Budget Forecasting and Planning: Building a Culture of Understanding
Dr. Erika Veth
November 17, 2021
Many years ago, when I was first hired as the Director of Online Education at a public university, I found myself woefully underprepared to manage the department’s budget. I had practical budgeting skills and understood the concept of budgeting. I had participated in several high-cost software negotiations and had completed the required university credit card training. I had submitted reimbursement requests and was well-acquainted with how purchasing office supplies through the local office supply store worked, but these are all very different than managing and forecasting a budget for an entire department.
At the time, in those early days of my first real leadership and management role, it quickly became clear that my initial approach to budgeting and forecasting was more akin to expense tracking. I remember asking about the overall budget limit for the entire department, and my supervisor provided me with a rough average of annual expenses. Most purchases were tracked through reports generated by our ERP system and then manually entered into an Excel spreadsheet, which was then filed away on a hard drive for safe keeping. Historically, the budget ceiling had been annually adjusted based on the prior year’s spending rather than developed based on forecasted needed funds required for operations, professional development, and strategic planning for the years to come.
I know that many reading this blog post are in similar positions—leading departments outside of the Business and Finance Office and striving to do their best to plan the following year’s budget–and beyond.
A Shared Understanding
Looking back on that early experience, I see now that while I understood my responsibility as the budget administrator for the department, I was unsure about the strategy behind budgeting and how my department’s budget impacted the university’s bottom line.
Not understanding the inner workings, or the why, of an overall department budget can make any leader feel uneasy and it erodes one’s confidence. When team members ask about a needed software purchase—whether $150 for an individual video editing software license or a larger ticket purchase for enterprise business intelligence software—department leaders want to feel confident when approving or denying those requests. We all want to have a solid reason for how each request fits or does not fit into the budget. Open communication about budgeting leads to increased team confidence and decreased frustration.
Over the years, my former institution successfully implemented a university-wide budgeting process, eventually adopting FAST’s Budgeting and Forecasting software, hiring new budget and finance leadership, and developing a practical model for leading directors, deans, and other administrators through multi-year budget planning processes.
The practical aspects of budgeting became much clearer, and while the new annual budgeting process took time, attention to detail, and long-term planning, I left the process feeling confident that my team’s salaries and required expenses were secure and that I could explain to them why we could grant some requests but not all of them.
I did learn some hard lessons along the way. Perhaps the core of these is the realization that at the end of the day, even if budget software is in place and working perfectly with the ERP system, and even if all the right team members are hired to support budget forecasting and financial planning, the culture of the institution and each division and department must be one of transparency and trust. More importantly, the culture must support a shared understanding of both the budget process and the key institutional goals that the budget supports.
Without a transparent culture of understanding surrounding the budgeting process, the financial wellbeing of one’s college or university can be scary and confusing.
In my junior faculty days at a different institution, I remember attending a department meeting and learning about the bleak financial outlook caused by lowered enrollments. At the same time, there was an ongoing library renovation and an upcoming groundbreaking on a new academic building. I remember wondering why we could not hire a much-needed faculty line but substantial funds were being dedicated to capital improvements. I have heard directly from my academic colleagues across multiple countries about similar seemingly unfair scenarios.
Leadership often has good reasons for this type of perceived inequity, and it is often not clear to the broader campus community—perhaps the library renovation is being funded by an alumnus, and the funds must only be used for the library. The new building is likely being built with funds from capital project investments and bonds.
At the same time, administration is being honest when telling employees that state funding is declining year over year, the cost of retirement and health benefits are skyrocketing, and accrediting bodies now require certain administrative positions to exist to maintain accreditation. All of the above scenarios happen, but they are usually unrelated and much clearer when the broader community has a clearer understanding of how budget planning and forecasting works within the institution.
So how to shift away from a culture of mystification once an institution has the tactical means necessary for strategic budget forecasting? Many times, I have heard that the answer to a more equitable financial model is to engage in shared governance. While I agree with this to some extent, a 2018 article by Business Officer Magazine points out that an even better answer might be to aim for a culture of shared understanding. For example, Goldstein (2018) makes the sage claim:
For the higher education business model to be successful, trustees, the president, the senior leadership team, and the faculty need to reach a mutual understanding of the academic mission and goals of their institution, as well as the financial structure and processes that support them (par. 7).
Goldstein’s point is that before engaging in the budgeting process, all constituents—from the board to the first-year faculty member—should understand the common goals in relation to their university or college mission. Armed with that important understanding, those managing the budget might begin to think differently about their approach to budget planning. In my experience, staff, faculty, and leadership too often focus on equitable distribution of funds with emphasis placed on competing for funds rather than taking a mission-first, student-centered approach.
If each budget proprietor asked, “how does this request serve the institutional mission and goals?” when reviewing budget requests, and if they also build trust by including their team in the discussion seeking to answer this question, the culture might begin to shift toward a more cohesive approach to budget planning and forecasting.
Understanding the Data
For those of us leading divisions and departments outside of the Business and Finance Office, articulating the ins and outs of government funding and regulations and how they impact the bottom line can be challenging to communicate to someone requesting funds to attend a conference. However, showing budget impacts through dashboards, visuals, and graphs can serve to tell a story about the financial situation each department and university finds themselves in.
I once attended a conference on data, and one of the presenters cautioned those of us in the audience to stay away from the idea of a data-driven approach to decision making and instead strive for a data-informed decision making. I have clung to that notion ever since. Financial data tells a story and just like understanding why we participate in budget planning, it is equally important to understand the story the data is telling us.
Like any good story, there are different angles and lenses through which we can analyze the data. If we approach financial data as we do decision making within a mission and goal driven culture and seek to understand it, then the entire budgeting process becomes much more straightforward and less fraught with feelings of confusion and what feels like inequity. I highly recommend reading the Goldstein article linked here. In it, the author provides several examples of budget planning models that have worked at universities in the US for decades.
In the meantime, I suggest approaching your own budget planning with a culture of understanding—both of the institutional mission and values as well as an understanding of the financial picture, ideally through easy to understand and easily accessible visuals. If your team feels both included in the budgeting process and confident in their understanding of why financial planning decisions are made, the entire process will become much more straightforward and less controversial as time moves forward.