College Dean Budget System Survey Fisher College of Business

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1 Introduction and Background College Dean Budget System Survey Fisher College of Business This survey is being distributed by the Provost s Budget System Advisory Committee to all college deans to obtain their perspectives regarding the current University budget system. Please provide succinct responses to each question, including, as appropriate, specific fiscal information or other information to support your response. The results of this survey will be used to inform the activities and final assessment and recommendations of the Committee. The website for the Committee is located at: If you have any questions regarding this survey please contact Committee co-conveners Bud Baeslack (Baeslack.1@osu.edu) or Allan Silverman (silverman.3@osu.edu). To provide a context to this survey, the guiding principles set forth at the establishment of the OSU Budget System are defined below. OSU Budget System Guiding Principles (See Recommendations for Budget Restructuring VIII, April, 1999, ) General Fund allocation is mission driven and informed by the Academic Plan General Fund revenues and expenses are explicitly linked to the generating units, specifically to colleges A portion of General Fund revenues is dedicated to the support of University-wide services, and also University-wide goals (e.g., strategic investments in academic excellence) Maintenance of a certain level of budget stability and predictability are expected outcomes of the budgets system Appropriate oversight and accountability of the budget system are expected Continuous review and improvement of the budget system will occur Please Answer Each of the Following Questions 1. From the perspective of your college, do you feel that the guiding principles of the University budget system have been observed? Explain reasons why or why not? I think that our perspectives might best be expressed by reference to specific guiding principles rather than in the context of the principles as a group. Allocations that are mission driven and informed by the Academic Plan: There does not appear to be a strong link between the Academic Plan and the allocations

2 inherent in the allocation process. Revenues flow to the colleges that generate the dollars. The resulting allocation may or may not be consistent or supportive of the Academic Plan. Once allocated, the question of the link between the allocations and the academic plan depends on the actions of the individual colleges and their agents. Revenues and expenses explicitly linked to the generating units: The budget model explicitly links revenues to the generating units quite effectively. The process of allocating expenses is more complex; however, the budget model balances fairly well the competing goals of equity and simplicity in assessing charges to the colleges. These assessments are based on various allocators such as credit hours of instruction and the allocators selected for each cost reflect reasonably well the effort or cost of the particular cost being allocated. Portion of the General Funds revenues dedicated to support University-wide services and goals: The 19% tax on marginal resources and the assessments to the colleges seem to provide adequate support for the University-wide services. However, the 5% tax on marginal resources that are used to support University-wide goals and strategic investments might not be sufficient. It appears that a significant proportion of the resources generated from the 5% tax have tended to support rebasing goals, making funds available for other initiatives limited. Budget system successful in maintaining budget stability and predictability: The buffering effect of the enrollment averaging gives a college time to adjust to fluctuations in enrollments. The enrollment reserve helps stabilize a college budget should enrollments decline unexpectedly. It is critical in this system for each college to monitor and manage their enrollments. I believe that some colleges have been more successful in that endeavor than others but this is not a reflection of the model. The funds provided by the State of Ohio have been fairly unpredictable and that has made it more difficult to predict resources. Other expenses such as benefits and utilities have increased dramatically. This results in a budget that is less stable and there is nothing a college can do to control those costs. Appropriate oversight and accountability of the budget system: The level of understanding of how the budget model works appears to vary significantly from one college to another. Some have successfully adapted to the budget model and others have not. Some colleges may argue that components of the budget model are out of their control. While that may be true, it does not appear that some colleges have been given the appropriate level of advice and direction regarding how best to implement the model or recover and prevent budget shortfalls resulting from the allocation of resources under the budget model. Continuous review and improvements to the budget model: The Senate Fiscal committee has been diligent in their review of the budget model and has recommended several improvements to the model over the past five years. Each one of the recommendations has been implemented. A few examples of the improvements include developing a new model to distribute the state share of instruction, weighting undergraduate revenues to ensure the funding for high cost undergraduate programs does not erode, and shifting away from the original method of funding POM marginal costs.

3 2. What has been the impact of the University budget system on the ability of your college to achieve its vision, mission and strategic goals, in support of the Academic Plan? Under the budget system, the Fisher College of Business has been successful in achieving its vision, mission, and strategic goals. The budget model has given the college the ability to generate new revenues via new programs, increased enrollments, and increased tuition and fees that have allowed us to allocate resources in a manner consistent with our strategic plan, the Agenda for Action. The improvement in our rankings over the past years is one reflection of our ability to deploy resources in a manner that supports our Plan. 3. Have you proactively and by design considered and incorporated the University budget system in the development and implementation of your strategic and/or business planning, including enhancing your financial resources to support these plans? How? We believe that we have been very proactive in incorporating the budget model in the implementation of our strategic plan. At Fisher, our fee structure varies dramatically from program to program and so our revenue streams are more directly tied to programs than they are to departments. We decided early on to align our cost to programs so that our costs were aligned with our revenue streams. Although this system is somewhat complex, it has provided information to help guide the decisions on how best to deploy our resources in support of our plan. 4. For colleges with multiple academic units, by what process does your college allocate to units current PBA and the annual net marginal revenue allocation (e.g., by a performance-based, formula-based model comparable to the process by which the University allocates budget to the colleges, or by some other process)? How has your allocation process supported or challenged the ability of your units to achieve their academic goals? Because our programs cross all the departments, the organization of the Fisher College of Business is matrix in nature. As discussed above, revenues are tied to programs rather than departments. Consequently, the college did not push the budget model down to the department level. The college s PBA is managed centrally. The Agenda for Action establishes our academic goals and resources are deployed in accord with that plan. 5. Have any anticipated or unanticipated consequences of the budget system arisen (e.g., due to changes in the state instructional subsidy share of total revenues or external forces), and how have they positively or negatively impacted your college? How have you addressed those impacts and have you been successful? Please identify those unanticipated consequences in your response. Certainly, both anticipated and unanticipated forces have impacted us, sometimes with positive consequences and some times with negative consequences. Because we do not

4 rely on IDC revenues, our general funds budget or marginal resources are almost exclusively reliant upon enrollments. In terms of specific examples, MBA enrollments dropped significantly at one point in time. This was a pattern across the country. Nearly all business schools had fewer applicants and the quality of those applicants dropped. Fisher maintained the quality of the students and so our enrollments suffered. How did we react? We certainly did not just sit back and say external forces are negatively impacting our budget. Instead, we put additional general fund resources into our recruiting efforts because we knew the enrollments had to increase if we were to generate the resources needed by the college. We also deployed our development efforts to generate additional scholarship dollars so that we could attract more students. We sought creative solutions and found free housing for some of our best MBA student applicants. This evolved into the MBA housing, Fisher Commons, which opened this autumn. In summary, yes we have had to deal with unanticipated consequences and we believe we have successfully addressed the problems that were created. 6. How does the University budget system impact your level of risk taking? Are you able to conduct financial projections and with the flexibility to handle unplanned events (e.g., enrollment changes, research climate changes, utility costs)? The budget system has certainly pushed more of the risk down to the colleges and as a result we may be more cautious in our budgeting efforts. The old budget model was definitely easier. The impact of inflationary costs for salaries, benefits, utility costs were all funded centrally. Planning and projecting is much more critical now than before the budget system was implemented. We conduct financial projections for the next fiscal year as early as October in order to determine the funds that will be available for new faculty hires. The challenge associated with projecting so early is the uncertainty in the assumptions used in the projections. No one knows and central will not project the benefit and utility costs that early in the year. Enrollment projections are more within our control but they are fairly unpredictable that early as well. We do our best to project our budgets and we continuously refine the projections as more and more assumptions become firm. 7. Do you feel that your leadership team and their staff have a full and working knowledge of the budget system, and the ability to utilize that knowledge to optimize the academic success of the college and their own units or programs? I believe that our college leadership has a firm understanding and working knowledge of the budget system. They know well from what sources our resources spring and we try to act in responsible ways to optimize the academic success of the college. 8. Are your faculty and staff adequately knowledgeable and informed about the University budget system? Do they have budget data so they can understand how actions at the unit level impacts both the college and unit budgets? How have you provided this knowledge and information, and does it reduce misperceptions about the nature and impact of the budget system?

5 Faculty with leadership roles understand the budget model. Faculty who do not have leadership roles may not but they can go to any of our deans, their department chair, or one of our academic program directors if they have questions. Key staff, such as the program directors and unit heads, have a fairly good understanding of the budget model. Other staff may not have a good understanding; however, both faculty and staff have had opportunities to learn about the budget model as presentations have been made to the entire faculty and staff at various times. I believe we have a level of understanding throughout the college that limits misperceptions about the nature and the impact of the budget system. More than any thing else I believe that we have succeeded in getting across the message that our budgetary health rests firmly on the efficacy of our own actions. 9. How has the University budget system impacted the ability of your college to successfully and proactively engage in interdisciplinary research, including the operation of both University and college-level research centers? Our college does very little sponsored research but we have had success in developing interdisciplinary academic programs. Those efforts were enhanced by the current budget model as revenues and costs were processed through the model with no adjustments necessary. We have a couple of very successful centers in the college. Their success owes to the entrepreneurial activity of the center directors and the supporting faculty. 10. Has the University budget system impacted special programs, such as the honors program, joint academic programs, study-abroad programs? How? We do not believe that the budget model has negatively impacted our honors programs, joint academic programs, or study abroad programs. If these are strategic initiatives for the college, we find ways to fund them from our resources. That process is not difficult under our centralized model. Obviously tough choices must be made and opportunity costs are ever present and not forgiving. 11. How do you think the University budget system can be adjusted or improved to be more supportive of the academic goals of the University and your college? It is not clear to me that the current budgeting system produces sufficient funding for targeted central initiatives. The case can certainly be made that additional funding in this area is needed. That could be accomplished a number of ways, each with its political obstacles. One method to generate additional central resources would be to rebase with funds coming from colleges to OAA, resulting in more funds available to the Provost for investing in University initiatives. Another possibility would be to create a differential tax in which colleges who can generate more resources would have a higher tax than those who cannot. This option would not be popular with colleges who generate significant marginal resources; however, the base budget would not be impacted (the downside of the prior option). The most obvious way to generate more resources for central is to increase the tax applied to marginal resources across the board.

6 12. How have adjustments that have been made to the budget system over the past five years and actions taken by central administration regarding implementation of the budget system impacted your college? Fisher was negatively impacted by changes in the distribution of undergraduate revenue. However, the process for distributing these resources needed to be adjusted. The decline in subsidy relative to total general funds resources resulted in an erosion of funding for high cost undergraduate programs. The mechanism for distributing undergraduate revenues needed to be altered to protect those programs from further erosion. The change in the POM funding has not impacted our college very much. Colleges with large amounts of space will be impacted negatively, but the existing process needed to be adjusted. Because the inflationary POM costs were funded off the top of the state share of instruction, subsidy effective rates applied to credit hours of instruction were declining by about 5% each year. Even when enrollments were growing, colleges were receiving less subsidy than in the previous year during a time when subsidy from the state was flat. This trend could simply not continue.