William Massy, long-time Stanford professor and administrator, has been writing and talking about the specifics of university budgeting in specific, detailed ways for my whole career. There are just not that many scholars who talk about how budgeting is really done and what can be done with it as clearly. He has gone at this program in innovative ways, at one point even developing a financial planning and strategy game, Virtual U. A consulting client was talking about his latest book, Resource Management for Colleges & Universities (Hopkins 2020), so I read it over the last couple of days.
His major argument is for building a financial and decision-support model based on Academic Resource modeling, which starts with a focus on the detailed inputs and outputs from academic activity--classes and programs. At its core is a contribution margin analysis of courses and programs built from very detailed information on classes, students, instructional salaries, and direct instructional costs. Information on facilities and faculty activity allow the models to identify areas where more activity could occur. I've done models like this in the past, but always in fairly clumsy Excel form. Massy has identified and worked with vendors like Gray Associates and an Australian outfit called Pilbara who have built more sophisticated tools for this. EAB and Grant Thornton may have done some too.
I'm familiar with Gray Associates for their work on the markets for programs, which concrete in a way I haven't seen before, although I also think places are just starting to figure out ways to work it into planning and decision processes. One aspect of that is marrying the external view they are known for with an internal view of the program's economics--what does it take for the institution to deliver it, and what are they seeing in the form of returns from their particular revenue sources. To that end, they've built a program economics model, but I haven't seen a presentation or demo of that yet. Still, institutions have to figure out how to absorb this information into their planning. Certainly, it's not as simple as simply saying here's the demand, let's move resources there, we look weak here, let's cut back on that. In any university with reasonably strong shared governance, administrators have to come to an understanding with their faculty of what they want to do with information like this. There's a lot of different ways you can react.
When I've built these kinds of models, it was as a discrete decision-support tool for provosts to support questions like where to put adjunct faculty resources. It was not within the context of the overall budget-building process, but I think that would be the goal, and that's where Massy is heading. But I don't think he gets there. He offers one model for rank ordering and picking between budget investments opportunities, but I found it unrealistic and unconvincing. It doesn't line up with how most budgets are built, which have programmatic and continuous qualities, not a list of discrete binary options. And a point I keep returning to, the budget process is all about building processes for exchange between people at the institution that allows them to express and share their understandings of the environment, needs, and actions, and identify a pathway towards choosing between the options.
He argues for a process that is driven by the academic side of the house, which I strongly support, but he does not offer much on why faculty would see this model as a tool to achieve their goals. In one critical passage he writes "This means academic officers and faculty must take ownership of the quality-cost balance. But how? The answer lies in providing better access to data that are manifestly helpful for decisions they are making already, and that will lead them logically and inexorably in the direction of cost consciousness" (p. 25). Massy is a much more experienced higher ed hand than me, but the phrase "logically and inexorably" is a warning flag for me.
There needs to be a strong general sense of what the institution is trying to achieve with the Academic Resource modeling discipline he describes--is it budget cutting? This will engender nothing but resistance. Enrollment and revenue growth? Introduced the wrong way, this just seems like exploitation. Something subtler would be necessary.
There are other missing pieces. He talks about the need to factor in academic quality, and says that it is purely a matter of academic judgment, but doesn't try here to factor in measures of student success like retention and graduation rates, as imperfect as they may be. There is no discussion of diversity and equity, although these can be factored in the models he's describing. He doesn't try to address administrative costs--maybe 40% of an institution's total cost--"the ideas are less developed in this arena. The priorities are clearly on the academic side, but success there surely will lead to nonacademic solutions in a relatively short time" (xi). Seems unlikely--these areas work differently, with varying degrees of relationship to academic activity, and their costs have been notoriously difficult to constrain. They will require their own approach.
Many institutions could do with revisiting the relationship between the administrative and the academic domains. In one model, they are treated as separate, governed separately with separate somewhat dedicated pools of funds. In others, especially in full Responsibility Center Budgeting models, the administrative side is seen as a kind of supplicant for the academic enterprise's resources. And in many places, those tables are turned, and academic units feel like the administration parsimoniously grants allowances to the unruly children of the academic departments, while the adults on the board and in the administration make real-world decisions.
I like seeing Massy focus attention on this kind of academic modeling. Some version of it is needed, which is why different groups in higher education keep coming back to it. I wish I had read this book a couple of weeks ago so I could have mentioned it in my NACUBO webinar, where it fits in well with the alternatives to Responsibility Center Management we were discussing .
One jarring thing is that this book functions to a great extent as a pitch for Gray and Pilbara--Pilbara features it on their website as marketing material. It's easy to recoil at that, but I think it's worth giving Massy the benefit of the doubt and thinking about why he has done that. Massy is arguing that higher education needs to quickly embrace this sort of thinking about academic resources, and I don't think it is just a scholarly interest for him. He's an advocate. In thinking about what it will take for these ideas to take root, one way that will happen is to create communities who are developing and pursuing these tools, and vendors like these can be a powerful force in driving an idea like that. Their profit motives add to their sense of urgency. It is arguably the case that Huron has had a big impact on the diffusion of Responsibility Center models.
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