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In Harmony

October 2016

By Joanne Brunn

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An institution’s fiscal success requires a bold and forward-thinking culture that helps campus leaders synchronize budgetary decisions with the strategic plan.

Most higher education institutions understand the importance of strategic budgeting for long-term viability, but achieving it is often an uphill battle. This struggle is largely due to the culture shift that must first take place in order for strategic thinking to become an integral part of the budgetary process. A budget process that ignores the institutional message and mission has no hope of earning a passing grade.

Cheryl Warner, controller at Northwood University (NU), Midland, Mich., has been part of the Northwood family since her undergraduate days. Throughout her more than 30 years with the university—in various accounting, budgeting, and instructor roles—Warner has championed the importance of transforming NU’s budget from a disjointed, once-a-year task to a fully integrated process that keeps pace with institutional goals.

“In today’s tough economy, Northwood’s budget has been under more scrutiny than ever,” says Warner. “This necessitates thoughtful planning to ensure that our budget matches up with our goals. I strongly believe that budgeting to strategy is the best way to ensure success, and bringing everyone together to accomplish this takes persistent and significant effort.”

Warner asserts that strategic budgeting has in fact become a prerequisite for effective financial administration in the higher education sector. Institutions like NU have turned attention toward initiatives related to student retention, academic expansion, program optimization, and IT upgrades. New strategies like these are imperative for sustainability—and fiscal success requires a forward-thinking culture that values the critical importance of making monetary decisions based on how well they mesh with the strategic plan.

What Needs to Shift?

If you ask Warner and her peers, Dan Brent, vice president of finance and operations at William James College (WJC), Newton, Mass.; and Lloyd Ricketts, vice president and treasurer at The College of New Jersey (TCNJ), Ewing, they all heartily agree on the importance of intertwining strategy with financial planning—and they have firsthand experience making it work. In recent years, all three have worked with other leaders at their respective institutions to foster a philosophy that moves budgetary planning to the forefront, in synchronous step with university strategy.

“Building a strategic budget involves careful planning and close attention to detail,” says Brent. “Budget holders and leadership must be prepared to monitor and make adjustments throughout the budget cycle. We’ve learned that everyone has to be on board, because timely collaboration among finance, leadership, and department heads is essential.”

Embracing new systems is never easy. Here are five keys to a shift in institutional culture that Brent has found to be instrumental in WJC’s budgetary transformation:

Evaluate your current budgeting solution. Do both the budget managers and the finance team find your current process effective for frequent planning, forecasting, reporting, and progress assessment? (See sidebar, “Ask These 10 Questions,” for Brent’s tips on evaluating your institution’s budget tools and selecting more effective budgeting software, if necessary.)

Build your budget with clarity of purpose. Instead of simply “cutting and pasting” a budget based on last year’s numbers, build your budget around specific forward-thinking goals. In the case of William James College, a name change in 2014 from the Massachusetts School of Professional Psychology indicated the institution’s growth to the size of a small college and served as a catalyst for embarking on a number of strategic initiatives to set the course for the school’s evolving brand, which reflects its educational philosophy and its commitment to provide critical services to the community.

Assemble an accurate financial framework. Incorporate past, present, and future issues for a more realistic and precise look at the larger financial picture.

Communicate the strategy to all of your constituents. Help individual budget holders understand their specific roles in bringing the strategic plan to fruition within the boundaries of the budget.

Keep strategic goals at the forefront. Strategy is important not only for initial planning and allocation, but for all budgetary phases throughout the year.

How Else Do We Make the Culture Shift?

In the move to better budgeting, it’s helpful for you and your team to identify the obstacles you may encounter along the way. (See sidebar, “Avoiding Bumps in the Road.”)

Motivated leaders like Ricketts, Warner, and Brent have uncovered additional strategies that have eased the transition from a traditional budgeting culture to an integrated, strategic approach:

Communication is crucial. As Brent noted earlier, building and executing a budget is much more than a financial process; it requires deliberate work to create a culture of open communication among leadership, all individuals with budget authority, and the various departments. These interchanges keep the conversation going throughout the fiscal year. Open communication helps build trust and support across your institution; it will also mitigate misunderstandings and keep employees informed and engaged, for example, in the wake of necessary budget reductions.

“Knowledge is power,” says Ricketts. “Having a solid strategic plan is important, but ensuring that each department understands its part in fulfilling that plan is imperative. Not only have we made it a priority to keep stakeholders abreast of the current strategy, we also have a specific protocol for submitting funding requests for strategic initiatives, and we ask people to document their justification of how each request aligns with specific strategic goals. In making funding requests, our budget managers know that the more details they include that are linked to strategic priorities, the more likely we are to advance their requests. This protocol has dramatically improved communication and our strategic resource allocation capabilities.”

Engage your participants. Successful communication around the budget process helps your institution engage its budget managers. Engaged employees are more loyal and committed, and they often work harder to improve the bottom line. Numerous studies show that employee engagement is an important predictor of future financial performance. For example, Gallup’s 2013 State of the American Workforce study demonstrates that companies in the top quartile for employee engagement exhibited 21 percent higher productivity and 22 percent higher profitability.

How do you foster engagement? Dale Carnegie and MSW Research conducted a 2012 study (What Drives Employee Engagement and Why It Matters) of more than 1,500 employees to discover what creates engaged employees. The study outcomes present senior leadership with five tips for increasing engagement—including the creation of a caring environment based on good communication—all of which directly apply to effective strategic budgeting:

Articulate a clear vision to all employees. Encourage employees to communicate openly and influence your institution’s vision through their input.

Ensure that direct managers are fostering healthy relationships with their employees. Continuously demonstrate that employees have an impact on their work environment. Show employees that they are valued as true contributors, giving them a sense of empowerment. “For many institutions, one of the biggest budgeting hurdles is engaging the budget managers,” says Warner. “People are busy, and budgets often get left until the last minute—or forgotten completely, until finance comes knocking. We’ve found that including budget holders in strategic conversations and giving them tools to make the budgeting process quicker and easier has increased their willingness to participate. As a case in point, when we gave our athletic coaches a solution that felt as engaging as their playbook software, participation went up across the board.”

Encourage collaboration. If athletic coaches, human resources, admissions, and faculty are encouraged to work in teams, why is budgeting often such an isolated exercise? The truth is that no one can budget in a vacuum, and a successful strategic budget involves teamwork. Genuine collaboration means combining the knowledge of all the experts to achieve a common purpose that will benefit the whole. Your budget managers are the experts in their respective domains, and, as a team, they have a lot to offer.

“Informal conversations and team meetings are an excellent way to encourage collaborative budgeting, but the reality is that people don’t always have the time to connect in person,” says Ricketts. “And e-mail threads can get out of control pretty quickly, especially when you are attaching multiple iterations of budget spreadsheets. I’m a big proponent of cloud-based collaboration tools, which provide a cost-effective, quickly implementable alternative to on-site software and enable institutions to securely store and quickly access documents and communications online. At TCNJ, we use a variety of cloud systems, including cloud-based budgeting software that makes collaboration easier—budget managers can use the software to record their work online so that budget supervisors can comment, ask questions, or give suggestions at their convenience. This adds up to better teamwork and a well-planned budget.”

Build ownership and accountability. The best way for the finance department to get the essential information it needs is by inspiring budget managers to fully invest in the process by “owning” their numbers.

Another important consideration is an institution’s willingness to give budget holders explicit ownership over multiple facets of the budget process. Brent gives an example from WJC: “We’ve been able to increase ownership by providing budget holders with the tools to make their own updates and run their own reports,” says Brent. “People don’t have to rely on finance for their every move, so they feel more empowered and accountable. It shifts a portion of the responsibility to the people who are actually spending the money—and when people are more accountable, the accuracy of their numbers improves.”

An additional strategy for increasing accountability is the concept of budgetary transparency—the ability to easily access numbers, justification, and progress reports for a clear picture of the current state of the budget. When budget holders know that leadership can (and will) be checking in on their progress throughout the budgetary cycle, they are more likely to put in their best effort. In this way, transparency builds accountability and keeps everyone on target with strategic goals.

Inspire innovation. Ownership, along with engagement and empowerment, leads to innovation. Budget holders who are included in the strategic planning process, and are encouraged to voice their thoughts and opinions, are more willing to risk thinking creatively. And many times, new ideas from faculty and staff lead to program improvements and cost savings that bring institutions closer to achieving their goals.

“When you commit to a strategic budgeting process, and you start spreading that type of thinking throughout the institution, budget managers begin thinking more strategically, too,” says Warner. “I know department chairs who used to dread annual budgeting, who are now finding creative ways to cut costs and reallocate funds to accelerate the strategic plan. Motivate, inspire, and encourage your team—and you’ll get the type of innovative thinking you need for success.” Ricketts concludes: “While our overall strategic plan is to promote the distinctiveness of TCNJ’s highly selective program, our foundational plan (and we are held accountable by our president and the board) involves the creation of a sustainable financial model. With reduced state funding and an unpredictable economy, a large portion of our foundational plan addresses the need for cost containment, and we are undertaking a campuswide initiative to engage faculty and staff in the formulation of innovative cost-savings measures. Our budgeting system is a vital piece of this process because it gives folks an accurate look at historical budgets compared to annual actuals, uncovering specific points of feasible cost-reduction and/or budget reallocation. Having access to reliable, visible data makes it easy for people to think creatively about cross-campus savings.”

Higher education institutions across the nation are embracing the importance of a budgeting process that supports strategic goals, and are taking steps to develop user-centric budgeting models that improve communication, transparency, and ownership. With the right mix of forward-looking culture and budgetary tools, institution leaders can work in harmony to achieve effective strategic budgeting and long-term sustainability.

William James College’s Brent notes: “Strategic budgeting isn’t a destination; it’s a journey—one that requires ingenuity, dedication, flexibility, and sometimes revised instrumentation, as an institution grows and changes over time. With the positive outcomes we’ve experienced at William James College, I can say with great conviction that the journey and the collaborative effort are well worth it.”

JOANNE BRUNN is chief executive officer, XLerant Inc., a provider of cloud-based budget forecasting and reporting solutions, Stamford, Conn.

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