PSU's Current Budget Model Compared to PBB

Portland State University currently manages its resources using an incremental budgeting process, which during the recent years of declining state support has become more decremental in nature.  This previously was a common, nearly universal, method of budgeting used in higher education with a centralized focus wherein academic and non-academic units present a budget proposal to the university’s administration that is incrementally either larger than the previously approved budget, or smaller when overall resources decline.  This model involves individual negotiation, with rewards not clearly related to the units’ performance.

Over the last two decades, there has been a growing trend in higher education administration to move to Performance Based Budgeting (PBB), which connects the budget process with the performance of each unit.   The “performance” is defined in highly individualized ways depending in large part upon the institution’s culture and strategic priorities.  Rather than being centrally managed, resources flow to units based on various performance metrics that often include generation of student credit hours, the number of students with declared majors in the unit, or degrees granted, and for support units, formulas representing the volume of students or faculty served.  Similarly, expenses associated with each unit are attributed with varying degrees of specificity and complexity ranging from a uniform overhead charge to direct application of each expense incurred.    While the terminology and the specific operation of PBB at Higher Education Institutions varies, the underlying philosophy holds that each college or unit is rewarded for its generation of resources, net of the expenses required for their generation.  Two key principles for PBB are a) that the process supports the academic mission and does not drive it and b) expenditures are aligned with the achievement of institutional strategic priorities.