Question

What are the three budget-management approaches available to institutions during budget reductions and how these approaches may differ for for-profit, government-subsidized, and endowment-based institutions.

Answer 1

The institutions have several alternatives when implementing a budget reduction this section describes this issues influencing an institution's choice of approach and discuss various strategies commonly employed by institution considering and implementing budget reductions.

Time information in risk tolerance these 3 issues with influence the institutions approach to budget cuts.

The first issue to be addressed is how much time is available to institute cost savings measure and budget cuts this is a critical question for if the reduction must be made in the current fiscal year then the strategies used will be entirely different then if the institution has two or more years to comfort a physical problem if a careful plan of cost reductions can be implemented over 7 years the result will be much less painful than if the reduction must be made in the current operating budget fiscal year.

The second issue to comfort is weather the information available to decision makers is strong in reliable underlining assumptions for choosing a specific strategy must be tested so that decision makers are shared that they are making the best possible choice questions must be asked about past performances and future income projections in those questions must be asked in detail all institutional budget managers should be prepared to provide data needed to make decisions and should do so in an honest and straightforward manner.

Finally decision makers must consider what the tolerance of risk is within the Institution and by the governing board to illustrate if a long term planned investment in technology will improve services to students should the institution take the risk of investing in a large Technology upgrade when funding is in peril. Is that a good strategy for the institution to take tolerance forestville have a greater influence on the budget reduction strategy chosen by the institution.

Some approaches work much better than others such as

Across the broadcast which produce budgets programs and functions by flat percentage rate they are easy to implement since they apply to all alike but they ignore differences in priority performance and efficiency

Programic parts which reduce programs on functions according to relative importance of efficiency they will allow Agencies to protect those programs that have the highest priority or are achieving the best results

Decreasing administrative cost which can reduce over head but may need to be coming over time of managerial capacity or critical support functions such as human resources and financial management

Reengineering which can improve service quality and speed but may require significant upfront resources particularly if technology is employed as is often recommended.

Consolidating or centralising functions which can lead to Greater efficiency but may degrade responsiveness on citizen and customer service.

The approach differs for profit Institutions as they focus on Profit first and anything else later government subsidised institutions have better project approaches since they receive large subsidies from the government. Endowment based Institutions depend on donations and charities so their budget management approaches depend on last year's donations available last years fund collected and how much to be allocated in the most important areas.