Previous Incremental Budget Model
Historically, the University of Alberta has employed an incremental budget model. In incremental budgeting, budgets from the previous year are used as a starting point and the current year budget is adjusted up or down relative to this starting point according to the change in available resources.
There are several weaknesses with this type of model:
First, as budgets are based on history and habit, rather than current academic activities and priorities, resources do not necessarily flow to areas in which current activities are more heavily concentrated. After years of using this model, the allocation of available resources can become quite disconnected from actual activities, services, and programming.
Second, the University of Alberta’s incremental budget model has become overly complicated, as unique sharing and allocation arrangements have been created to distribute dedicated pockets of funding to specific purposes. These special arrangements are sometimes applied equally across all faculties and units and sometimes only to specific faculties and units, which can create inequities that become entrenched over time. In addition, the complexity and disconnect from current activities of budget allocations means that the reasons for differences in the allocation of resources across units are opaque.
Finally, the current incremental model leads to limited transparency around decision-making and limited accountability for outcomes. This limits the university’s ability to implement institutional strategic priorities and to integrate strategic planning with multi-year budget planning and reporting.
For the Public Good: Objective 22
For all of these reasons, the University committed to the following goal and strategies in For the Public Good to ensure that it has the operational foundation in place to support its strategic goals. Objective 22 reads:
Secure and steward financial resources to sustain, enhance, promote, and facilitate the university’s core mission and strategic goals.
i. Seek and secure resources needed to achieve and support our strategic goals.
ii. Ensure a sustainable budget model to preserve and enhance our core mission and reputation for excellence in teaching, research, and community engagement.
iii. Ensure responsible and accountable stewardship of the university’s resources and demonstrate to government, donors, alumni, and community members the efficient and careful use of public and donor funds.
Budget Model Working Group
Under the sponsorship of the Provost and Vice-President (Finance and Administration), a Budget Model Working Group (BMWG) was created to develop and implement a new budget model.
The purpose of the budget model project was to develop a model that provides decision makers in all faculties and units with enhanced transparency, authority and accountability. The university’s new budget model outlines the mechanisms and processes for allocating and re-allocating resources to faculties and units in alignment with broad institutional priorities and the university’s strategic plan. The model helps to inform decisions for the effective use of resources and support the long-term sustainability of the university’s financial position.
The first task of the BMWG was to develop the University of Alberta Budget Model Principles. The following principles were drafted, refined, and approved by Deans’ Council in May 2017:
a. Supremacy of academic priorities – the university’s mission and academic priorities as set out in the university’s strategic plan are paramount in all decision making. The budget model will facilitate the alignment of resources in support of the university’s core mandate of teaching and research.
b. Transparency – the process for making resource allocation decisions is transparent and sources of institutional resources and comparative data are clearly identified and made available
c. Accountability – Faculty and unit leadership have the responsibility and authority to make resource allocation decisions and are accountable for achieving performance targets, including financial performance targets.
d. Simplicity – rules and processes are understandable and actionable
e. Consistency – rules are applied equitably across all Faculties and units.
f. Predictability – long-term budget planning is facilitated. Changes to the model will require consultation among stakeholders.
A New Budget Model
Shaped by these principles, the budget model lays out methods for allocating revenues and costs. The budget model is designed to help us see and understand how revenues are allocated, and how revenues are tied to activities and programs. The proposed model promotes greater transparency and accountability, which, in turn, enables all members of the senior administrative team to make strategic decisions that support the attainment of academic goals and the financial sustainability of the university.