Academic journal article Planning for Higher Education

Organizing Financial Information to Support University Planning and Analysis: Adding That Critical P to Your Process

Academic journal article Planning for Higher Education

Organizing Financial Information to Support University Planning and Analysis: Adding That Critical P to Your Process

Article excerpt

Editor's note: This article is one of a two-part exploration on this topic that also includes the article "So, You Need a New Chart of Accounts" by Carol D. Rylee.

UNIVERSITY LEADERS ARE INCREASINGLY EXPECTED to integrate financial data and sophisticated financial analyses into planning and decision-making processes. These pressures are in part a response to the 2008-2009 Great Recession and a desire to ensure that new investments are coupled with prudent financial planning; they also exist in response to increasing external demands to quantify the "value" of higher education and its related costs. Technology companies have seized upon these pressures as an opportunity to market a panoply of financial planning and reporting tools to higher education institutions. A university can quickly spend millions of dollars and countless hours implementing new enterprise systems, data warehouses, and data visualization tools.

This article argues that before colleges and universities invest in complex new technologies, they should first evaluate and, if necessary, redesign the basic coding of their financial transactions. Reporting and analytical capabilities are only as robust as the underlying data allow, and no technology can compensate for incomplete or inconsistent financial information. Based on our experience leading a multi-year financial modernization initiative at Princeton University, herein we provide a management approach for assessing and organizing financial information and identify key considerations for universities and colleges planning to undertake a comparable process. This approach begins with a process for assessing whether redesigning the institution's financial coding is necessary and then proceeds to establishing design principles with a focus on balancing detail with usability considerations, conducting a proof of concept, generating new financial reports, and maintaining the integrity of the new design. The steps of the process are summarized in figure 1.

The management process we summarize assumes only basic familiarity with accounting principles, but a few definitions are helpful.1 The general ledger is the backbone of an institution's financial structure. It is the source of record for financial activity and the audited financial statements. The DNA of the general ledger is the chart of accounts (COA). The COA is composed of several data fields, such as department, fund, and account, as well as the specific values within each field, e.g., chemistry, the Smith endowment, or travel. Data entered into the general ledger are recorded through transactions made in financial systems using a particular chart string. Using the values in the COA, the chart string identifies the dimensions of a specific transaction, often including the department, the fund being debited or credited, and the type of income or expense activity. Princeton's redesigned COA follows this basic structure, requiring each transaction to be recorded with a department, fund, and account code. Additional optional fields are used to capture information such as sponsored research projects or site (see the sidebar for details).

Determining whether to redesign an institution's COA does not begin with a forensic review of the institution's accounting. The symptoms of an out-of-date chart are much easier to identify:

* Financial managers in schools and departments do not have the information needed to efficiently manage their resources.

* Shadow systems and spreadsheets emerge with local data.

* Expenses and revenues are concentrated in a few categories.

* There is limited flexibility to track new initiatives, departments, and facilities.

* Producing financial statements and analyses requires extensive manual adjustments.

Often, as was the case at Princeton, an aging COA necessitates an extensive financial analysis to answer a basic financial management question. For example, during the Great Recession, it took about three days of manual effort to determine how much we spent annually on travel. …

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