15 April 2002 1

Strategic Planning and Strategic Budgeting in Higher Education

Presentation at International Symposium on University

Administration: Methods and ModelsMoscow, 15-16 April 2002

Aims C. McGuinness, Jr.Senior Associate

National Center for Higher Education Management Systems (NCHEMS)Boulder, Colorado, U.S.A.

15 April 20022

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

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)

From: To:

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Rethinking Policy Tools (Cont.)

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

From: To:

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Strategic Management Cycle

Strategic Management —The Allocation of Resources to Programmed Activities Calculated to Achieve a Set

of Goals.

Resource

Allocation

Assessment

Strategic

Planning

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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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State

Planning

Institution

State

Assessment

Institution

State

Resource Allocation

Institution

The Management Cycle in a Public 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

Linear

Adaptive

Interpretive

Long Range Planning

Market Driven

Strategic Planning

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Approaches to Planning

DefinedGoalsLinear

Goals Are Market-DrivenAdaptive

Interpretive/Strategic

DefinedGoals

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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 Decisionmaking—a Context for Operational Decisions

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Institution - Environment Connection

Environment Institution

Demographic

Technological

Economic

PoliticalSocial

Facilities Programs

Competitive

Legal

Image

Values Climate

StrategicDecisions

People

Finances Values

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Strategic Planning: Levels of Strategy

Strategic

Themes

Match

WHO WE ARE WHO WE WANT TO BE

1. Do we want to change?

2. Must we change?

3. Can we change?

Mission

Clientele

Program Mix

Comparative

Advantage

Assets

Mission

Clientele

Program Mix

Comparative

Advantage

Assets

External

Environment

Opportunities

Threats

Internal

Environment Strengths

Weaknesses

Organization

al Culture

Level IStrategic Themes

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What Concrete Changes Will Result?

Planning Guidelines

Who will do what?

How is it carried out?

Behavioral Outcomes

Financial

Enrollment

Admissions

Organizational

Human Resources

Facilities

Development of Strategic Plans

- Academic Units

- Support Services

Financial

Enrollment

Admissions

Organizational

Human Resources

Facilities

Level IITactical Themes

Level IIIOperational

Levels of Strategy (Continued)

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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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Realities

AspirationsMyths

Focus: Use Information to Distinguish Among:

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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 BehaviorTarget 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

Strategic

Themes

Match

WHO WE ARE WHO WE WANT TO BE

Opportunities

Threats

1. Do we want to change?

2. Must we change?

3. Can we change?

Strengths

Weaknesses

Mission

Clientele

Program Mix

Comparative

Advantage

Assets

Mission

Clientele

Program Mix

Comparative

Advantage

Assets

External

Environment

Internal

Environment

Organization

al Culture

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Strategic Analysis Paradigm

Environmental Opportunities, Threats, and Constraints

“Matching”

Process

Organizational

Culture

Organizational

Strengths and

Weaknesses

STRATEGIC VISION

MissionClienteleProgram/Service MixComparative AdvantageAssetsObjectives

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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

Openness—Sharing of Information Decisionmaking Styles Institutional

Characteristics/Behaviors Common Responses to

Environmental Forces—Typical 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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Characteristics:

Strategic Themes: Product of Strategic Planning Process

Organization-Wide Issues– Cannot Be Addressed by a Single Unit– Cannot Be Identified by Finding Common

Elements in Unit Plans Long-Term—Cannot Be Resolved in

a Single Year Require Responses Through Basic

Organizational Processes—Are 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.

Resource

Allocation

Assessment

Strategic

Planning

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Linking Planning and Budgeting

In the Absence of a Plan—the 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 Institution’s Assets - Especially Human Resources

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Strategic Versus Operational Decision-making

Creation and Maintenance of Institutional Capacity

Utilization of that Capacity in Ways Designed to Accomplish Specified Purposes

Strategic Decisions Focus on the:

Operational Decisions Focus on the:

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AssetsPersonnelFacilities

EquipmentCollections

StudentsFinancesProgram

ConsumablesServicesSuppliesUtilities

Contingency

New Initiatives

=

Student FeesState BudgetGovt. GrantsPrivate GiftsEndowmentSales & ServicesOther RevenuesReserves

Basic Budget Trade-Offs

TotalCostQuantity Quality Utilization

UnitCost

TotalRev

Revenue Sources

Costs Revenues

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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.