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 2: Keep Cost Allocation Metrics Simple

Charge ahead?

The second budget design lesson is to keep cost allocation simple. Distributing overhead costs at a college or university is difficult because most institutions lack the activitybased accounting tools required to calculate an individual unit’s precise share of overhead.

For select services, such as classroom space or utilities, directly metering each unit’s usage is an appropriate strategy. These services are both readily measurable and resources most leaders want to better ration across campus. In most instances, though, metering has little or no impact, as services provide broad institutional benefits and costs are mostly fixed.

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Common Methods to Allocate Revenue to Units

Diminishing Returns to Complexity