Shifts in Income Sources and the Impact on Internal Resource Allocation Policies

1. Shifts in Income Sources and the Impact on Internal Resource Allocation Policies CAUBO Conference “Adjusting the Sails” Halifax, June 21-24 Ken Snowdon Higher Education Consultant Snowdon & Associates Inc.

2. Outline • Changing fiscal environment - revenue changes • Characteristics of revenue change and implications • Responses to the changing fiscal environment • Resource Allocation Models • Lessons…….

3. Revenue Changes - operating ($000’s)

4. Indexed Change

5. Revenue Distribution - operating -30% +238%

6. Revenue Changes - All Funds

7. Revenue Distribution -38% +200% +44% 280%

8. Investment Income & Private Giving(All funds, selected universities, indexed change)

9. Total Revenue Changes - by fund All funds, selected universities, indexed change

10. Characteristics of Funding Changes • External restrictions - earmarked funds • Sometimes ‘matching’ requirements • Workload - tuition policy, student assistance, research, private giving, earmarked grants, preparing proposals, regulations, accountability, stewardship,…. • Complexity - linking various sources of income • Uneven in terms of campus impacts (ie. de-regulated fees, research, private giving) • Sometimes leads to costs in other areas - research (indirect costs), capital (operating costs), subsidizaton of enrolment expansion in certain programs, student assistance with fee increases

11. Financial Planning Issues • Cash management / investment strategy • trying to be ‘transparent’ with increasing complex array of funding sources • financial planning in a more complex environment • recognizing ‘real costs’ of new ventures and opportunity costs • internal resource allocation - budget • subsidies and subsidization mechanisms • links to academic planning, fund-raising, capital planning

12. Responding to a changing fiscal environment

13. Birnbaum’s review of Management Fads • Ur- management (line item budgets, enrolment planning) • PPBS, Program Planning Budgeting System • MBO, Management By Objectives • ZBB, Zero Based Budgeting • Strategic Planning • Benchmarking • TQM/CQI, Total Quality Management / Continual Quality Improvement • BPR, Business Process Re-engineering • RCM, Responsibility Centred Management etc., etc., etc., …

14. Management ‘Fads’ - lessons “The essential elements of most fads are commonsensical to most experienced managers in business, education or any other setting: • ‘Decentralization of authority, • producing quality products, • providing responsive customer service, • formulating strategy in a way that takes into account distinctive internal capabilities, • rewarding performance fairly, and • running a socially responsible enterprise. Who could argue with such advice!’ (Eccles and Nohria, 1992, p.5)” in R. Birnbaum, Management Fads in Higher Education, (p.241)

15. Consider with Skeptical Interest Invest in Knowledge Avoid the Bandwagon Anticipate Resistance Do Not Overpromise Culturally Customize Adopt Experimentally Do Not Relax Commitment or Support Build in Assessment Management ‘Fads’ - lessons There is no ‘silver bullet’

16. Management ‘Fads’ - lessons • “Higher education does not need more management techniques. It needs more good managers.” (p.239)

17. incentives for management of fiscal resources decentralized / centralized comprehensive (operating, capital, trust, vs. operating only) definitions of ‘operating’ multi-year (rolling budget, long-term budget) vs. annual Current issues in budget planning

18. people and organization structure philosophy - guiding principles role of Deans & Principals academic planning budget, capital, advancement Specific issues / policies Academic Priorities Fund (APF) multi-year financial plans revenue diversification U of T - Provost Review

19. Specific allocation issues • Year-end balance carry-forward policies • Sharing of ‘base’ revenue (and expense) • Sharing of incremental revenue (and expense) • Accounting for ALL costs (direct & indirect) • Subsidies • “Tax backs” • Allocation of “tax backs” • flexibility funds, reinvestment funds, academic priority funds, innovation funds

20. Related issues… • “Haves and HaveNots” • Funding Advancement/Development • Faculty/Departmental Development Plans • Accountability – reporting, stewardship of funds • Complexity of budgeting • Multiple funding sources • Processes • Institutional management of the funding ‘story’ • Operating, capital, fund-raising, research

21. Summary • Major shifts in sources of revenue • Changes in internal resource policies • Greater reliance on decentralized approach • Need for well developed Faculty / Institutional goals • Retention of ‘institutional’ goals through central funds / central direction • the optimum approach changes over time depending on the many factors influencing funding and institutional circumstances

22. Lessons… • There is No ‘silver bullet’…. • But, there some key characteristics of well developed approaches • Institutional Plan with objectives • Multi-year fiscal plan • Balance between ‘centralization vs. de-centralization’ • Measurement indicators • Public accountability