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Budget Model Reform

In October 2024, at the direction of President Michael Schill and the Board of Trustees, the Office of Budget and Planning launched a collaborative exercise to reform its budget practices and implement a new University budget model. Northwestern is conducting a comprehensive, campus-wide budget assessment and model redesign process with the aim of improving resource allocation at Northwestern so that it is more transparent, incentivize's entrepreneurial activity and strategic growth, and promotes adaptability to better advance the institution’s goals and priorities.

Overview

Why are we reforming the budget? 

  • Northwestern aims to transform its budget practices better to support its academic, research, and service mission. We have received feedback from budget stakeholders about frustrations and challenges with the current model and outputs. Northwestern’s existing budget uses an incremental methodology, which means that budgeting is based on last’s year’s budget with minor adjustments made each year to increase or decrease funding to the units. The current budget model limits innovation as there are insufficient incentives to reward units for entrepreneurship, growth, and financial stewardship. Further, the existing model lacks transparency which results in stakeholders having a limited understanding of the financial drivers that are impacting unit performance.

What is Budget Reform and what does it mean for the Northwestern community?

  • Through the Budget Reform project, Northwestern will conduct a comprehensive, campus-wide budget assessment and reform process with the aim of implementing a new budget model that allocates funds in a transparent manner, incentivize's entrepreneurial activity and strategic growth, and promotes adaptability to better advance the institution’s goals and priorities. This means, that at the conclusion of the effort, the university will have a redesigned resource allocation process that helps overcome current state challenges, preserves Northwestern's interdisciplinary approach to education, and rewards behaviors aligned to the mission of the university. The budget reform project is a collaborative effort with stakeholders from each school across the university participating in the process. Members of your team may be engaged in various capacities through the year, to share feedback and insights that will help us develop a model that accounts for the unique complexities of our institution.

What are the objectives of the budget reform project?

  • Identify Existing Budget Model Strengths and Limitations: Assess the strengths and challenges of the university’s current budget model and processes.
  • Align Resource Allocations with University Priorities and Goals: Design allocation methodologies and activity drivers that better incentivize entrepreneurship, innovation, and growth by measuring and rewarding performance through resource allocation.
  • Promote Understanding of Central Service Cost Drivers, Allocations, and Charges: Develop cost allocation methodologies, service level agreements, and processes to increase transparency around the charges for central services to enable units better to understand the drivers of central service costs and the process in which they are charged.
  • Establish Critical Path Timeline and Support Implementation: Based on the assessment of Northwestern’s capacity for change, build a realistic, actionable timeline for implementation, including resource and budget requirements.

How will we meet these objectives? 

  • Northwestern has engaged a consultant to support the reform of its budget model and supporting processes through a phased approach over the next year. The project will take place over three phases
    • Phase 1 Discovery: In this phase, a holistic assessment of existing budget practices is conducted to understand what is working well and what is not in the current state. The assessment includes interviews and workshops with academic deans, budget officers, and various unit stakeholders across the university. This phase also includes the development of a current state model which will show the present flow of funds at the University and serve as a baseline for future model changes.
    • Phase 2 Model Design and Build: The consultant will work with Steering Committee members to design and refine Northwestern’s model for the future of resource allocation. The new model will be specific to Northwestern and built in alignment with the guiding principles set forth by the Steering Committee.
    • Phase 3 Implementation and Socialization: This phase will assess Northwestern's capacity and capabilities to act upon the incentives created by the new model and recommend further actions to close gaps in stakeholder readiness before transitioning the new budget model to the Office of Budget and Planning.

When will budget reform take effect?

  • The Budget Reform project’s activities are expected to conclude by Fall 2025, with the exact timing for the University's switch to the new budget model yet to be decided. Information on the project and decisions made to date can be found here.