philosophy and psychology of effective institutional budgeting, The

Academe, Nov/Dec 2002 by Facione, Peter A

Why does college and university budgeting seem so painful, conflicted, and ineffective? To escape the budget syndrome, we need to reassert core values and revalue faculty expertise and participation.

If the budgeting process at your institution is working well, you are fortunate. Budgeting at too many colleges and universities amounts to muddling through from one year to the next. This is a poor way to function in good economic times, and it can be fatal to an institution in bad ones. Few higher education leaders are genuinely satisfied with their institution's budget process, and many are frustrated that major questions of long-term importance to the future of the institution are inadequately addressed. Dedicated faculty, administrators, presidents, and trustees lament lost opportunities as valuable time and energy are consumed by a process that often seems to achieve nothing other than extending the status quo.

The budget process can be improved when institutions apply four essential principles:

Involve people whose authority derives from responsible expertise. Understand human decision-making risks and guard against them. Address questions of long-term importance to the future of the institution. Structure positive budget incentives for all levels of the organization.

Divergent Philoso lies

Most American colleges and universities function fiscally, like the former Soviet Union, on the philosophical principle of a controlled economy. A central committee builds the budget, and the rules are simple. On the income side, project next year's income, establish revenue targets, and pool all revenue as it arrives. On the expenditure side, project allowable expenses, establish budget categories, fund approved lines and accounts, review and approve each expenditure as it is made, prohibit all other expenditures, and take back unexpended balantes as the fiscal year draws to a close.

Such controlled economies naturally thwart change and inhibit adaptability. The prevailing psychology of a controlled economic system is that minimizing the potential loss is more important than maximizing the potential gain. While there are often penalties for failure, there are seldom rewards for achievement. Typically, this system allows no incentives for excelling in productivity, for achieving greater efficiency, for collaborating across segments of the organization, or for demonstrating responsible creativity. In bad times this budgetary environment can foster mistrust, hoarding, inflated expenditure requests, overly conservative revenue forecasts, the belief that sacrifices for the common good may be unwise or unnecessary, scapegoating, micromanagement, and resentment all around. In good times it allows top- and mid-level managers to shore up weaknesses, attend to deferred problems, and if they are clever, squirrel away resources for the rainy days that, no doubt, will return. However, they rarely pursue opportunities for significant innovations. The budget code for "venture capital" is not found in a controlled economy's chart of accounts.

This command-and-control philosophy with regard to fiscal matters diverges from the representative philosophy most American institutions of higher education espouse with regard to governance. In deference to this representative spirit, the institution's faculty usually have a representative or two on the central budget committee. But in this system, the faculty is just one more interest group, and since the system is geared to constituency group politics, it undervalues and underutilizes the talents and expertise of the faculty as academic professionals. Regardless of their capacities to seek objectivity and to give priority to the common good, faculty, along with divisional vice presidents, deans, department heads, and program directors from every campus unit, are expected to behave as self-interested individuals whose data, motivations, proposals, and perspectives are suspect. Interest groups are not expected to make serious, fair-minded contributions. They are expected to advocate for their special needs.

In a representational governance system the assumption often is that the trustees, the president, the chief financial officer, and the budget office professionals are the persons charged with standing above the fray and speaking on behalf of the institution as a whole. Sometimes they are successful in attaining a detailed understanding of all the parts of the institution and in achieving perspective and disinterest. Yet often, in spite of their good intentions, the gripping politics and the sheer complexity of the institution's educational enterprise limit their accomplishments.

Although of critical significance, questions of long-term academic quality, curricular and co-curricular programming, and educational policy consistently are subordinated to the urgent issues of the moment: "How are we possibly going to budget adequately for the projected needs in salaries and benefits for current employees, institutional and student support services, physical plant repairs and infrastructure, safety and security, disability access, financial aid, utilities, debt service, technology, libraries, the athletics department subsidy, institutional development, and so on?" It seems absurd, once those representatives on the central committee learn the scope of the continuing needs, that anyone would hope to fund new endeavors or quality upgrades of any genuine scope or significance!