Strategic Planning and Strategic Budgeting in Higher Education

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Strategic Planning and Strategic Budgeting in
Higher Education

• Presentation at
• International Symposium on University
  Administration Methods and Models
• Moscow, 15-16 April 2002

Aims C. McGuinness, Jr. Senior Associate National
Center for Higher Education Management Systems
(NCHEMS) Boulder, Colorado, U.S.A.
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National Center for Higher Education Management
Systems (NCHEMS)

• Private Nonprofit (NGO)Policy Center Established
  in 1969
• Mission To Improve Higher Education Management
  at Institution, System and State Levels
• Focus Use of Information to Shape Public,
  System, and Institutional Policy

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Rethinking Policy Tools to Effect Change
From
To

• Rational Planning for Static Institutional Models
• Quality Defined Primarily in Terms of
  Resources/inputs (Such As Faculty Credentials,
  Libraries, Space, and Time)

• Strategic Planning for Dynamic Market Models
• Quality Defined in Terms of Outcomes and
  Performance As Defined by Clients (Students,
  Employers, Government, and Others)

(Continued)
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Rethinking Policy Tools (Cont.)
From
To

• Centralized Control and Regulation (Such As
  Tightly Defined Missions and Financial
  Accountability)
• Financing Focused on Inputs and
  Cost-reimbursement

• Deregulation and Decentralized Management and Use
  of Policies (Incentives, Performance Funding) to
  Stimulate Response to Public Priorities
• Financing Focused on Return on Investment,
  Performance and Public Priorities

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Strategic Management Cycle
Strategic Management The Allocation of Resources
to Programmed Activities Calculated to Achieve a
Set of Goals.
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Strategic Management

• Definition
• Allocation of Resources To Programmed Activities
• Calculated To Achieve a Set of Goals.
• Characteristics
• Dynamic Ever Changing
• Integrated Planning, Assessment, Resource
  Allocation
• Iterative
• Takes Place Over Time
• Involves Continuous Interaction Among
  Institutional Levels

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The Management Cycle in a Public Institution
State
Planning
Institution
State
State
Resource Allocation
Assessment
Institution
Institution
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Planning

• Making Decisions About Organizational Priorities
  That Specify What Changes in Intentions,
  Competencies or Behaviors That the Organization
  Will Pursue
• The Mechanism To Affirm Organizational Values and
  Methods By Which They Are Identified

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Approaches to Planning

• Long Range Planning
• Market Driven
• Strategic Planning

• Linear
• Adaptive
• Interpretive

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Approaches to Planning
Defined Goals
Linear
Goals Are Market-Driven
Adaptive
Defined Goals
Interpretive/ Strategic
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Strategic Planning

• Planning Must Result in DECISIONS
• Planning is Fundamentally a CHANGE PROCESS

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Strategic Planning

• Objectives
• Make Decisions (Now) Concerning the Desired
  Future
• Develop Optimal Relationship Between the
  Organization and Its Environment
• Provide Unity and Direction to All Organizational
  Decisionmakinga Context for Operational Decisions

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Institution - Environment Connection
Institution
Environment
Image
Competitive
Values
Climate
Demographic
Facilities
Programs
Technological
Strategic Decisions
People
Legal
Economic
Social
Finances
Values
Political
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Strategic Planning Levels of Strategy
Level I Strategic Themes
External Environment Opportunities Threats
Mission Clientele Program Mix Comparative
Advantage Assets
Mission Clientele Program Mix Comparative
Advantage Assets
Strategic Themes
1. Do we want to change? 2. Must we
change? 3. Can we change?
Organizational Culture
Match
Internal Environment Strengths Weaknesses
WHO WE ARE
WHO WE WANT TO BE
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Levels of Strategy (Continued)
Level IITactical Themes
Level IIIOperational
Behavioral Outcomes
Financial Enrollment Admissions Organizational Hum
an Resources Facilities
Development of Strategic Plans - Academic
Units - Support Services
Financial Enrollment Admissions Organizational Hum
an Resources Facilities
What Concrete Changes Will Result?
Planning Guidelines
Who will do what? How is it carried out?
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Focus of This Presentation

• Level I - Strategic Planning Leading to Strategic
  Themes
• Linking Strategic Themes to Strategic Budgeting

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Focus Use Information to Distinguish Among
Realities
Aspirations
Myths
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Strategic Decision Areas
Basic Mission Clientele Program/Service
Mix Comparative Advantage Assets Objectives
Basic Purposes of the Enterprise and its Guiding
Principles for Behavior Target Audiences of the
Institution Program Offerings and Priorities of
the Institution Differential Advantage
Sought Over Other Organizations Engaged in
Similar Activities Changes Needed in Human,
Physical, Information or Intangible Assets of the
Enterprise What the Organization Must Accomplish
in Order to Move from Existing to Desired State
of Affairs
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Strategic Plan
WHO WE WANT TO BE
WHO WE ARE
External Environment
Opportunities Threats
Mission Clientele Program Mix Comparative
Advantage Assets
Mission Clientele Program Mix Comparative
Advantage Assets
Strategic Themes
1. Do we want to change? 2. Must we
change? 3. Can we change?
Organizational Culture
Match
Internal Environment
Strengths Weaknesses
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Strategic Analysis Paradigm
Environmental Opportunities, Threats, and
Constraints
STRATEGIC VISION

• Mission
• Clientele
• Program/Service Mix
• Comparative Advantage
• Assets
• Objectives

Organizational Strengths and Weaknesses
MatchingProcess
Organizational Culture
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External Environmental

• Threats and Opportunities

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Major Types of External Forces

• Economic
• Social
• Technological
• Political/Legal
• Demographic
• Competitive
• Educational
• Institutional Priorities

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Internal Environment

• Institutional Strengths and Weaknesses

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Internal Resource Categories

• Human
• Financial
• Physical
• Programmatic
• Image
• Climate

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Criteria for Evaluation of Program/Service Mix

• Quality
• Mission

• Quality of
• Faculty
• Students
• Library Holdings
• Facilities and Equipment
• Centrality to Mission

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Criteria for Evaluation of Program/Service Mix

• Need
• Cost

• Present Student Demand
• Projected Student Demand
• Demand for Graduates
• Location or Comparative Advantage
• Cost/Revenue Relationship
• Other Costs/Benefits

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Organizational Culture

• OpennessSharing of Information
• Decisionmaking Styles
• Institutional Characteristics/Behaviors
• Common Responses to Environmental ForcesTypical
  Strategies
• Decisionmaking Processes

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Critical Questions

• Do We Want to Change?
• Are We Forced to Change?
• Can We Change?

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Strategic Themes Product of Strategic Planning
Process
Characteristics

• Organization-Wide Issues
• Cannot Be Addressed by a Single Unit
• Cannot Be Identified by Finding Common Elements
  in Unit Plans
• Long-TermCannot Be Resolved in a Single Year
• Require Responses Through Basic Organizational
  ProcessesAre not Programmatic Add-Ons

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Important Distinctions

• Distinguish Between University-Level and Unit
  Level Strategy
• University Level Focus on Primarily on Ends -
  What
• Strategic Themes Developed at Level I
• Tactical Themes at Level II
• Unit Level (Faculties, Departments and Other
  Units) Focus on Means - How at Level III
  (Operational)

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Distinctions (Continued)

• Plan in the Large But Implement in the Small
• Strategic Planning Should Provide a Framework for
  a Multi-Year Change
• Actual Changes Take Place Through Thousands of
  Small Decisions Consistent with the Strategic
  Themes Taken By Individuals and Units in Highly
  Decentralized Environment

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Budgeting

• Definition and Overview

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What Is Budgeting?
Making Decisions That Distribute Resources To
Enable Action
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What Is Budgeting? (Cont.)

• The Budget Is the Primary Device by Which an
  Organization
• Carries Out Its Plans
• Signals Its Priorities
• Other Mechanisms Include
• Organizational Alignment
• Regulation/procedures
• Accountability
• The Budget Is the Primary Means for Creating
  Positive Incentives for Change

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Strategic Management Cycle
Strategic Management The Allocation of Resources
to Programmed Activities Calculated to Achieve a
Set of Goals.
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Linking Planning and Budgeting

• In the Absence of a Planthe Budget Is the Plan
• If a Plan Exists and It Is Not Closely Linked to
  the Budget, the Budget Is Still the Plan
• Therefore, If a Plan Is to Be Implemented, There
  Must Be a Strong Linkage Between the Plan and the
  Budget

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Basic Points About Strategic Budgeting

• Point One
• Efforts to Change or Improve Are Affected by
  Resource Allocation Approaches
• Used by the Institution Itself
• Employed by the State and Other External Revenue
  Sources

(Continued)
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Basic Points (cont.)

• Point Two
• The Approach to Resource Allocation Is the
  Strongest Lever for Change Available to
  Decision-makers Either Inside or Outside the
  Institution

(Continued)
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Basic Points (cont.)

• Corollary
• All Approaches to Resource Allocation Create
  Incentives for Particular Kinds of Behavior
• Central Question
• Do These Incentives Encourage or Impede the
  Changes Desired?

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Basic Points (Continued)

• Point Three
• Strategic Budgeting is Not Only About Money. The
  Most Important Decisions About Related to the
  Institutions Assets - Especially Human Resources

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Strategic Versus Operational Decision-making
Strategic Decisions Focus on the

• Creation and Maintenance of Institutional
  Capacity
• Utilization of that Capacity in Ways Designed to
  Accomplish Specified Purposes

Operational Decisions Focus on the
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Basic Budget Trade-Offs
Costs
Revenues
Revenue Sources
Unit Cost
Total Rev
Total Cost
Quantity
Quality
Utilization
Student Fees State Budget Govt. Grants Private
Gifts Endowment Sales Services Other
Revenues Reserves
Assets Personnel Facilities Equipment Collection
s Students Finances Program Consumables Servic
es Supplies Utilities Contingency New
Initiatives

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Key Points

• Many Universities Only Attempt to Increase
  Revenues (Right Side of Chart) and Do Not Address
  Need for Fundamental Creation and Maintenance of
  Assets (Left Side)
• Major Changes in Asset Structure Are Rarely Made
  in the Short-Term But Require Step-By-Step
  Changes Over Several Years

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Key Points

• To Ensure A Link Between Strategic Planning and
  Strategic Budgeting, Funds Should be Budgeted for
  Contingencies and New Initiatives (Right Side of
  Chart) Linked to the Strategic Themes for Change

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Summing Up
Strategic Planning Making Decisions on
Organizational Priorities That Specify What the
Organization Intends to Do or Be. Planning Is a
Process Through Which Organizational Values Are
Affirmed and Methods Expressing Them Are
Identified.
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Summing Up
Strategic Budgeting Making Decisions on
Organizational Capacity That Specify How
Resources Will Be Distributed. Budgeting Is a
Process Through Which Organizational Values
Become Manifest and Opportunities for Expressing
Them Are Created.