Question

What are the methods used for expression within different budget models (in higher education) and what model will work best for for profit, public and private institutions?

Answer 1

The budgeting models that can be used are

INCREMENTAL BUDGETING: This is a traditional budget model in which budget proposals and allocations are based upon the funding levels of the previous year. Only new revenue is allocated. Budget cuts are made as a percentage of the institution’s historical budget, and are typically across-the-board in reach.

ZERO-BASED BUDGET: At the beginning of every budget planning period, the previous year’s budget for each unit is cleared. Every part of the institution must re-request funding levels, and all spending must be re-justified.

ACTIVITY-BASED BUDGETING: Activity-based budgeting awards financial resources to institutional activities that see the greatest return (in the form of increased revenues) for the institution. Adoption may involve:

• Developing activity groupings for budgeting, in coordination with campus leaders and constituents;
• Developing fund source groupings;
• Designing budget processes whereby campus leaders use activity taxonomy and allocation plans to align resources to institutional strategic objectives; and
• Implementing an activity-based campus budget allocation process

RESPONSIBILITY CENTER MANAGEMENT: RCM delegates operational authority to schools, divisions, and other units within an institution, allowing them to prioritize their academic missions. Each unit receives all of its own revenues and income, including the tuition of its enrolled students. In this way, units effectively compete for students. Each unit is also assigned a portion of government support (where applicable). However, units are also responsible for their own expenses, as well as for a portion of expenses incurred by the university’s general operations.

CENTRALIZED BUDGETING: Centralized budgeting requires all decision-making powers to be in the hands of upper level administration. Typically colleges and universities combine aspects of centralized budgeting with decentralized budgeting.

PERFORMANCE-BASED BUDGETING: Whereas an activity-based budget awards funds based on the amount of revenue-generating activity a unit undertakes, a performance-based budget awards funds based on performance, which is determined by a number of defined outcomes standards. The most effective performance budgets will show “how dollars fund day-to-day tasks and activities, how these activities are expected to generate certain outputs, and what outcomes should then be the result.

The model that works best for the profit, public and private institutions is the INCREMENTAL BUDGETING as  it is easy to implement, provides budgetary stability, and allows units and institutions to plan multiple years into the future, due to the predictability of the model.