CC BY
45ECONOMIC SCIENCES
THE NEW APPROACH TO BUDGETING IN MODERN UNIVERSITIES
Petlenko Yu.,
PhD in Economics, Associate Professor, Associate Professor of the Department of Finance, Taras Shevchenko National University of Kyiv, Ukraine
Pohribna N.,
PhD in Economics, Associate Professor, Associate Professor of the Department of Finance, Taras Shevchenko National University of Kyiv, Ukraine
Biliavska O. Degree-seeking applicant, Taras Shevchenko National University of Kyiv, Ukraine
Abstract
The paper follows an examination of the budgeting process in universities under an increasingly complex educational environment performed under the logical path - discussing the context of budgeting (definition, environment, involved parties, and the process), the relationship between the budget and financial planning, and the functions and principles as the budget process interacts with the involved parties and the organization as a whole. The overview of the budget process itself includes the development, implementation, and control of the budget, which results in defining the key points under the budget context and the process.
Keywords: budgeting, university, education, centre of financial responsibility, university budget.
Introduction. The current market relations radically changed the economic conditions for the functioning of state universities. Due to the increased competition in the market of educational services and a significant change in budget funding for higher education, universities faced serious challenges to ensure viability, maintain financial condition at a sufficient level and find new methodological approaches to educational activities and financial resources management in general.
The existing socio-economic situation and the creation of an appropriate legal framework have caused the emergence of the educational services market in Ukraine as a system of economic and organizational relations of buying and selling specific goods (paid educational services) in the process of meeting the needs of individuals and society in education.
Problem statement. However, the current management systems in most universities do not provide information on the quality of services provided, the composition of costs and other performance indicators. University management systems do not sufficiently connect all the factors influencing its activities. Accordingly, they are not able to identify and promptly indicate the reasons for deviations from the plan, and therefore do not contribute to improving the efficiency of operational and ongoing management of the university as a whole.
Thus, there is a need to form a budgeting system in public universities, filling it with new content, relevant to economic realities and the requirements of the educational system.
Analysis of recent research and publications. At the beginning of the 20-th century the leaders of early diversified companies transformed the part of management processes, consisting of planning and controlling into the more comprehensive system of operating activities from different divisions into the first
budgets. The latter were viewed purely as tools for managing costs and cash flow across divisions. Further on, the companies developed more specific budgets: operating budgets (to forecast revenues and expenses for the next operating period), and capital budgets (to draw up the spending plan for groups of assets will long lifetimes). Now, all institutions (profit and nonprofit), including universities, use the budget instruments for organizational planning and control, developed by DuPont and General Motors companies. Universities project their revenues and expenses, and planning their future activities. However, in the case of university, being a more complex organization with a wide set of functions, it is virtually more difficult to perform the planning and controlling part of the essential management functions.
At the moment, there is no single generally accepted definition of a budgeting system. In some sources, budgeting is considered as a management method [1, 2, 4], which is a complex, well-functioning system of continuous planning (both current and strategic), excluding aspects from justifying goals and objectives to monitoring its proper execution at all stages. In others, it is considered as a process of budget management [5, 6, 7]: its planning, control and analysis of execution, regulation. In view of the above, it is necessary to clarify the essence of this term. Budgeting is a system consisting of the financial planning tools, the use of which is possible through the establishment, execution, analysis and control over the performance of a set of interrelated budgets of both individual departments and the organization as a whole, which ensures the management of financial flows in terms of the goals, tasks and functions of such organization, taking into account the priorities of internal financial policy and the relevance of projected results.
According to M.Seeber and B.Lepori, the budgeting practices can be studied through three key dimensions: processes, allocation criteria, and actors involved [9]. Where the processes are incorporated in the university budgeting through the bargaining process among competing departments and units. However, the previous stability of allocation between units (incremental-ism) is reformed with the principles of the New Public Management, when universities transformation into formal organizations with established internal systems of norms and procedures. The strategy of university budgeting has fallen under the efficient allocation of resources even under instability. In turn, the budgeting system in universities is gradually shifting from a formal bureaucracy to a more informal bargaining between interested parties, and further on to a budgeting system where the rector/director and top university mangers set the strategy and goals, apply budgeting tools and instruments to complete and achieve them.
M.Seeber and B.Lepori identified two sets of criteria that influence the university resources allocation [9]. First, allocation is influenced by the external criteria (interested parties) that are related to the volume of activities produced by the department in terms of the number of students, the number of graduates, and the amount of external funds. Secondly, internal criteria (relevant internal stakeholders, compliance with the university strategy, reputation, the quality of the relationships between the managers of departments and units) influence the university resource allocation.
The third dimension considers the actors, who are involved in the university budgeting process and the way they make decisions concerning the resource allocation.
Another group of authors [10] investigated the European universities and their characteristics of complete organizations and how it is connected with budgeting model, the policy pressure, national framework and organizational characteristics. The level of hierarchy and rationality of stronger universities is highly connected with the intensity of budgeting modernization policies. Both, there are specific limitations, inherent to the nature of university.
The next study [8] analysed the evolution of policy implementation in universities in view of the transformation tools related to funding and evaluation. The research questioned the way funding instruments and tools were applied in order to study the prerequisites of the context and instrument characteristics. Notably, the chosen tools and their evolution is in close connection with the existing factors such as the budgeting instruments and policy strategy, the budgeting process, its features, ant the applied instruments.
Therefore, budgeting is aimed at creating the reliable information on cash flows, the amount of expenses by item in the context of divisions, control over the use of funds, planning income and expenses for a long-term period when performing any financial transaction in real time.
The main task of budgeting is to provide the management of the university and its departments with the necessary information for making management decisions. The following issues are at the point of interest
for making such management decisions: defining the required volume of material and financial resources of the university, sources of their accumulation and directions of the most effective use, development of the financial and economic strategy of the university, ensuring its stable development, development of mechanisms for management activities, including ensuring timely prevention of negative and crisis trends in the activities of the institution, control and analysis of the financial and economic activities of university and its divisions.
Where a university budget is a financial plan that covers all aspects of the university's activities, its structural divisions and other centres of financial responsibility for a specific period, where probable income and expenses, sources of funding, conditions for receiving funds, the procedure for spending of the accumulated funds by type of activity are determined. Budgets are developed for the university as a whole, as well as for financial responsibility centres, individual scientific and educational projects.
The centres of responsibility are faculties (the dean is the head), departments (the head of the department), self-supporting and administrative structural divisions (the head of the division or unit). From the point of view of managing the financial activities of an educational institution, such centres are called the centres of financial responsibility. The centre of financial responsibility (CFR) is any structural unit of the university (faculty, institute, etc.), which has a separate type of activity in financial, organizational (legal) or economic (by industry specialization in vocational education, by type of scientific work), in controllable income and expenses from the implementation of these activities, whose management has the right to make decisions on operational issues and is responsible for the financial results obtained [3, p. 120].
Within the framework of a state university, the centre of financial responsibility may include: linear structural units (faculties, innovation centre, business school, Institute for Advanced Studies, library); branches and representative offices of the university; service structural units (internet centre, publishing and printing centre, computer technology centre, hostels, etc.); separate funds formed from budgetary and extra-budgetary sources to finance educational, scientific, publishing programs, etc.
The role and place of budgeting in the general system of managing the economic stability of the university is quite fully characterized by the functions of the budget. The budget of a university is a financial, quantitatively defined expression of a plan for its economically sustainable development in order to achieve its goal. University budget fulfils the following basic functions:
1. Planning of operations that ensure the achievement of the goals of the functioning and development of the university. The key decisions are usually developed in the process of developing programs, projects that correspond to the general adopted strategy for the development of the university. The very process of developing a budget is essentially a financial refinement of these plans.
2. Coordination of various types of activities in the university as a whole and its departments, coordination of the interests of individual CFR and the interests of the university as a whole. It is proven that management plans will not be implemented until all performers understand the essence of these plans. The budget plan includes specific items both on income, taking into account all sources and volumes, and on expenditures. The expenditure side must indicate the maximum amounts that can be spent on labour costs, repairs, development of the material and technical base, administration costs and other areas of expenditures according to an exhaustive list. The activity of the university as a whole depends on the work of each of its CFR. The work of each centre depends on the work of other centres of responsibility. In the process of developing the university's budget, individual activities are coordinated in such a way that all departments work comprehensively, striving to realize common goals.
3. Stimulating managers of all levels to achieve the goals of their CFR, monitoring current activities, ensuring planned discipline. The stimulating role of the budget is clear in the case when the team takes part in its development. At the same time, each leader must know exactly what the university administration expects from particular centre of financial responsibility. When drawing up the budget, the developers rely on the results achieved, take into account the current state and development goals. A well-prepared budget is the best standard. The actual results achieved are compared with it, since it includes an assessment of the effect of all variables that were predicted during its development. Comparison of the evidence with the budget indicates areas to focus on and action to take.
4. Training. Budgeting contributes to a detailed study of the activities of its divisions and the relationship of some CFR with others, as well as with the centralized services of the university and its administration.
The university budget can have an infinite number of types and forms. Its structure depends on: the subject of budgeting; the organizational structure for which the budget is drawn up; the degree of integration of the budget of a particular CFR with the financial structure of the entire university; and the budgeting period.
Unlike formalized forms, the budget is not tied to any rigid standard. In this regard, the form of budget presentation can be developed by each university independently. At the same time, the budget should present information in an accessible and clear way, so that its content is understandable to the user. Excessive information obscures the meaning and accuracy of the data. Insufficient information may lead to misunderstanding of the basic limitations adopted in the document. The information contained in the budget should be extremely clear, specific and meaningful to its recipient.
Therefore, the budgeting and financial planning system at the university can be developed at four levels. The fundamental parameters of the university's activities, incorporated in the process of financial planning, are determined by the long-term planning horizon (mission of the university and the strategic development plan). The rest of the budgets and estimates are developed as documents of the operational and tactical levels for the implementation of the strategic goals facing the university. The budgets and estimates of all levels are clearly consistent with each other (Table 1), the indicators laid down in them should be realistically achievable and justified.
Table 1.
The levels of budgeting and financial planning system at the university
Level Contents
Level 1. Documents of the university strategic development 1.1. University mission
1.2. Strategic plan for the university development
1.3. Material and technical development plan of the university
Level 2. University summary estimates 2.1. Estimated budget revenues and expenditures in the context of subject items. Budgetary commitment limits
2.2. Expenditure schedule of budget funds
2.3. An estimate of income and expenses for entrepreneurial and other income-generating activities
Level 3. The main budget of the university; structured into the following sections (for a calendar year) 3.1. Income for basic educational services (non-budgetary source of funding - by faculty and form of training, indicating the contingent and cost of training)
3.2. The revenue side of the budget from all sources of funding (budgetary funds; university-wide funds; funds of structural divisions)
3.3. The expenditure side of state budgetary and extra-budgetary financing for wages
3.4. University expenses by structural units
3.5. Expenses by item
Level 4. Centre of financial responsibility, consolidated within the main budget 4.1. The budget of the centre for financial responsibility (branch, faculties, courses, etc.) for the academic and calendar year
4.2. Monthly budget (calendar plan) of the branch and faculties of the university for the academic year
Source: developed by the author
It is necessary to adhere to certain regulations to organize the budgeting process, encompassing the main principles of the budgetary regulations, including the following: a sliding schedule for the development and execution of the budget, which implies constant adjustment of the budget parameters of financial and economic activity, its individual structural divisions and branches as each period ends; compliance with the schedule for the final control of budget execution (analysis of reporting forms); consolidation of functional budgets of structural divisions (branches, institutes, faculties) into the main budget of the university; the presence of two budget periods - the academic year and the calendar year (in this regard, there is a problem of adjusting the budgets of faculties for the academic year in the process of their consolidation in the main budget developed for the calendar year).
Conclusions and discussion.
The need to develop a budgeting system in universities that will provide complete, up-to-date information on the funds available in universities, the sources of their accumulation, as well as more accurate planning of revenues and expenditures is explained due to conditions of a more business-like and market approach to resources management. Before planning for the future, one must be able to analyse the current state, assess the existing opportunities and limitations. The budget is a necessary tool in this process. For all the complexity of the budgeting process of a large university, it can be considered as a prerequisite for the sustainable economic development of an educational institution.
The approach to the university budgeting evolved over time, starting from the prevalence of bargaining between coalitions of departments, moving to the strong role of the university top managers (rectors, directors, etc.) under the New Public Management practices. Now we may argue that budgeting in universities combines and incorporates the elements of both approaches.
Practice has shown that one of the important conditions for the economically sustainable development of a university is a well-thought-out organizational structure with the distribution of functions and the assignment of rights and responsibilities to positions. Consequently, centres of responsibility - the structural divisions of the university - are the elements of such an organizational structure. The head of each centre has administrative rights, certain financial independence and is responsible for the expediency of decisions made within the given competence.
We can define the list of necessary conditions for the successful use of budgeting as a management tool in the university, namely: developing the accounting system that meets budgeting requirements, establishing
an efficient planning and cost accounting system, creating the organizational structure of university with a clear division of responsibility and rights by management levels, divisions and centres of responsibility.
References
1. Amaral, A., Meek, V. L. (2003). The higher education managerial revolution? (Vol. 3). Springer Science & Business Media. https://link.springer.com/book/10.1007/978-94-010-0072-7#about
2. Auranen, O., Nieminen, M. (2010). University research funding and publication performance—An international comparison. Research Policy, 39(6), 822834. http://www.sciencedirect.com/science/arti-cle/pii/S0048-733 3 (10)00076-4
3. Deering, D., Sá, C. Do corporate management tools inevitably corrupt the soul of the university? Evidence from the implementation of responsibility centre budgeting. Tert Educ Manag 24, 115-127 (2018). https://doi.org/10.1080/13583883.2017.1398779
4. European Commission (2011) Progress in higher education reform across Europe - Funding Reform; Volume 1 : Executive Summary and main report. Brussels. https://op.europa.eu/en/publication-detail/-/publication/6945068f-e05b-4094-a1b4-5f8430f3016c
5. Jarzabkowski, P. (2002). Centralised or decentralised? Strategic implications of resource allocation models. Higher Education Quarterly, 56(1), 532. https://doi.org/10.1111/1468-2273.00200
6. Jongbloed B. (2018) Public Funding of Higher Education, Europe. In: Teixeira P., Shin J. (eds) Encyclopedia of International Higher Education Systems and Institutions. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-9553-1_74-1
7. Lepori, B., Usher, J. & Montauti, M. Budgetary allocation and organizational characteristics of higher education institutions: a review of existing studies and a framework for future research. High Educ 65, 59-78 (2013). https://doi.org/10.1007/s10734-012-9581-9
8. Reale, E., Seeber, M. (2013). Instruments as empirical evidence for the analysis of Higher Education policies. Higher Education, 65(1), 135-151.
9. Seeber M., Lepori B. (2017) Budgeting Practices in European Universities. In: Bleiklie I., Enders J., Lepori B. (eds) Managing Universities. Palgrave Studies in Global Higher Education. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-53865-5_4
10. Seeber, M., Lepori, B., Montauti, M., Enders, J., De Boer, H., Weyer, E., et al. (2015). European universities as complete organizations? Understanding identity, hierarchy and rationality in public organizations. Public management review, 17(10), 1444-1474.
