PENN STATE'S PLANNING AND BUDGET PROCESS

Strategic Planning

Penn State's stewardship of its resources is a matter of both public trust and institutional pragmatism. It is of paramount importance that the University continue to use its resources prudently and find new ways to excel in spite of historic budget constraints. The University is involved in an ongoing program to realign resources and academic aspirations by eliminating duplication in programs and services, moving resources from declining programs to more promising and effective ones, and shifting resources from administrative functions to support teaching, research, and service.

For many years, the University has made aggressive efforts to reduce costs and create more effective and efficient ways of operating, while at the same time, preserving and enhancing Penn State's quality. Comparative data demonstrate that the University operates in an extremely cost-effective manner. U.S. News and World Report ranks Penn State 11th overall among all public universities nationally, and 4th in operating efficiency. Penn State serves more students with fewer faculty members than most of its peers. Benchmarking data also show that Penn State has lower costs for fund-raising, lower physical plant costs, and lower administrative costs than most peer institutions.

Key to the success of these efforts is the University's strategic planning process which integrates planning, budgeting, and continuous quality improvement. Penn State has a history of linking the budgeting and planning processes. This helps to ensure that the budget allocations will be based on sound and well-thought-out plans. We also have been very pleased with the results of linking our quality initiatives with the budgeting and planning processes.

The University's strategic planning process is referred to as a "top-down, bottom-up" process. The "top-down" aspect begins with Penn State's overall strategic plan, which was completed in September, 1997, and covers the five-year planning period of 1997-2002. This university-wide document provides the framework for planning, including Penn State's mission, vision, and goals statements. The University Planning Council, which includes five faculty members, four deans, three students, and four administrators, coordinates the planning process, reviews individual unit plans, provides feedback to each unit, and develops recommendations on program priorities for consideration by the Budget Task Force. A committee of senior administrative officers chaired by the President, the Budget Task Force develops the overall annual operating budget for approval by the University's Board of Trustees. In addition to funds for program priorities, the Budget Task Force must consider salary adjustment levels, employee benefits costs, other operating expense increases, tuition and fee levels, and other income sources.

The "bottom-up" portion of the planning process refers to the strategic plans that are developed by each of the University's 33 major academic and support units. Within the colleges and administrative units, some 137 individual departmental strategic plans are developed. These plans provide the basis for the unit strategic plans. Currently, the University is in the third year of a five-year planning cycle. Long-term, five-year strategic plans for 1997-2002 were developed by each unit two years ago. Strategic plan updates, which measure progress and refine goals, are provided each subsequent year of the planning cycle.

Budget Reductions and Reallocations

Strategic planning at Penn State has been a continuous process since 1983, when the first five-year strategic plans for all academic and administrative units were developed. Beginning in 1992, a deliberate process of budget recycling and reallocation was incorporated into the process. Since that time, Penn State's budget priorities have been to reallocate funds from administrative and support activities to its core missions of teaching, research, and service. Given scarce resources, Penn State has had to turn to internal budget reductions and reallocations to fund strategic priorities and critical operating needs. Guided by its strategic planning process, the University has reallocated more than 12 percent of its departmental budgets since 1992-93. Further budget reallocations are included in the University's 1999-2000 budget plan and appropriation request. This will be the eighth consecutive year that an internal budget reallocation process has been in effect.

Since 1992-93, Penn State has reallocated more than $78 million. Of this amount, $55 million was reallocated at University campuses other than Hershey. In addition, $23 million in budget reductions and reallocations were made at the Milton S. Hershey Medical Center as part of a comprehensive cost reduction program initiated during the fiscal year 1993-94.

Between 1993-94 and 1995-96, the University Future Process reallocated nearly $31 million. Some of these funds were needed to pay for increased operating costs, such as salary and benefits increases. Of the dollars reallocated for program support, the vast majority were reinvested in the colleges to strengthen the quality of the University's academic programs. The current planning cycle includes further budget reductions of $3.0 to $3.6 million per year for reinvestment in new faculty positions and other selected areas of critical need.

As a part of strategic planning, academic colleges and departments review their program offerings. Student interest, societal and Commonwealth needs, developments in the field of study, and faculty expertise all are taken into consideration in this ongoing review process. Strong programs and those central to the mission of the University are recommended for enhancement. Low enrollment programs, particularly those that are no longer cost effective, are identified to determine whether they should be continued, merged with other units, or eliminated entirely. Since 1992-93, Penn State's Board of Trustees has approved 53 program eliminations or mergers. During this same period, the Board of Trustees of the Pennsylvania College of Technology approved dropping seven associate degree programs.

The University also evaluates continuing education and research activities and has discontinued programs when appropriate. Out of necessity, University administrative functions are more efficient today than they were seven years ago. To continue and improve essential services, Penn State has adopted a strategy of re-engineering and process improvement to streamline its administrative operations. To date, more than 300 continuous quality improvement teams have identified ways to improve processes and increase customer satisfaction. The minimum value of time saved annually through the CQI team efficiency efforts over the past several years is $2.0 million.