Questions from Anita Chiu, Answers from Dean O. Smith
1. You have written three well-received books about higher education. What inspired you to write your fourth book "How Research Budgets Work?"
I had just finished writing a rigorous book on university finances, University Finances: Principles of Accounting and Budgeting for Higher Education, when Johns Hopkins University Press asked me to write a shorter, “straight-to-the-point” book on university budgets. Because University Finances featured just one chapter on budgets, I welcomed the opportunity to expand this coverage in a book solely about university budgets. Moreover, because budgets are so important in university operations, I welcomed the opportunity to explain them in pragmatic terms, helping readers from various academic backgrounds feel comfortable with the fundamental aspects of budgets.
2. How is this book different the three books you have written and other books in the field?
This introductory book derives from its more rigorous predecessor, University Finances. Unlike University Finances, this book has only a few tables and illustrations. The approach is much less quantitative and technical. In that sense, it is less demanding to read. As a result, it is well suited for university leaders new to administration.
Unlike other books on university budgets, this book How University Budgets Work gets “straight to the point” with sample budgets and best practices on
3. What are some key ideas you brought forth in this new book?
The most important fact revealed in the book is the alignment of budgets with strategic plans. Strategic plans document institutional aspirations, identifying academic and operational priorities. Budgets assign resources to these priorities. This concept—the alignment of budgets and strategic plans--is significant, because it explains how money is allocated when preparing the budget. Because of this important linkage between strategic plans and budgets, I include a chapter on strategic planning in the book, illustrating how the alignment occurs.
Notably, the book confirms the longstanding suspicion of many faculty members that universities have large reserves of money available for general use. As a common business practice in nonprofit organizations, these reserves usually comprise sufficient money to sustain university operations for two to six months. For most universities, that is a lot of money. But, as this book points out, these reserves are not created on a whim by the administration. Often, they are mandated by governing boards and state legislatures as a buffer against unforeseen large fluctuations in revenue or expenditures. As “rainy-day” funds, they play an important role in university finances.
4. Any surprising or fun facts you learned as you wrote the new book?
I was surprised to learn how vigilantly the university budget office monitors expenditures to avert overspending. Looking back, I shouldn’t have been surprised—but I was—at how much of this oversight is performed in real-time by the university’s enterprise accounting software. Also, I was surprised to learn how thoroughly the enrollment management and budget offices analyze demographic and economic data when forecasting tuition income for future budget years. Ultimately, however, the forecasts contain an element of inherent uncertainty that the budget office must accommodate.
An eye opening concept caught my attention: the legal aspects of the budget. Prior to writing the book, I wasn’t sure what legal status budgets might have. I knew from experience that budgets convey implicit commitments. But, are they enforceable in the courts? Because of its potential ramifications, this was an important question to answer. So, I consulted several university lawyers and learned that budgets are not considered contracts and, therefore, are not enforceable in the courts. They are simply planning documents.
5. How do you envision your new book to be used by the academic community? What impact to higher education you are trying to make?
I hope that readers will develop a comfortable understanding of university budgets: the rationale for strategic planning, underlying budget models, revenue allocations, control procedures, closing the books. And that they appreciate how the budget serves as a vehicle for change within the university.
As readers learn how university budgets work by reading this book, they will become more effective in their roles within the university. The quality of administration and shared governance will improve. As the book’s author, I would be very proud of this outcome.
6. Are the concepts in the new book applicable to planning, executing and monitoring research budgets at the international scene?
The concepts in this book should be applicable to budgets in most, if not all, international cultures. Of course, countries may have technical differences in their accounting and budgeting practices, but the fundamental principles of financial accounting vary little between cultures. After all, expenditures cannot exceed the available resources for very long in any realistic context. Accordingly, the principles of budgetary accounting—of planning how revenue will be spent—vary little between cultures.