Whatever your role in your organisation you are likely to find yourself working in a climate of increased financial constraint. For many this means dealing with the hardship of budget cuts so the budget is a good place to start.
Budgets are the standard means of controlling expenditure. Income is divided up amongst faculties, schools or departments who then subdivide it amongst their component parts. In other words the budget mirrors the organisation structure not the business activities.
Consider your own organisation budget setting process. We ask, in a not altogether tongue-in-cheek way, whether it exhibits any of the following characteristics?
- Takes several months to complete
- Always requires executive judgement
- Always involves cross-subsidy
- Is obsolete in 2 months due to reorganisation
- Is obsolete in 2 months due to shifts in recruitment
- Causes spending due to policy of ‘use it or lose it’
- Inhibits income generation due to clawback policy
- All of the above
The budget is often less of a planning tool and more of an uncomfortable compromise based on minor adjustments to the previous year’s figures. Departments across the organisation are being asked to do more with less and are feeling unable to cope with demand for their services. The response in most quarters is simply to increase the budget figure requested in the certain knowledge that everyone will only get a percentage of what they asked for. Senior managers may be looking at the previous year’s figure minus a percentage cut in order to balance the bottom line.
Protectionism is rife with each department fighting its own corner. Attempts by senior managers to control costs frequently results in micro-management of internal services and a focus on ‘easy targets’ such as hardware renewal cycles and training without any real consideration of the long-term implications of these decisions. None of these approaches is helping the organisation manage its overall portfolio of products and services.
This type of scenario is very marked in a period of economic hardship but the situation was not noticeably different during the preceding period of funded growth. Many departments have found themselves routinely in a position where customer demand outstrips capacity to deliver. Cutting costs and ‘working smarter not harder’ may have delivered some productivity gains but they have not addressed the root problem that institutions have defined a strategy but failed to plan and resource its implementation in a holistic way. Service providers and their internal customers have often been at loggerheads over issues of resourcing rather than collaborating to achieve shared goals.
If this assessment of the current state of our institutional processes seems unduly pessimistic, it should be noted that a survey run in 2010 as part of the business intelligence programme identified finance and costing information as by far the biggest area of need in relation to what information senior institutional managers and key decision-makers within colleges and universities required in order to fulfil the responsibilities of their position.
Alignment with strategic priorities
Financial hardship may indeed be a real driver to do things differently but institutions need to develop models that will serve them equally well through a return to growth. What is needed is a budget planning process that clearly matches service delivery to strategic priorities. This is probably the most significant strategic issue for most institutions at the moment; it is an institution wide issue and it demands a whole organisation response. Knowing this does not help the people who are struggling to make ends meet on the ground.
For this reason we suggest some pragmatic approaches that can be started in a small way but will hopefully serve as an eye-opener across the whole organisation that there are better ways of doing things that can help all internal stakeholders work towards shared goals.
"Low cost is a dependent variable; it’s the result of doing other things well. You cannot budget your way into low-cost operations. Budget management and cost management are not synonymous – Budget should reflect strategy."
"The real problem is not lack of sufficient budget. Get a bigger budget and you’ll have all the same problems on a larger scale."
"One problem facing service heads is that it is rare for a holistic view to be taken across the piece. The difficulty is that the financial climate we find ourselves in encourages the reverse behaviour – individuals will be more inclined to fight their own corner and adopt a protectionist approach."
Tinson, P. 2011, Value for money – the leadership challenges