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March 30, 2023 | Long-range financial planning

How do I determine what budget model is best for my institution?

With the current amalgamation of financial challenges facing higher education, institutions must consider how their current budget model is impacting their financial sustainability—not just over the next year, but long-term. 


Identifying and implementing the best budget model strategy for your institution will allow you to address circumstantial challenges such as declining national enrollment, economic impacts of the COVID-19 pandemic, budget cuts, and shrinking state appropriations (for public institutions). In addition, this can rectify system issues, as well, including undefined fund management, unresolved distribution processes, uncertain long-term financial sustainability, and overall financial inefficiency and methodological ambiguity.

What are the six types of budget models used in higher education?

The six types of budget models most commonly used in higher education are: Incremental Budgeting model,  Zero-Based Budget Model,  Activity-Based Budgeting Model, Responsibility Center Management Model,  Centralized Budgeting Model, and the Performance-Based Budgeting Model.

Each model has a unique approach to fund distribution, and many institutions will “test” more than one to determine what’s the best fit.

Incremental Budgeting Model

Incremental budgeting is a traditional model where budget proposals and allocations are based upon the funding levels of the previous year and only new revenue is allocated. An institution’s historical budget is the key factor in determining its future budget. This model is popular but limited in its scope of visibility.

Zero-Based Budget Model

Unlike the incremental budgeting model, zero-based budgeting starts the new fiscal year with a clean slate. The previous year’s budget is cleared and everyone must re-request and re-justify their funding levels. This model can be great for avoiding unnecessary costs, but can also be drastic and time-consuming.

Activity-Based Budgeting Model

Activity-based budgeting breaks down funding into activity groups and awards financial resources to those activities which demonstrate the highest return in revenue. This method can increase revenue, but it relies on accuracy and requires a lot of groundwork which is time-consuming to implement.

Responsibility Center Management Model

Responsibility Center Management (RCM) focuses on academics and delegates operational authority to schools, divisions, and other units within an institution, with each receiving and being responsible for their own revenues and expenses. This method emphasizes competition, which can be a great motivator for units to pursue their own revenue sources or a recipe for inefficiency.

Centralized Budgeting Model

Centralized budgeting gives all the decision-making power to upper level administration. The name is a bit of a mislead - oftentimes, this model is a combination of centralized and decentralized budgeting practices. This model is very flexible and protects necessary costs, but removes departmental competition and (potentially) motivation.

Performance-Based Budgeting Model

Performance-based budgeting awards funds based on performance determined by a number of defined outcomes and standards. This model promotes transparency and enables accountability, but requires extensive time reviewing and determining whether performance measures were met or not.

How do I determine what budget model is best for my institution?

At the heart of any discussion around budget modeling should be your institution’s mission and key priorities. Identifying crucial goals and primary concerns can help reveal where on the centralized-to-decentralized continuum your college or university should operate.


The debate for centralized or decentralized budget modeling has been ongoing in higher education. When financial pressures and economic crises arise, many institutions opt for a more centralized-leaning model in order to maintain tighter control over resource allocation. Other institutions, however, may experience those same challenges and choose a more decentralized model with the goal of incentivizing their revenue-generating units to be more accountable for their expenses and explore new revenue streams.


“Scenario planning”, using financial modeling, can also help institutions determine which model can produce the best outcomes. By leveraging data to evaluate different budgetary scenarios—and their resulting impact on expenses and revenues—institutions can explore the potential benefits and drawbacks of multiple model approaches. Benchmarking labor costs against other similar (or aspirational) institutions’ models, institutions can better understand how comparative labor costs might impact their college or university. Additionally, this strategy can promote discovering and sharing best practices amongst institutions grappling with common financial issues.

Evaluating Multiple Budget Models to Help My Institution Succeed 

By evaluating multiple budget models—as well as data related to staffing levels and service quality—institutions are able to consider various scenarios of funding allocation to determine their impact on long-term financial sustainability. Additionally, this also allows institutions to identify the baseline service quality for administrative services and explore how changes to the model (and changes on the centralized-to-decentralized continuum) may impact the quality of those offices and their services. This process can also investigate staffing levels and the impact those labor investments have on institutional effectiveness and overall efficiency.

Optimize for Your Institution's Long-Term Financial Health

If you’re interested in leveraging the power of budget modeling to better align your institution’s resources with your mission, strategic initiatives, and ward off growing financial pressures, HelioCampus can help. 


We partner with your institution to explore various budget models, the direct impact on your institution’s mission and strategic goals, and the outcome of becoming data-empowered. Let’s start a conversation today!

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