensuring more for later: Rejecting cost-prohibitive goals up front gives the institution more flexibility and capacity to recalibrate requirements.
2. Assisting development: Institutions see a realistic projection of cost estimates, which allows them to develop precise fundraising targets.
3. Engaging the board: Additional insights into key assumptions provide board members with more opportunities to build trust in estimate accuracy.
4. Project necessary debt: Cost estimates allow the board to see necessary debt and consider how much they are willing to issue.
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