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Week 2: Analyze the Financial System of an Institution of Higher Education

Part 1: Analyze a Financial Statement of an Institution of Higher Education


What are the sources of revenue at the institution?

The sources of revenues includes tuition and fees, community education programs, contributions, grants, investment gain and other support including rental, auxiliary enterprises and other sources.

What revenue trends do you observe?

I usually observe the quarterly revenue estimates, which are important trends in understanding the performance of the university within some reasonable period.

How dependent is this institution on certain sources of revenue?

Sample University is mainly dependent on the certain sources of revenue including tuition and fees and auxiliary enterprises.

What would that level of dependency mean for the institution? What may be the implications for various departments?

The level of dependency on the certain sources of revenues would mean that the university should be ready to enhance the collection of the tuition and fees and auxiliary enterprises. Also, it means the institution should develop appropriate controls to prevent any losses of the main sources of revenues. These would imply that the different departments in the institution should be ready to use the resources effectively as well as maximizing the resources allocated to the specific units.

How may have contemporary economic conditions affected the trend of revenue sources?

The different contemporary economic conditions could have either positively or negatively influenced the trend of revenue sources. Some of the economic conditions include the changes in the interest rates, inflation rates and economic performance. If the economy is performing well, it would lead to high level of revenues in the institution. Also, economic regulations from the government could also restrict the amount of revenues to be generated by the institution. Therefore, the economic conditions and requirements are important in influencing the trend of revenue sources.


What expenditure trends do you observe from 2009-2010?

I observe an increase in the expenditure from 2009 to 2010. This follows the ability of the institution to collect higher levels of revenues, which supports the expenditures of the institution in 2010.

What do the expenses say about the institutions spending priorities?

The expenses implies that the institutions spending priorities is on educational needs and requirements including instruction and institutional support. This is important in supporting the overall educational needs and requirements.

What may be the budget and planning implications for this institution for the next fiscal year and beyond?

The budget and planning implications for the next fiscal year would be to allocate more finances and resources to the most important needs and requirements of the institution. However, the most important needs should align to the strategic focus and needs of the institution.

Based on the financial statements, what would you claim to be the current financial strength of this institution? Why?

Based on the analysis of the financial statements, I would say that the total net assets to be the current strength of this institution. The institution has enjoyed an increase amount of net assets, which would support the future needs of the institution.

Part 2: Assess the Financial Management Structure of an Institution of Higher Education

“Sample University” is moving from a centralized to a decentralized financial management system. What are the benefits and challenges of a decentralized system? How would a department’s financial operations be different under a decentralized system? Do you think it would allow for more effective financial management in your department and throughout the institution? Why?

Some of the benefits of decentralized system is to provide effective decision making, increased staff motivation and the growth of the employees. However, the disadvantages of the decentralized system is it leads to slow decision making and reduces the power and authority mainly enjoyed by the senior managers. A department’s financial operations would be operated differently by having line managers to have control over the allocation of the finances and budgeting process. I do not think that the decentralized system would allow for more effective financial management as it give the roles to lower level managers who lacks strong experience on financial issues.

How might the size and structure of the management system of a college or university, such as Sample University, impact the flow of information and communication across departments? How may they impact the processes of decision-making and the degree of accountability?

The size and structure of the management system have strong impact over the flow of information and communication across the departments. When the size of the management process is high, it is difficult to control the movement of information and effective communication. In terms of structure, the hierarchy and type of management structure would limit the communication across the different departments. The size and structure of the management system would also increasingly influence the processes of decision-making and accountability.

Describe two to three features in a college’s financial management system that would enable it to be efficient, flexible, responsive, accountable, and empowering to employees? Identify two to three problem areas such an institution would have to overcome. Some of the features, which would make the college’s financial management system, include the ability to identify revenue opportunities, effective bookkeeping and the effective handling of assets and liabilities. Effective bookkeeping helps in improving the overall accountability and reliability of the financial systems. Effective handling of assets and liabilities helps the system in becoming more responsive as well as empowering employees (Bierman Jr & Smidt, 2012). An institution will such a financial management system would overcome the problems of fraud and embezzlements as well as the concerns on compliance with financial guidelines.

Part 3: Analyze a Budget of an Institution of Higher Education

What does this institution’s budget say about its strategic priorities?
The institution budget suggests that the institution is strategically focused on improving the education and learning through research and development. It also implies the institution is focused on expanding the instructional model of learning, which is critical in supporting educational performance.

What budget model is used at this institution? How do you feel it serves decision-making at the department level? What are its strengths and weaknesses?

The institution seems to use the flexible budgeting model which helps allows the institution to adjust the different elements in the budget outlook freely. The model serves an important decision-making within the department level as it helps the managers to adjust their projections. The main strengths are that it allows in adjusting the different elements to fit the requirements on the institution. However, it faces the weakness of lack specified metrics to support the budget outlook.

Analyze the budget’s projections for 2011-2014. Do they indicate any change in direction for the institution?
Based on the budget’s projections for 2011-2014, the institution has changed its direction in terms of its strategy and institutional priorities. The institution seems to be able to increase its funding on research and development of new subjects, which aligns to the market and societal demands. Also, it seems to project diverse sources of revenues which are important in improving the overall revenues in the institution.

If you were to write a budget proposal for your department, what would you emphasize given the institutional priorities as reflected in the institution’s budget?

When preparing a budget proposal, I would emphasize on the academic support, instruction and institutional support elements, which are important in the institution. The budget should reflect much focus on the demands of the institution to improve the services in the institution.

What environmental factors may have affected this institution’s budgeting both positively and negatively?
Some of the environmental factors, which might have affected the institution budgeting, include political and regulatory environment as well as the financial downturn in the economy. The financial downturn could have a negative impact on the budgeting process of the institution as it could to deficits. Political influences would also limit the amount of resources available to the institution in terms of budgeting.


Bierman Jr, H., & Smidt, S. (2012). The capital budgeting decision: economic analysis of investment projects. London, UK: Routledge.