Optimizing Institutional Budget Models

Strategic Lessons for Aligning Incentives and Improving Financial Performance

Topics: Academic Affairs, Budgeting, Administration and Finance, Budget Models and Cost Allocations, Debt Management, Facilities and Operations, Space Utilization, Revenue Enhancement, Tuition and Fees, Library, Research Enterprise, Strategic Planning

Lesson 1: Let Institutional Goals Drive Revenue Allocation

Matching control and authority

The first budget design lesson is that institutional goals should determine how the budget model allocates revenue.

Seeking new revenue, more colleges and universities are considering incentivizing academic units to grow by allocating them a share of the revenue they generate. However, allocating all revenue to units versus retaining all revenue centrally is a false choice. Instead, institutions should first consider what type of revenue they want to grow and then select an allocation method that creates an incentive for the behavior they want.

Some types of revenue can be greatly impacted by academic unit leaders, and greater allocation can incent meaningful growth. Others cannot be easily inflected by academic units and are more logically kept under central control.

Expanding Professional Master’s programs, for example, is contingent on academic leaders’ cooperation. Allocating units a share of revenue from the new program provides incentives for leaders to support growth. On the other hand, academic leaders have little control over state appropriations, so allocating these funds to units has less impact.

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More Than Dollars and Cents

Common Methods to Allocate Revenue to Units