DEVELOPING A STRATEGIC FINANCIAL PLAN FOR A MAJOR STATE UNIVERSITY: AN ANALYSIS OF THE FINANCIAL PLANNING OF THE UNIVERSITY OF MASSACHUSETTS AT AMHERST

Higher education has moved into the decade of the 1980's facing complex problems, including demographic decline, cuts in federal financial aid, and in states' ability to provide additional revenues, which are forcing increasing institutional dependence on tuition as a revenue source. Inflation and the cost of keeping up with scientific and technological changes have driven up institutional fixed costs. Low salaries have made industrial research alternatives attractive to important scholars. These conditions have made traditional methods for obtaining a consensus on goals and missions increasingly difficult to apply.;Most existing literature on financial analysis and planning techniques is focused on small institutions rather than major research universities. The complex resource base and the interactions of the many constituencies on campuses make a single set of tools impossible to develop. For public institutions, state law and legislative processes add another complicating factor. Nevertheless, certain common issues, such as the vulnerability of institutions to demographic declines, the ability to use restricted funds to cover fixed costs, and the changes in resource allocation patterns must be addressed by every institution. The paper reviews the use of critical indicators as mechanisms for analysis of these kinds of issues and structures a methodology for building a strategic financial plan by examining environmental issues, reviewing financial conditions, and suggesting an approach to resource allocation that deals with both planning and constituency questions.;The paper concludes with a series of axioms about financial planning in universities, most importantly that financial considerations cannot be the only issues in planning. Judgment, leadership and willingness to focus on achievable objectives are the main ingredients to the success of planning.;The paper focuses on a strategy in a major research university for dealing with the financial implications of these issues, and using a strategic financial planning approach to examine the University of Massachusetts at Amherst and to suggest methods for setting and implementing financial objectives. Among the issues addressed are integrating environmental, academic and financial issues, analytic tools for measuring financial conditions and future objectives, budget strategy, and the political process surrounding decision making. Each is examined in the broader context applicable to universities and for the Amherst campus specifically.