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 Title Page
 Acknowledgement
 Table of Contents
 Abstract
 Introduction
 Identified perceived problems as...
 Development of the criteria from...
 Revision of the criteria based...
 Summary and general observatio...
 Appendices
 References
 Biographical sketch






Title: Application of management theories in the development of criteria to assist in solving identified perceived problems
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 Material Information
Title: Application of management theories in the development of criteria to assist in solving identified perceived problems of the chief business officer in selected university medical centers
Physical Description: vii, 141 leaves : ; 28 cm.
Language: English
Creator: Easton, Ian Storrier, 1941-
Publication Date: 1976
Copyright Date: 1976
 Subjects
Subject: Medical centers -- Administration   ( lcsh )
Universities and colleges -- Business management   ( lcsh )
Educational Administration and Supervision thesis Ph. D   ( lcsh )
Dissertations, Academic -- Educational Administration and Supervision -- UF   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Thesis: Thesis--University of Florida.
Bibliography: Bibliography: leaves 132-139.
General Note: Typescript.
General Note: Vita.
Statement of Responsibility: by Ian S. Easton.
 Record Information
Bibliographic ID: UF00098118
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: alephbibnum - 000176256
oclc - 03063723
notis - AAU2735

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Table of Contents
    Title Page
        Page i
        Page i-a
    Acknowledgement
        Page ii
    Table of Contents
        Page iii
        Page iv
        Page v
    Abstract
        Page vi
        Page vii
    Introduction
        Page 1
        Page 2
        Page 3
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        Page 29
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    Identified perceived problems as developed from the survey questionnaire
        Page 31
        Page 32
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    Development of the criteria from a review of related literature
        Page 34
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    Revision of the criteria based on their theoretical feasibility by the panel
        Page 83
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    Summary and general observations
        Page 104
        Page 105
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    Appendices
        Page 109
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    References
        Page 132
        Page 133
        Page 134
        Page 135
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        Page 139
    Biographical sketch
        Page 140
        Page 141
        Page 142
Full Text




















APPLICATION OF MANAGEMENT THEORIES IN THE DEVELOPMENT
OF CRITERIA TO ASSIST IN SOLVING IDENTIFIED PERCEIVED
PROBLEMS OF THE CHIEF BUSINESS OFFICER IN SELECTED
UNIVERSITY MEDICAL CENTERS











BY

IAN S. EASTON


A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF
THE UNIVERSITY OF FLORIDA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF DOCTOR OF PHILOSOPHY




UNIVERSITY OF FLORIDA


1976














ACKNOWLEDGEMENTS

The writer wishes to express gratitude to the many

persons whose assistance and support have made this study

possible. To the Chairman of the Supervisory Committee, Dr.

James L. Wattenbarger, sincere appreciation is expressed for

his guidance and encouragement throughout the development

and completion of this study. Appreciation is also extended

to the other members of the committee, Dr. S. Kern Alexander

and Dr. John James.

To the eighteen chief business officers who partici-

pated in the survey questionnaire and the panel (Dr. Chandler

A. Stetson, Dr. John Champion, Mr. Red Stover and Mr. Don

Young) who validated the criteria, the writer wishes to

express his gratitude.

Finally, the'writer wishes to express his deepest

appreciation to his wife, Ann, for her support, encourage-

ment, and devoted love, without which this study would not

have been possible.













TABLE OF CONTENTS


Page

ACKNOWLEDGEMENTS.... .... ................. ........... ii

ABSTRACT.... ........................................... vi

CHAPTER I

INTRODUCTION......................................... 1

The Problem...................................... 3

Assumptions..................................... 7

Definition of Terms.. ................. .......... 7

Review of Authoritative Opinions Relative
to Educational Business Management............ 10

Generalizations................................. 27

Procedures ........................................ 27

Organization of the Study........................ 30


CHAPTER II

IDENTIFIED PERCEIVED PROBLEMS AS
DEVELOPED FROM THE SURVEY QUESTIONNAIRE........... 31

Financial Accounting ............................ 31

Budget Preparation and Control.................. 32

Physical Plant.................................... 32

Personnel Services.............................. 32

Purchasing... .................................... 33

Auxiliary Services.......... .................... 33

Other Areas of Concerns.......................... 33









iii








Page


CHAPTER III

DEVELOPMENT OF THE CRITERIA FROM A
REVIEW OF RELATED LITERATURE..................... 34

Financial Accounting........................... 34

Identified Problems in Financial Accounting.... 47

Criteria Derived from the Literature........... 48

Budget Preparation and Control................. 48

Identified Problems in Budget Preparation
and Control ................................... 57

Criteria Derived from the Literature........... 57

Physical Plant.................................. 58

Identified Problems in Physical Plant.......... 62

Criteria Derived from the Literature........... 63

Personnel Services............................. 63

Identified Problems in Personnel Services....... 67

Criteria Derived from the Literature........... 68

Purchasing. ..................................... 68

Identified Problems in Purchasing.............. 72

Criteria Derived from the Literature........... 72

Auxiliary Services............................. 72

Identified Problems in Auxiliary Services...... 74

Criteria Derived from the Literature........... 75

Other Areas of Concern........................ 75

Identified Problems in Other Areas of
Concern......................................... 79

Criteria Derived from the Literature........... 79

Summary of Criteria Derived from the
Literature..................................... 79









Page


CHAPTER IV

REVISION OF THE CRITERIA BASED ON THEIR
THEORETICAL FEASIBILITY BY THE PANEL.............. 83

Brief Synopsis of Information Relating
to the Panel Members.......................... 83

Recommended Revisions of the Criteria
by the Panel ................................... 84

Summary......................................... 99

Summary of Revised Criteria...................... 100


CHAPTER V

SUMMARY AND GENERAL OBSERVATIONS.................... 104

Summary......................................... 104

General Observations.............. .............. 106

Recommendations for Further Research............ 107

APPENDIX A........................................... 110

APPENDIX B......................................... 118

APPENDIX C..... ... .................. ................ 120

REFERENCES......................................... 132

BIOGRAPHICAL SKETCH................................ 140











Abstract of Dissertation Presented to the
Graduate Council of the University of Florida
in Partial Fulfillment of the Requirements
for the Degree of Doctor of Philosophy

APPLICATION OF MANAGEMENT THEORIES IN THE DEVELOPMENT
OF CRITERIA TO ASSIST IN SOLVING IDENTIFIED PERCEIVED
PROBLEMS OF THE CHIEF BUSINESS OFFICER IN SELECTED
UNIVERSITY MEDICAL CENTERS

By

Ian S. Easton

December, 1976

Chairman: Dr. James L. Wattenbarger
Major Department: Educational Administration

The purpose of this study was to develop a set of

criteria to be used as a framework to assist in solving the

major problems faced by chief business officers in academic

medical centers.

The first phase of the study involved the identifi-

cation of the problems as perceived by the chief business

officers. This was accomplished through the use of an open

ended questionnaire in which eighteen academic medical

centers participated.

Once the problems had been identified a search of the

available literature was conducted in order to develop a

tentative set of criteria. The literature specifically

dealing with medical centers yielded a paucity of infor-

mation. Therefore, literature from the areas of business

administration, educational administration and hospital

administration was also incorporated in the review for

tentative criteria.










Once the tentative list of criteria was developed it

was submitted to a four member panel, knowledgeable in the

area of business affairs in academic medical centers. The

panel consisted of two medical center chief business of-

ficers (practitioners), one chairman of a Department of

Hospital Administration (academician), and one Vice Presi-

dent for Health Affairs (chief executive officer). They

reviewed the criteria with respect to their theoretical

feasibility in academic medical centers. They responded by

either agreeing with the criteria as written, offering a

revision or totally disagreeing with the criteria, based on

a stated rationale. Based on their responses a finally

revised set of criteria was established.

It was observed by the writer that the areas of least

revision by the panel were Physical Plant Operation, Per-

sonnel Services, Purchasing and Auxiliary Services. The

areas of greatest revision and disagreement were Financial

Accounting and Budget Preparation and Control.

The findings of this study indicate that the finally

revised criteria, as opined by the panel were theoretically

feasible to be used as a framework to assist in solving the

major problems faced by chief business officers in academic

medical centers.











CHAPTER I
INTRODUCTION


The chief business officer of a university is that

person whose responsibility it is to insure that the

business and financial functions are carried out in accor-

dance with the guidelines of the governing board. In

reference to these business and financial functions, the

National Association of College and University Business

Officers (NACUBO) has stated that the direct, primary

functions of the chief business officer are:

management of all financial operations of the
institution, including design of the systems,
preparation of reports, conduct of financial
analyses, and provision of appropriate controls
and audits

participation with the president and the chief
academic officer in preparation of the insti-
tutional budgets

management of the physical plant, routinely in
its operation and maintenance and, with other
officers, in planning, design and construction
decisions

management of personnel programs

management of purchasing, stores, and property
control systems, and

management, or financial control within institu-
tional policy, of auxiliary enterprises and
service departments. (1974, p.7)

An integral part of general university business affairs

is that of medical center business affairs at those univer-

sities with such centers. Don Young, Chairman of the Group

on Business Affairs, Southern Region of the Association










of American Medical Colleges stated:

There are numerous commonalities between the business
affairs of the university in general and the medical
center. Both are concerned with periodic accounting
and reporting, budget preparation and control, and
maintenance of the physical plant. Both have similar
as well as unique problems. I feel the uniqueness
of the problems of the chief business officer in the
medical center revolve around such items as the various
funding techniques for medical students, adaptability
between the instruction function and that of dealing
with a variety of patients, and having the necessary
supplies and equipment for training as well as patient
care even when budgets may be severely limited.
(Note 1)

Norwood (1972) stated, "during the last five years

there has emerged a new professional to join the ranks of

all others who contribute to the administration of the

American Medical Center" (p.5). He was referring to the

medical center business officer. Kutina (1974) alluded to

the emergence of the medical center business officer when

he wrote:

The 114 academic health centers in the United States
are remarkably diverse, complex, and extensive
enterprises. Their total expenditures in fiscal
year 1970-71 were in excess of $1.7 billion. They
were in the process of educating 40,487 students
seeking the M.D. degree, another 27,225 interns
and residents, plus 15,285 graduate students in
the biological sciences. Full time faculty employed
by these institutions numbered 26,504. It is obvious
that in the aggregate academic health centers in
this country are a major industry with a unique and
critical role in relation to the welfare of society.
There is no doubt in this author's mind that they
warrant and require specialized modern managerial
techniques, and present many challenging problems
to the management scientist. (p.2)

There has been little or no research undertaken to

identify the problems that Kutina mentions even though there

appears to be some commonality of problems between the


~










university in general and the medical center. There is

reason to suspect that there are at least enough common-

alities in the body of literature that are applicable to

university business affairs in general. These common-

alities may have some applicability to the issues or

problems in medical center business affairs.

The chief business officer in the medical center must

deal with a wide range of individuals with diverse back-

grounds. Specific examples include (a) physicians who play

a dual and sometimes a triple role including those of

academic medical professor, practicing professional

physician and medical administrator; (b) hospital admin-

istrators; (c) nurses and other health related professionals;

(d) national insurance agents; (e) architects and contractors

and (f) the very essence of the institution, the students.

Several authors, including Nance (1966), Russell (1967),

and Davis (1956) have indicated that the chief business

officer must be a person of absolute honesty, integrity,

great vision, and possess the ability to get along with

people. It is to this person, specifically the chief

business officer of the university medical center, that

this study was undertaken.



The Problem

Statement of the Problem

The focus of this investigation was to establish

criteria to be used as a framework to assist in solving









the major issues faced by chief business officers in selected

university medical centers. Specifically, answers to the

following sequented questions were sought:

1. What are the problems in the following seven major
areas as perceived by the chief business officer:
(1) financial accounting, (2) budget preparation
and control, (3) physical plant, (4) personnel
services, (5) purchasing, (6) auxiliary services,
and (7) other areas of concern, i.e., grants
management, systems and procedures?

2. From a review of the literature what are criteria
that are useful in developing a framework to assist
in solving the major issues faced by chief business
officers?

3. What is the validity of these criteria from
selected chief business officers, scholars in the
field, and chief medical administrators?

Delimitations

1. Data for identifying the perceived problems of
the chief business officers were confined to members
of the Association of American Medical Colleges -
Group on Business Affairs, who chose to participate.
The determination of problem areas
was confined to data gathered through an
open ended questionnaire. The questionnaire was
completed by 18 chief business officers selected
from the various regions in the country comprising
the Group on Business Affairs.

2. The development of criteria was confined to those
related to the problems identified in the
questionnaire. A search of the literature in
Educational Administration, Hospital Administration,
and Business Administration was used in deriving
the criteria.

3. The validation of the criteria was confined to
judgments provided by a panel consisting of two
chief business officers, one scholar in the field
of administration, and a medical center chief
executive.







5


Limitation

The limitation of the study may be found in the fact

that the respondents may not be aware of all the perceived

problem areas.

Justification of the Study

Young (Note 1) as stated in the introduction of this

study indicated there were some unique problems relating

to the chief business officer of a medical center. However,

there have been no previous studies which have attempted to

identify the problems.

Dozier (1973) commenting on the role of the chief

business officer stated:

The chief business officer is more under the gun to
provide sophisticated services and to stretch the
effectiveness of available dollars than he has ever
been. New management concepts for college and
university business officers have evolved, and
automated computer supported systems for accounting
and other functions are rapidly becoming the order
of the day. (p.l)

The overall importance of the chief business officer

and business office in general to the academic community

was stated by Elmore (1970):

Few can argue with the fact that the business office
today is the chief source of fiscal advice not only
to the president, but also to the governing board.
We have graduated from bookkeepers to managers with,
in most cases, responsibilities and opportunities for
service broader in scope than our brothers in business.
Centralized purchasing and personnel departments are
coping with a volume of state and federal regulations
that stagger the imagination. Sophisticated boards
and legislatures are demanding modern systems and
business programs, including planned program
budgeting and planning models. The role of our
institutions in educating vast numbers of students,
in community affairs, and in research, has forced
the business office to employ the most capable










personnel available and to utilize the most up-to-date
advances in the areas of computers and business equip-
ment. Our physical plant, with its laboratories, air
conditioning, and problems connected with vehicle
parking, traffic control and power distribution
requires the highest managerial and engineering skills.
Finally, and of greatest importance, the business
office has the responsibility for creating an economic
climate and a service organization that will assist
the institution in the fulfillment of its academic
goals. (p.4)

The academic goals mentioned by Elmore have taken on a

significant meaning in regard to medical centers. Most

centers started with only a medical school and a partici-

pating hospital. According to Pellegrino (1975) these

centers may include as many as eight different professional

schools, affiliations with a half dozen or more hospitals,

academic relationships with community colleges, regional

programs and other community organizations. Relating

specifically to the business problems in medical centers,

Pellegrino stated:

Budgets and physical facilities have parallelled the
growth in size and complexity of programs. These may
in many instances equal those of the entire university
or even surpass them. These budgets consist of funds
from sources external to the university, and in large
part their use is dictated by demands often only
indirectly related to the needs of the rest of the
university. The management of these funds requires
a familiarity with intricacies of third party payers,
clinical practice funds, and billing and collection
from a wide range of consumers all problems of a
different genre than those familiar to university
business officers. (p.224)

The rapid growth of university medical centers in both

physical facilities and budgets has created a demand for

criteria to evaluate proposed solutions to the unique

problems of the chief business officer. This study attempts











to provide the criteria helpful in developing a framework

to assist in solving the identified problems and at the same

time contribute to the growing body of knowledge dealing

with chief business officers in academic environments.



Assumptions

There are three obvious but essential procedural

assumptions involved in conducting the investigation, these

are as follows:

1. The chief business officer practicing in the field

of university medical center business affairs is in a

position to have a realistic view in order to identify

perceived problems.

2. The writer, in summarizing the data from the

survey, was able to identify similar perceived problems in

spite of differences in wording by the respondents.

3. The selected jury had the expertise in business

affairs relating to university medical centers to determine

the soundness of the initial set of criteria developed from

the literature.



Definition of Terms

Association of American Medical Colleges--Group on

Business Affairs. A professional organization dealing with

the policies, programs, and problems of American medical

colleges. The group on business affairs was formed in 1967

to provide a forum for discussion of mutual problems related










to the administrative and fiscal affairs of medical schools.'

In addition the group provides educational programs for

business officers in order to strengthen and extend their

administrative and management capabilities.

Auxiliary services. One of the direct, primary

functions of the chief business officer involving the

management and or financial control of such enterprises

as bookstores, housing operations, student unions, and

radio and T.V. stations. Those auxiliaries specifically

related to medical centers include animal quarters, bio-

electronic shops, and instrumentation.

Budget preparation and control. One of the direct,

primary functions of the chief business officer involving

such things as dissemination of yearly budget worksheets

to unit heads, projected annual income, periodic status

reports to unit heads, and control of costs.

Chief Business Officer. That medical center official

who is directly responsible for the financial operations,

budget, physical plant, non academic personnel, purchasing,

auxiliary enterprises and other functions as determined by

his job description, as well as for purposes of this study

being the voting member of the Group on Business Affairs

(AAMC) from his or her institution.

Criteria. Standards on which judgments or decisions

may be based. As used in this study they are derivations

from the literature made by the writer and validated by

the panel.










Financial accounting. One of the direct, primary

functions of the chief business officer involving such areas

as the basic bookkeeping functions of the institution,

preparation of periodic reports, design and maintenance of

the accounting system, and payments for the services and

supplies.

Panel. Those persons who will validate the criteria

derived from the literature to be used as a framework to

assist, in solving the major issues faced by chief business

officers in university medical centers. The panel will

consist of two chief medical center business officers, one

scholar in the field of administration and a chief executive

of a university medical center.

Perceived problems. The awareness of something dif-

ficult to solve. As used in this study they refer to those

perceived problems or issues of chief business officers in

university medical centers that are derived from the

questionnaire.

Personnel services. One of the direct, primary

functions of the chief business officer including such

things as employment of non-academic personnel, information

and service relating to staff benefits, training programs,

salary plans, fringe benefit packages, and where applicable

union contracts and negotiations.

Physical plant. One of the direct, primary functions

of the chief business officer including such things as

facilities operation and maintenance and participation with











other officers in planning, design, and construction

decisions.

Purchasing. One of the direct, primary functions of

the chief business officer involving such things as the

routine of requisitions and purchase orders for goods and

services, bid policies and procedures, and the supervision

of stores.

University Medical Center. Those academic enterprises

consisting of a school of medicine plus the interfacing

components of its umbrella university and affiliated

hospitals included to the extent that these components

either supply resources which are required to produce the

output program for which the medical school is responsible,

or to the extent that they consume resources which the

medical school supplies (Kutina, 1974, p.l).

Validation. Supported by generally accepted authority.

As used in this study it refers to the judgment as rendered

by a panel.



Review of Authoritative Opinions Relative
to Educational Business Management

In conducting the review of literature and research

related to this study, the writer concentrated on the

business management of higher education. However, where

appropriate, other levels of educational business manage-

ment were incorporated into the literature review.











In order to develop an understanding of the major

functional areas of responsibilities of medical center

business officers, a review of the literature and research

contained herein includes both empirical investigations and

authoritative opinions in six areas.

1. Financial accounting

2. Budget preparation and control

3. Physical plant

4. Non-academic personnel services

5. Purchasing

6. Auxiliary services

Financial Accounting

In attempting to arrive at a workable definition of

accounting, Scheps and Davidson (1970) stated, "accounting

is the means through which financial data necessary to the

efficient administration of colleges and universities are

recorded, classified, and reported to institutional officers,

controlling bodies, and the general public" (p.3). Another

concept of accounting and financial reporting was discussed

by Chambers (1968) "reporting the income and outgo of dollars

and showing where the money goes and what value is obtained

for the dollars expended" (p.47). Chambers also made the

point that accounting as found in colleges and universities

is somewhat specialized when he stated:

Accounting is an exacting profession. Mastery of its
technicalities requires years of study and practice.
College and university accounting is a specialized
branch, or might perhaps better be called a separate
profession. This is because the main body of










accounting knowledge and techniques has been
developed for use in private business wherein the
dollar profits or losses usually quickly determine
the fate of the enterprise; whereas in higher
education nearly all the institutions are either public
or private nonprofit corporations, in whose operation
monetary gains to private individuals are interdicted.
(p.49)

In discussing the requisites of a satisfactory

accounting system, Russell (1967) felt:

Three general characteristics are requisite to a
satisfactory accounting system: (1) the system must
safeguard the funds of the institution; (2) it must
yield the information that is necessary for adminis-
trative control; (3) it must be as simple as possible.
(p.50)

Expanding on the characteristics as mentioned by Russell is

an objective in an accounting system of providing infor-

mation to assist (1) management in the effective allocation

and use of resources and (2) the general public, investors,

creditors, and others in evaluating the effectiveness of

management in achieving organizational objectives (NACUBO,

1974).

Wattenbarger (1972) alluded to the aforementioned

objective when he stated:

. the development of soundly based record keeping
systems is essential . .When the chief fiscal officer
learns to carry out this responsibility with a high
degree of skill, he will make his most important
contribution. (p.284)

Commenting on a sound record keeping and accounting system

Miller, Madden, and Kincheloe (1972) stated:

Accurate accounts serve several purposes: (1) They
represent a prudent control upon public funds. Such
accounts, accurately audited periodically, give
assurance that public servants handling the funds
have done so honestly in accordance with the will of











the people and the laws of the state. (2) They also
serve as a protection to the custodian of funds, for
he has objective proof of his faithful performance
whenever he may be challenged. (3) Such accounts
provide the basis for reporting to the public on
the condition of the schools and their needs. They
provide the basis for filling out reports to the state
or to federal agencies entitled to such information.
(4) Accurate accounts provide the basis for analyzing
the business practice with an eye to making improve-
ments in it. (p.319)

Furthermore, Nelson and Purdy (1971) in discussing recom-

mended practices in accounting stated:

1. Encumbrances should be posted daily and not less
frequently than weekly, and it should be possible
to examine purchase orders and contracts issued
since the last posting of encumbrances so that
the business administrator may determine the exact
status of any account immediately.
2. Financial reports should be given to principals and
branch heads regarding their supply accounts on a
monthly basis.
3. A monthly financial statement showing budget
appropriations, transfers into or out of the
account, expenditures, encumbrances, and unencum-
bered balances should be supplied the board.
Likewise, budgeted receipts, receipts to date and
a revised estimate of receipts should be shown.
(p.105)

Fund accounting is used to satisfy the requirements to

account properly for the diversity of resources and their

uses in colleges and universities. According to NACUBO,

(1974):

Fund accounting is the manner of organizing and
managing the accounting by which resources for various
purposes are classified for financial accounting and
reporting purposes in accordance with activities or
objectives as specified by the donors, with regulations,
restrictions, or limitations imposed by sources out-
side the institution or with directions issued by the
governing board . A fund is an accounting entity with
a self-balancing set of accounts consisting of assets,
liabilities, and a fund balance, separate accounts are
maintained for each fund to insure observance of
limitations and restrictions placed on the use of
resources. (p.178)










In order for the chief business officer and other

administrators to control their expenditures and stay within

the limits of their appropriations and use of resources the

accounting system should be based on the accrual method as

opposed to the cash method. In discussing the accrual

method Morphet, Johns, and Reller (1974) stated:

Under accrual accounting (1) estimated revenues are
counted as available when earned, even though the cash
has not been received, but estimates are adjusted
periodically for gains or losses, (2) as soon as
contracts or purchase orders are signed, the obli-
gations so incurred are charged immediately to the
account affected as encumbrances and when the
corresponding bill is paid, the procedure is to
credit the account with the original encumbrance
and charge the final payment to it. (pp.479,480)

The cash basis on the other hand shows only income actually

received during a fiscal period and only expenses paid

during a fiscal period. Under the cash basis there are no

provisions for encumbrances and herein lies the weakness of

the cash basis as it relates to college and university

accounting. In order to reflect all income earned even

though not necessarily received and all expenses incurred

even though not necessarily paid for it is a necessity that

the financial statements of the college or university be

prepared from an accrual basis accounting system.

The preparation of financial statements from the

accounting records comes under the purview of the chief

business officer (Morphet et al., 1967). Financial state-

ments should be understandable, commenting on this point

Priscilla (1970) stated:










After internal procedures are decided and financial
statements are prepared, financial officers of
colleges and universities must be certain that their
statements are not presented in such a manner that
only a trained financial analyst could begin to
understand them. (p.55)

Wilkinson (1973) addressing himself to the topic of college

and university financial statements quoted some of the

college trustees where he is treasurer, "we don't understand

your financial reports. We've never understood them.

Further we don't understand financial reports of other

colleges and universities either." Wilkinson's reply was

"that he could sympathize with the expressions of the

trustees and revealed he didn't understand the financial

reports and he had been writing them" (p.l). Wilkinson

felt the businessman was entitled to more than the

traditional college financial statements (balance sheets

of six to eight pages, changes in fund balances, and current

funds, revenues, expenditures, and other charges) when he

stated:

The businessman is not looking for an earnings-per-
share at his alma mater. He knows there is no profit
or loss in a non profit institution. But he is
entitled to something more meaningful than the so-
called current funds "surplus" or "deficit" which has
been foisted on the gullible public for years as the
answer to "how did the university do?" The treasurers
report should show readily and distinctly whether the
university ended the year with more or less tangible
resources than it had at the beginning, and in what
form, whether buildings, endowment or working capital.
(p.1)

Wilkinson's contribution in attempting to make college and

university financial statements more understandable to lay-

men lies in the fact that he presented consolidated finan-


__._









cial statements as well as traditional audited statements

in generally accepted fund accounting format in the annual

report. To show the businessman what happened between

balance sheet dates, a consolidated change in fund balances

statements puts it all together. Wilkinson said:

The balance sheet includes all transactions, not just
those selected to run through the current funds. The
consolidated changes in fund balances statement can be
supplemented with a quick history of major fund group-
ings to provide some appreciation of the recent years'
changes within the university's "equity". Finally
elements from the consolidated balance sheet and the
changes in fund balances statement might be combined
to give management and the businessman a kind of
consolidated cash flow. (p.3)

Wilkinson was advocating supplemental statements, he was not

recommending abandonment of fund accounting principles. In

regards to the balance sheet for greater understanding,

Priscilla (1970) felt that it should not contain any more

than two pages, as opposed to the traditional six to eight

pages.

Budget Preparation and Control

One definition of a budget was defined as "an itemized,

authorized, and systematic plan of operation, expressed in

dollars, for a given period" (NACUBO, 1974, p.157). Ac-

cording to Nance (1966, p.9) budgeting is a widespread

financial activity. He felt budgeting was an opportunity

to enhance one of the few direct and regular participation

between faculty and administration. One important aspect of

budgeting is an efficient system of controls (Nance, 1966,

p.9). Dozier (1973) also mentioned the control aspect when

he said:










Fiscal controls are essential in operating a college
or university. The budget of an institution is a
statement in financial terms of its program. It is
also one device for establishing controls. The chief
business officer should have clearly developed
policies and control devices to insure that expendi-
tures are made by authorized persons and that budget
limits are not exceeded. (p.ll)

A further aid in control according to Morphet, Johns, and

Reller (1974, p.479) is that there should be a centralized

administration of the budget, no budget can be kept in bal-

ance if numerous persons make expenditures without pre-

authorization. Bielen's (1974) research on guidelines for

budget administration confirms Morphet et al. statement.

Budgetary procedures can be divided into three steps

according to Russell (1967) when he wrote:

The first step, preparation, involves the making of
the financial plan. The second step, adoption, is
an act by the board of trustees or other controlling
agency. The final step, execution and control, covers
the management of the budget during the fiscal year
to which it related. (p.73)

There was no uniformity found in the literature as of

the time of this research (mid 1970's) as to when the bud-

get preparation should begin. "An acceptable starting month

would be eight to ten months in advance of the effective

date of the budget," (Baker, 1970, p.52). Nance (1966)

stated, "it is customary for an institution to take as much

as 6 to 8 months in developing the budget for the approach-

ing fiscal year" (p.9). Green (1973, p.3) felt that it was

necessary to begin working on the upcoming fiscal year

budget 12 to 16 months in advance of its adoption. During

the preparation stage a number of events will need to take










place: a calendar of events leading from the beginning

of the formation of the budget to final adoption, instruc-

tions and forms to be filled out by heads of budgetary

units, i.e., departments, divisions; consolidation of the

budget by the business officer; review of the budget by a

budget committee; submission of the budget to the president;

president reviews and makes recommendations to the govern-

ing board or controlling agency; and approval but not

necessarily as submitted by the governing board or control-

ling agency (Baker, 1970, pp.53-54).

In order to show the relationship of the chief

business officer and the role of the business office once

the budget has been approved and adopted (step two)

Richardson, Blocker, and Bender (1972) stated:

. all subunits are informed of their allocation and
are faced with the responsibility of living within
them. The business office, on the other hand, is
responsible for ensuring funds are available for
expenditure requests. It need not exercise judgment
on the relative importance of such requests. In a
similar manner, priority determination is not the
responsibility of the business office, but rather,
a shared responsibility for all the officers con-
cerned. In consequence, the business office emerges
as a service function and not as a source of
educational decisions. (p.147)

The third step in the budgetary procedures as pre-

viously mentioned by Russell was execution and control.

NACUBO (1974) stated:

Without good control, the value of a budget is
seriously decreased, regardless of how accurately
or how carefully it is prepared. One of the main
purposes of budgetary control is to insure that
expenditures do not exceed allocations . Budget
control starts with those responsible for each









budgetary unit. The chief business officer has
responsibility for overall budget control, including
responsibility to call attention to major departures
from budget estimates and to take appropriate follow-
up action. The department chairman, however, has the
primary responsibility for control of expenditures
within his budgetary unit. (p.164)

Additionally, Nelson and Purdy (1971) stated:

It is not enough to have a good budget soundly
developed, understood by all concerned, and balanced
perfectly. It is of equal importance to exercise
proper budgetary control. No purchase order should
be issued until it is ascertained from the accounting
branch that the necessary unencumbered balance in
the budget appropriation account is available. No
contract for employment should be issued until such
information is likewise obtained. (p.93)

Bielen (1974) in stressing the importance of budgetary

practices in community colleges, developed 17 guidelines

relating to the administration and or control of the budget.

The guidelines were developed in the following operational

areas: reporting and record keeping; internal auditing;

accounting; organization; purchasing; communication;

attitude (psychological factors); and electronic data

processing. Bielen (1974) observed that the "operationally

feasible guidelines were more orientated toward central-

ization" (p.60). However, numerous applications do appear

to be workable in a decentralized setting of budget adminis-

tration.

Physical Plant

In a study of the role, scope, and functions of the

chief business officer in 89 liberal arts colleges it was

found that 85.4 per cent of the chief business officers had

direct responsibility for maintenance of the physical plant

(Knauth, 1955, p.41).










According to NACUBO (1974) the function of operation

and maintenance of buildings, grounds, and other physical

facilities of an educational institution should fall within

the business administration of an institution. NACUBO

(1974) in commenting on facilities operation and maintenance

stated:

The physical plant organization is concerned funda-
mentally with timely service operations, maintenance,
alterations, and related activity pertaining to the
facilities portion of a total learning environment.
For administrative purposes, the physical plant
office should be organized according to functions .
Normally there are at least six basic areas of
responsibility in the physical plant office: admin-
istration, building and equipment maintenance,
custodial services, utility systems, landscape and
grounds maintenance, and major repairs and renovation.
(p.109)

The maintenance of buildings and equipment includes

such responsibilities as minor repairs for equipment and

buildings, painting, and preventive maintenance that can be

handled by full-time, skilled or semi-skilled physical plant

employees. McRae (1974) developed six simple steps for

starting a preventive maintenance program and concluded

that "when fully implemented an effective PM program will

reduce the breakdown maintenance work load, shifting it

from when you have to do repair work to when you want to do

it. Work that can be scheduled can be done more efficiently

and at a lower unit cost" (p.42). Examples of employees in

the maintenance and operation section include electricians,

plumbers, painters, carpenters and skilled mechanics. Some

of the considerations that should be observed when setting










up a maintenance program were stated by Davis (1959):

Put maintenance on a scheduled, planned basis,
rather than an intermittent breakdown basis

Establish direct control of the maintenance labor
force

Guard against and eliminate overmaintenance as well
as undermaintenance

Insure corrective action before advanced deterior-
ation requires major repairs

Correlate the work force and the work capacity of
each shop or work center with its assigned workload

Determine what each job should cost for comparison
with actual cost (cost accounting system). (pp.2-6)

Custodial care includes sweeping, mopping, waxing,

dusting, refuse disposal and similar daily routines required

to keep buildings in a clean, orderly and comfortable con-

dition. In order to have an effective and efficient cus-

todial staff many universities, for example, the University

of Minnesota, Auburn, and Ohio State conduct an ongoing

training program (Leverone, 1959).

The mechanical plant (heating, air conditioning, and

utility systems) may supply services to the physical plant

directly from raw energy sources or by acting in varying

degrees as intermediary between existing outside utilities

and the university complex (McKay, 1970). These services

include such items as steam, chilled water for air con-

ditioning, electricity, hot water for heating, compressed

air, and storm and sanitary drainage. Calvin Green, a past

National President of the Association of Physical Plant

Administrators stated:










The mechanical plant is usually the most expensive
section of the physical plant division in terms of
operating costs. It involves the most complex
machinery and equipment and its employees are the
most technically orientated. Approximately 60 per
cent of the professional engineers on the staff will
be involved with work directly related to the
mechanical plant. (Note 2)

As stated in a report, NACUBO (1974) felt that

properly maintained, "attractively landscaped grounds will

enhance the respect shown the institution by students, staff,

and the general public" (p.113). NACUBO (1974) concluded

that this responsibility required a large enough staff to

maintain lawns, shrubbery, flower beds, walkways, parking

areas, and to remove snow and perform similar duties. It

appears appropriate that a campus master plan for landscape

development and utilization be instituted. A NACUBO (1974)

publication relevant to the point noted:

. the plan should be prepared by a landscape
architect engaged especially for the purpose or by
the institution's supervising architect. The master
planshould include projections of the locations of
future buildings, roads, parking lots, walkways,
and playing fields and give consideration to sub-
surface utilities and the practical aspects of
maintaining all items in the most efficient manner.
(p.113)

Other functions which may be a responsibility of the

physical plant division include campus security: communi-

cations e.g. telephone service, mail service, transportation,

and waste disposal.

Non-Academic Personnel Services

Personnel administration is a systematic approach to

manpower recruitment, utilization, compensation, and develop-

ment (NACUBO, 1974). The personnel office faces a










challenging role inthe recruitment of non-academic employ-

ees due to the diversity of skills needed to operate a

college or university. Magner (1964) discussed this diver-

sity when he said:

The non-academic personnel include staff for (a)
general institutional development, public relations
and publicity, fund raising, and special events,
(b) academic-related activities, ranging from
student recruitment to registration, and student
services including housing, discipline or counseling,
to medical care, (c) management of auxiliary
accommodations, such as dormitories, dining rooms,
campus store, and telephone service, (d) maintenance
and custodial services for buildings and grounds,
(e) purchasing, and (f) fiscal operations, including
billing collections, and accounting, and the handling
of budgetary detail, insurance, estates and bequests,
and investments. A wide range of categories and
qualifications is covered in this outline, involving
trained and experienced specialists, administrative
assistants, accountants, supervisors, maintenance
force, maids, janitors, and other custodial or
service staff. (p.18)

Some of the major personnel functions were discussed by

MacLean (1972) when he stated:

College and university personnel people now are
required to become experts in all kinds of things.
We thought we had enough to do when we had to deal
with employment, wage and salary administration,
personnel records, computers, staff labor relations,
retirement, insurance and other staff benefits, basic
personnel policies, and training, to name some of the
major items on the smorgasbord we faced just a few
years ago . Now we are looking at such things as
unemployment compensation, OSHA (Occupations Safety
and Health Act), equal employment opportunity,
faculty collective bargaining, and wage and hour
laws. (p.30)

These newer areas of personnel administration were also


discussed by Buckley (1973) when he wrote:










University personnel administration is becoming more
centralized and coordinated on a university-wide
basis. The complexity and diversity of the university
as an organization as well as increased size and the
development of the "megauniversity" are several
influencing factors . In the personnel field, such
activity includes development and expansion of programs
such as affirmative action, unemployment compensation,
and labor relations. (p.28)

The complex nature of personnel administration accord-

ing to Morphet et al. (1967) "suggests that this office will

be at least as important in the future as it has been, though

its functions and functioning will be substantially modi-

fied" (p.412).

Purchasing

The basic objective of a purchasing department should

be to identify, select, and acquire needed materials and

services as economically as possible and within accepted

standards of quality and service (NACUBO, 1974). Further-

more, NACUBO (1974) stated:

This should be done in a timely and organized manner
that provides for essential accountability of
university expenditures. Although the purchasing
process should be a joint effort among the using
department, purchasing department, and vendor, the
purchasing department must have the final authority
to conduct and conclude negotiations concerning
prices and conditions of sale. (p.95)

The purchasing process was discussed by Richardson et al.

(1972) when they wrote:

The purchasing process is both complex and time
consuming. However, purchasing procedures can result
in substantial savings to the institution. Of all
aspects of purchasing, the development of bid
specifications is probably the most complex. (p.152)










Ritterskamp, Abbot, and Ahrens (1961) concluded that

purchases could be made without bids, with informal bids,

and by formal bids. In discussing these items they said:

The reason for requesting quotations, whether
formally or informally, is to set up the basis for
an offer from a vendor which may be converted into
an acceptance by issuance of the purchase order,
a contract resulting. Informal bidding is often
used when time is a very important factor. Informal
negotiations may be handled by local or long distance
telephone, telegraph or personal negotiation. Formal
bids are used in public institutions where the amount
of the purchase exceeds the limit set by law and in
private institutions where the purchase is of appre-
ciable cost. Formal bidding procedures are formally
spelled out and tend to become detailed. (pp.64-65)

In order to acquaint the faculty and staff of the

institution about purchasing procedures it has been found

useful to summarize procedures in an attractive brochure

(Walters, 1974). This brochure if put together properly

can reduce the amount of routine contact of the various

academic departments with the purchasing department, thus

saving valuable time for regular purchasing procedures.

The normal purchasing procedures consist of a user

department making its requirements known to the purchasing

department, the purchasing department conducting negotiations

for purchases, selecting suppliers, and issuing purchase

orders.

Auxiliary Services

In almost all institutions of higher education there

are certain activities or enterprises maintained that,

while not a part of the educational program, are neverthe-

less essential to its success (Russell, 1967). These


_111~










enterprises can be grouped together under the general

classification of auxiliary activities. Examples of

auxiliary activities are residence halls, dining facilities,

bookstores, infirmaries, animal farms and laboratories,

student unions and printing shops. A common characteristic

of auxiliary activities as stated by Russell (1967) was:

. the expectation that the income they produce
will meet all expenditures occasioned by their
operation. In this respect the auxiliary activities
contrast with the educational program, which is
normally expected to have some subsidy from tax
appropriations, endowment, or other sources. (p.319)

The Association of American Medical College (AAMC)

(1972) stated:

During the late 1950's, college and university
administrators began to recognize the existence
of a series of major new factors in medical
education which necessitated more sophisticated
administration of business affairs . One of these
factors was the increasing diversity of auxiliary
enterprises, such as animal farms and laboratories,
patient care units, research enclaves, etc. (p.49)

Because of the large number of auxiliaries on college and

university campuses as well as the diversity of products

and services offered by them NACUBO (1974) stated:

Each auxiliary enterprise must have clearly written,
detailed administrative policies. Otherwise, confused
operating procedures and overlapping authority may
result. If an outside agency conducts the activity,
the written policy is replaced by a legal contract
or agreement. Such contract services may include
the operation of food services, housing, hospital,
and newspaper and other institutional printing. In
such cases, the officer responsible generally serves
as contract liaison between the institution and
contract service agency. (p.103)










Finally, the operations of auxiliary activities should

have separately drawn statements with supporting detailed

schedules of revenues and expenditures for each enterprise

(Dozier, 1973).

Generalizations

The chief business officer in university medical

centers needs to have a combination of both general and

specific knowledge in at least six functional areas. These

areas are financial accounting, budget preparation and

control, physical plant, non-academic personnel services,

purchasing, and auxiliary services. The individual insti-

tuion will determine the degree to which each chief

business officer becomes involved with the six areas. These

six areas and possibly others as derived from the question-

naire were used as a basis for the examination of problems

and the development of criteria to be used as a framework to

assist in solving the major issues and problems that were

identified. An analysis of the membership of the Associa-

tion of American Medical Colleges Group on Business Af-

fairs revealed that most of the chief business officers

were concerned to a greater degree with two of the functional

areas than the other four, those being grants management

(financial accounting) and budget preparation and control

(Himmelsbach, 1972, p.22).



Procedures

The procedures section is divided into three major










sections describing the conducting of the problem survey

questionnaire, the development of criteria from the

literature and panel validation of the criteria.

Conducting the problem survey questionnaire. This

phase of the study involved the selection of the survey

participants, administering the survey instrument, and

interpretation of the survey questionnaire.

Selection of the survey participants. The participants

were randomly selected and then contacted by telephone until

18 agreed to participate in the study. The participants

were selected from among the chief business officers of the

116 institutions throughout the United States who are members

of the Group on Business Affairs of the Association of

American Medical Colleges.

Administering the survey questionnaire. The survey

questionnaire (Appendix A) was briefly discussed during the

telephone conversation with each willing participant.

Examples of perceived problems were given by the writer at

this time as an aid to the participants. The survey ques-

tionnaire was then mailed to the participant and included a

stamped self-addressed return envelope to the writer. Follow

up letters were sent if the questionnaire was not returned

to the writer within two weeks of the date of initial

mailing.

Interpretation of the survey questionnaire. The sur-

vey was interpreted in such a way as to arrive at the most

frequently identified perceived problems under each major










functional responsibility as well as other areas of concern.

Problems of a like nature or those stated in similar terms

were restated into a single statement. In order to be

considered for establishing criteria, a similar problem

must have been identified by at least two chief business

officers.

Development of criteria from the literature. The

initial criteria were developed from a review of the

literature relating to hospital administration, educational

administration, and business administration.

Panel validation of the criteria. This phase of the

study dealt with the selection of the panel, instructions to

the panel, and use of the responses from the panel.

Selection of the panel. The panel consisted of four

members selected on the basis of their willingness to

participate in the study. The four members included two

practicing chief business officers from university medical

centers, one scholar in the field of administration, and a

chief executive officer of a university medical center. The

panel was approved by the writer's supervisory committee.

Instructions to the panel. The panel was asked to

review the criteria which the writer formulated. The

criteria were placed in a format that required each panel

member to determine if the criteron was applicable as

stated or was in need of revision. The panel members were

then required either to provide the revision or to deter-

mine that the criteria were totally inappropriate.










Use of the responses from the panel. Where appropriate

changes to the criteria were made. The revised set of

criteria were made available to all interested persons

through the Journal of Medical Education which is the

official publication of the Association of American Medical

Colleges.



Organization of the Study

In Chapter II the perceived problems of the chief

business officers as developed from the survey question-

naire are stated under the following headings: financial

accounting, budget preparation and control, physical plant,

personnel services, purchasing, auxiliary services and

other areas of concern. In Chapter III criteria was estab-

lished from the literature relating to educational adminis-

tration, business administration, and hospital administra-

tion. These criteria are used as a framework to assist in

solving the major perceived problems identified in Chapter

II. Chapter IV contains the revisions to the criteria as

put forth by the panel. Chapter V presents a summary of

and general observations concerning this study.












CHAPTER II
IDENTIFIED PERCEIVED PROBLEMS AS DEVELOPED FROM
THE SURVEY QUESTIONNAIRE

In order to be considered as an identified perceived

problem the problem must have been identified by at least

two chief business officers. Those institutions partici-

pating in the survey are listed in Appendix B.

Problems of a like nature or those stated in similar

terms have been restated into a single statement. Sum-

marily, the survey revealed four perceived problems in

Financial Accounting; four perceived problems in Budget

Preparation and Control; three perceived problems in

Physical Plant; three perceived problems in Personnel

Services; two perceived problems in Purchasing; one per-

ceived problem in Auxiliary Services; and four perceived

problems in Other Areas of Concerns.

Specifically the identified perceived problems were

as follows:

Financial Accounting

1. In those Health Centers where the financial records
are processed and maintained by the main campus there
is too great a time delay in receiving necessary
information for up to date reporting purposes.

2. The format of the reports as generated by the main
campus is not in a meaningful format for internal and
external reporting requirements of the Medical Center.

3. Where the main campus processes and exercises control
of the final bill payment efforts to assure timely
payments to vendors is meeting with limited success.










4. The accounting system has been designed to serve a
University's total needs as opposed to the needs of
the individual colleges within it. It is therefore
difficult to obtain a clear picture of the Health
Center's functions in program budget terms. As a
consequence, the lack of program definition within
the basic accounting structure makes it difficult to
relate resources to programs and objectives.

Budget Preparation and Control

1. Extensive lead time required in submission of the
budget to State authorities, often as much as fifteen
months in advance of the beginning of the fiscal year.

2. Extensive multi-level review and approval of the
budget.

3. Projecting annual income from local, state and federal
sources.

4. The establishment of adequate guidelines at the time
budget worksheets are distributed to deans and depart-
mental chairmen for preparation of budget requests,
thus eliminating poor understanding of forms and the
budget process.

Physical Plant

1. Difficulties in accomplishing priorities with the main
university physical plant department to have construc-
tion and alteration work completed within the framework
of Health Center deadlines.

2. Determination of what should be charged to departments
for maintenance and operation and that which should be
funded by the physical plant department.

3. Control of physical plant costs and the determination
of a unit cost for various services.

Personnel Services

1. State Personnel Plan is not adequately responsive to
specialized needs of the vast array of health related
positions.

2. Employee dissatisfaction when reaching the top of their
pay ranges, thus allowing for no further merit in-
creases.

3. Maintaining benefit programs which are competitive with
those in the community and with other institutions.











Purchasing

1. Required use of state contracts.for certain items that
can be obtained cheaper at local outlets.

2. Extensive lead time required in processing certain
services, equipment, etc. that must use the bid pro-
cedure.

Auxiliary Services

1. Determination of the optimum method of financing such
services or animal facilities; machine shop; photog-
raphy shop; and bioelectronic shop.

Other Areas of Concerns

1. Poor property control both in terms of records and
keeping up with the individual pieces of equipment.

2. Legal services required by the Health Center which are
performed by the main campus can take many months,
before responses are received to inquiries.

3. Development of adequate systems and procedures and
promulgation of such written documents so that person-
nel affected by them are aware that such written
procedures exist and can use and understand them.

4. Compliance with OSHA provisions.













CHAPTER III
DEVELOPMENT OF THE CRITERIA FROM A
REVIEW OF RELATED LITERATURE

The review of related literature provided the basis for

the establishment of criteria. Specific answers to the

identified problems as stated in chapter two were not sought

because of the diversity among the one hundred and fourteen

medical centers in the United States. Rather a theoretical

base was used in the development of the criteria to assist

in solutions in the six major functional areas of responsi-

bility of medical center business officers. Numerous

theories were researched including accounting theory,

budgetary theory, personnel management theory, price theory,

decision theory, information and communication theory and

general systems theory.



Financial Accounting

In discussing Accounting concepts and principles

Seawell (1975, p.22) felt that accounting is a service

activity whose major function is the provision of qualita-

tive information for use in economic decision-making by

groups internal and external to the enterprise. Without

this information, intelligent decisions cannot be made by

managements, by providers of funds or bby creditors, and

chaotic conditions would prevail in all sections of our

socio-economic environment.










In order to provide qualitative information Seawell

(1975) said:

It is imperative that there be some reasonably uniform
and generally accepted body of concepts and principles
underlying the accumulation and communication proces-
ses of accounting. Only through the application of
commonly observed rules and standards can the myriad
and complex affairs of economic entities be recorded
and reported in a meaningful and useful manner.
Otherwise, the adequacy and reliability of the infor-
mation generated by the accounting process would be
open to question. There must be a consensus among
accountants as to generally accepted accounting
principles if the end product of accounting is to
be understandable and useful to decision-makers.
(p.22)

Better accounting understandable and reliable account-

ing in which users can have confidence as a sound basis for

planning and control begins with the general acceptance

of a body of basic concepts and principles as a theoretical

foundation from which more specific and detailed accounting

procedures and practices can be derived.

Hendriksen (1965, p.83) felt that the basic assumptions

on which principles rest are postulates and that they should

be few in number.

According to Webster's Third New International

Dictionary (1961), the most relevant definitions of postu-

lates appeal to be (1) "a proposition advanced with the

claim that it be taken for granted or as axiomatic," and

(2) "an underlying hypothesis or assumption" (p.1773).

Chamber (1963) stated that postulates are "propositions

enunciated without proof either because no proof can be

givenor because the assent of others to such propositions










can be reasonably expected and used in the derivation of

other propositions" (p.9).

Therefore, postulates are basic assumptions or funda-

mental propositions concerning the economic, political, and

sociological environment in which accounting must operate.

The basic criteria for postulates were put forward by

Hendriksen (1965) when he stated:

They must be relevant to the development of accounting
logic; that is, they must serve as a foundation for
the logical derivation of further propositions; and
(2) they must be accepted as valid by the participants
in the discussion as either being true or providing a
useful starting point as an assumption in the develop-
ment of accounting logic. (p.83)

Moonitz (1961) selected fourteen postulates as being rele-

vant and basic although they do not necessarily represent a

complete list of all the basic assumptions of financial

accounting theory. The fourteen postulates are classified

as one of three types: (1) generalizations regarding the

economic and political environment of accounting; (2) prop-

ositions relating to the field of accounting; and (3)

imperatives relating to the field of accounting. The

fourteen postulates as selected by Moonitz (1961) were as

follows:

The Environmental Postulates
Postulate A-i. Quantification. Quantitative data are
helpful in making rational economic decisions, i.e.
in making choices among alternatives so that actions
are correctly related to consequences.
Postulate A-2. Exchange. Most of the goods and ser-
vices that are produced are distributed through
exchange, and are not directly consumed by the pro-
ducers.










Postulate A-3. Entities (including identification of
the entity). Economic activity is carried on through
specific units or entities. Any report on the activity
must identify clearly the particular unit or entity
involved.
Postulate A-4. Time period. (including specification
of the time period). Economic activity is carried on
during specifiable periods of time. Any report on that
activity must identify clearly the period of time
involved.
Postulate A-5. Unit of measure (including identifi-
cation of the monetary unit). Money is the common
denominator in terms of which goods and services,
including labor, natural resources, and capital are
measured. Any report must clearly indicate which
money (e.g., dollars, francs, pounds) is being used.
Postulates Related to the Field of Accounting
Postulate B-l. Financial statements. (Related to
A-l). The results of the accounting process are
expressed in a set of fundamentally related financial
statements which articulate with each other and rest
upon the same underlying data.
Postulate B-2. Market prices. (Related to A-2).
Accounting data are based on prices generated by past,
present or future exchanges which have actually taken
place or are expected to.
Postulate B-3. Entities. (Related to A-3). The
results of the accounting process are expressed in
terms of specific units or entities.
Postulate B-4. Tentativeness. (Related to A-4). The
results of operations for relatively short periods of
time are tentative whenever allocations between past,
present, and future periods are required.
The Imperatives
Postulate C-l. Continuity (including the correlative
concept of limited life). In the absence of evidence
to the contrary, the entity should be viewed as
remaining in operation indefinitely.
Postulate C-2. Objectivity. Changes in assets and
liabilities and the related effects (if any) on
revenues, expenses, retained earnings, and the like,
should not be given formal recognition in the accounts
earlier than the point of time at which they can be
measured in objective terms.
Postulate C-3. Consistency. The procedures used in
accounting for a given entity should be appropriate
for the measurement of its position and its activities
and should be followed consistently from period to
period.
Postulate C-4. Stable unit. Accounting reports should
be based on a stable measuring unit.
Postulate C-5. Disclosure. Accounting reports should
disclose that which is necessary to make them not
misleading. (pp.52,53)







38

Littleton (1974) further confirms the previously mentioned

postulates by indicating that practice is doing and that

theory is explaining. The obligation of practice is to get

things done and the obligations of accounting theory ac-

cording to Littleton (1974) can be stated in several ways:

1. Help us to examine what has been done so that we
can see the reasons which direct that treatment
or suggest another
2. Help us to find interconnecting threads, reasons
and objectives between ideas and ideals
3. Help us to weight alternative ideas, objectives
and methods
4. Help us to be alert to relativity among ideas;
to see that some ideas are more important than
others; that some have strong ties to others
while some are to be sharply distinguished
5. Help us to develop a capacity for working with
ideas; to find ideas relevant to an issue, to
resolve conflicts in ideas, to expand and amplify
ideas
6. Help us to recognize the places where principles
apply as easily as we arrange procedures to suit
the circumstances. (pp.133,134)

Littleton is inferring that theory exists to serve practice

even if it advances reasons against a familiar practice. A

knowledge of theory does not limit the practitioner's duty

to react according to the circumstances, but equips him to

exercise independent judgement with confidence.

The general structure of accounting theory requires

for its implementation a set of symbols and a framework in

which ideas and data can be expressed and summarized. In

discussing this point Hendriksen (1965) wrote:

The traditional framework that has served accounting
well for many years includes double entry with the
concepts of accounts, ledgers and trial balances and
the presentation of accounting data in the form of
financial statements that articulate with each other.










Postulate B-1 confirms the utility of this structure
by stating that the results of the accounting process
are expressed in a set of fundamentally related
financial statements which articulate with each other
and rest upon the same underlying data. (p.95)

To provide the most useful information for decision

making, financial reports should articulate with each other

primarily to make the information more understandable and

useful for decision making.

Commenting on accounting information Zlatkovich (1966)

stated:

Because of the great value of accounting information
to external users, and because we have some knowledge
of many users' needs, it is possible to develop sig-
nificant accounting information even though the pre-
cise and total needs of each user for each decision
are unknown. (p.20)

Bestable (1973, p.57) questioned whether accepted

practices have the best goal or goals when the primary

emphasis of collegiate accounting is placed on stewardship

and fund accounting. Bestable was alluding to the fact

that collegiate reports and financial statements are dif-

ficult to understand.

According to Price Waterhouse (1975):

There are several reasons why college financial state-
ments are difficult to understand. The principal one
stems from the traditional use of fund accounting
concepts a stewardship approach which recognizes that
certain gifts and other income bear restrictions which
must be observed. Each restricted gift is usually set
up in a separate "fund" to insure that this account-
ability is maintained. Under this approach there can
be as many funds as there are separate gifts, but
typically, for reporting purposes, gifts with similar
restrictions are reported together. Usually colleges
report their funds in one of several groupings cur-
rent unrestricted, current restricted, endowment, plant,










loan, and annuity and life income. The difficulty
with fund accounting is that the reader is faced
with separate reporting of each fund grouping which
obscures an overall picture of the college, because
the reader is forced to focus on the transactions
reported by the individual fund groupings one by one.
(p.1)

Additionally, Sherry (1975) stated:

Since the focus of the future will be on cost control
and utilization of facilities, the accounting system
will assume a greater significance. If designed and
used properly, it will prove to be of immeasurable
benefit. It has been indicated that traditional fund
accounting systems do not provide today's manager with
relevant cost data. It is imperative that they be
supplemented in order that today's manager can better
focus on efforts to insure that a quality education
is provided to all students consistent with the
inescapable money constraints. (p.262)

A proposal to not merely supplement traditional col-

legiate reports, but one more appropriately to depict the

financial status of the college as an entity, rather than as

a combination of a number of independent funds has been

promulgated by Price, Waterhouse and Co., the international

accounting firm.

According to Price, Waterhouse (1975):

We propose a simplification of college financial state-
ments by restructuring them. First, we propose com-
bining all funds for reporting purposes into only two
basic groupings: unrestricted and restricted. The
restricted grouping would include all funds that bear
legal restrictions either current or non-current -
and thus are amounts over which the board does not
have full discretion as to use.
We suggest reporting these two fund groupings in a
columnar approach, side-by-side with a total column so
the reader can clearly see the overall picture of the
institution. Finally, we propose using financial
statement formats which parallel those used by profit-
oriented entities to the maximum extent possible.
Specifically, we suggest that the following three
statements be used:










*Statement of Revenue and Other Additions and
Changes in Fund Balances (Figure 1)
*Balance Sheet (Figure 2)
*Statement of Changes in Financial Position
(Figure 3)
These three statements do not, of course, represent the
only statements which trustees and others may want to
see, and we suggest an example of an additional state-
ment in Figure 4. We believe, however, that these
statements do represent the basic financial statements
trustees and other outside readers should be looking
at and that where further detail is appropriate it
should be provided in the notes or supplementary
statements. In this way, the traditional detail
associated with fund accounting can still be provided
for those interested in seeing it without burdening
the reader who is interested only in the overall
financial picture of the institution. We would not
anticipate any changes in bookkeeping procedures,
since we are only discussing reporting structures.
(p.2)

As soon as the financial information has been compiled

it should be communicated to both internal and external users

of the information. According to McCullen and VanDaniken

(1975, p.10) accounting information should be understand-

able, timely, uniform and consistent. Elaborating upon the

timeliness of accounting information, McCullen and VanDaniken

(1975) wrote:

The more quickly accounting information is communicated
to the users, the more likely it is to influence their
decisions. The greater the delay in communicating, the
greater the assurance that the information is correct.
This implies that a trade-off may be necessary, i.e.,
some accuracy may be sacrificed in order to increase
the timeliness of the information. Accounting is
primarily concerned with providing historical infor-
mation. Nevertheless, that information should be made
available as quickly as possible. (p.11)

Also commenting on timeliness, Seawell (1975) stated:

The provision of accounting information should be
timely, i.e., it should be communicated to users in
time to be used as the basis for their economic
decisions. If such information is not timely, it



















SPAT111-IN OF REVENUE R ND (TE ADDOITICiS, EXPISES,
AND CHANGES IN FUND BAIAWES
YEARS MINDED JUNE 30, 1975 AND 1974


Revenue and Other Additions:
Tuition and fees
Governmental appOopriations
Governmental grnts & contracts
Private gifts, gr.its & con-
tracts, other than endowment
Endowkcnt gifts
Investment incacmr
Realized and unrealized
appreciation (depreciation)
of investn ,nts
Auxiliary enterprises
Total re'nue- and
other additions

Expenses:
Instruction
Research
Public service
Student services
Scholarships
Auxiliary enterprises
Operation & nintoe:ace of plant
General and adLirnistrative
Fund raising
Ibtal expenses

Excess of reventer and other"
additions over exrinses:
Unrestricted valuablele for
current operations)
Restricted (incrTises in
endcwilnt and other
restricted funds;)
Fund balances, th:jinning of year
Interfund transfers
Fund balances, end of year


Unrestricted

$2,964,000
700,000
20,000

650,000

734,000


1975

Restricted



$ 500,000

415,000
1,850,000
563,000


Total


1974
Total


$2,964,000 $2,550,000
700,000 600,000
520,000 410,000

1,065,000 680,000
1,850,000 600,000
1,297,000 995,000


(100,000) (415,000) (515,000) 385,000
1,910,000 1,910,000 1,650,000

6,878,000 2,913,000 9,791,000 7,870,000


3,491,000
149,000
140,000
91,000
150,000
1,347,000
220,000
691,000
226,000
6,505,000




373,000



43,232,000
322,000
$43,927,000


S489,000 3,980,000
400,000 549,000
25,000 165,000
91,000
50,000 200,000
1,347,000
220,000
691,000
12,000 238,000
976,000 7,481,000


3,625,000
910,000
125,000
65,000
190,000
1,441,000
200,000
649,000
180,000
7,385,000


373,000 (215,000)


1,937,000 1,937,000 700,000
12,017,000 55,249,000 54,764,000
(322,000) _
$13,632,000 $57,559,000 $55,249,000


Figure 1


Source: Price, Witerhouse & Co., 1975.
















BALANCE SHEET
JUNE 30, 1975 AMN 1974

1975
1974
Ihrestricted Restricted Total Total


ASSETS
Current assets:
Cash
Short-term investments
Accounts receivable, net
Student loans, net, current
Inventories
Prepaid expenses
Total current assets

Investments (at market)

Student loans, net, long-term

Land, buildings and equipment,
at cost, less accunailated
depreciation of $9,610,000
and $8,790,000, respectively
Total assets

LIABILITIES AND FTNI7D BAINAES
Current liabilities:
Accounts payable
Accrued cxp.nrms
Portici of l)og--tcni debt
due witiun one year
Total current liabilities
long-term debt
Total liabilities
Fund balances:
Available for curnrnt use--
unrestricLed
restricted
Board desjignated Id(..:i;,nt
Otier denigitated funds
Invested in plant assets
EndowTent fields
Other restricted funds
Total fund bilmnevs
Total liabilitiLs aind
fund balances


$ 810,000
'00,000
228,000

352,000
60,000
2,350,000

4,100,000






40,410,000
$46,860,000




$ 583,000
150,000

100,000
833,000
2,100,000
2_,93 3,000.


1,317,000

4,200,000
200,000
38,210,000


43,927,000

$46,860,000


$ 125,000 $ 935,000
900,000
228,000
80,000 80,000
352,000
60,000
205,000 2,555,000

12,977,000 17,077,000

550,000 550,000


$ 760,000
1,391,000
178,000
50,000
272,000
44,000
2,695,000

14,632,000

400,000


40,410,000 39,305,000
$13,732,000 $60,592,000 $57,032,000


$ 100,000 $ 683,000
150,000

_100,000
100,000 933,000
2,100,000
100,000 -3,033,000


1,317,000
531,000 531,000
4,200,000
200,000
38,210,000
11,230,000 11,230,000
1,871,000 1,871,000
13,632,000 57,559,000

$13,732,000 $60,592,000


$ 483,000
100,000

50,000
633,000
1,150,000
1,783,000


1,027,000
400,000
4,000,000
100,000
38,105,000
9,667,000
1,950,000
55,249,000

$57,032,000


Figure 2


Source: Price, Kiterloise & Co., 1975.



















STATEMENT OF CHANGES IN FINANCIAL POSITION
YEARS ENDED JUNE 30, 1975 AM1 1974

June 30, 1975 1974
Uhrestricted ostlict ed 'Total Total


Financial resources were provided by:
Excess of revenue and other
additions over expenses
Add (deduct) items not affecting
working capital:
Depreciation
Unrealized (appreciation)
depreciation of investments
Working ca pi tal provided
by operations for the year
Issuance of long-term debt
Proceeds from sales of long-term
investments
Total resources provided

Financial resources wor used for:
Purchases of buildings & equipment
Reduction of ]o;ii-term debt
Purchase of long-tonn investments
Increase in long-term student loans
Transfers betvken funds
Total resources used
Increase (decrease) in working cap-
ital


Changes in working capital:
Increase (decrease) in current assets:
Cash
Short-term investments
Accounts receivable
Student loans
Inventories
Prepaid exp>,n -s

(Increase) docr-eae in current liability
Accounts piay'a e
Accnud exy~n!-,s
Portion of lonj-term debt due
within one yo-ar

Increase (dcrease) in working
capital


F


Source: Price, Watcrhouse & Co., 1975.*


$ 373,000 $1,937,000 $2,310,000 $ 485,000


820,000

200,000

1,393,000
1,000,000

400,000
2,793,000


1,925,000
50,000
1,100,000

(322,000)
2,753,000

$ 40,000


$ 100,000
119,000
50,000

80,000
16,000
365,000
ies:
(225,000)
(50,000)

(50,000)
(325,000)


820,000 765,000

265,000 465,000 (470,000)

2,202,000 3,595,000 780,000
1,000,000

2,180,000 2,580,000 1,070,000
4,382,000 7,175,000 1,850,000


4,390,000
150,000
322,000
4,862,000


1,925,000 150,000
50,000 50,000
5,490,000 1,180,000
150,000 50,000

7,615,000 1,430,000


($ 480,000) ( 440,000)$ 420,000



$ 75,000 $ 175,000($ 75,000)
(610,000) (491,000) 250,000
50,000 25,000
30,000 30,000 175,000
80,000 (10,000)
16,000 10,000
(s(o,000) (140,000) 375,000

25,000 (200,000) 50,000
(50,000) (5,000)

(50,000)
25,000 (300,000) 45,000


40,000 ( 40,000)($ 440,000)$ 420,000


'igure 3

















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loses much of its value and causes delays in the
making of critical decisions. (p.30)

In addition to presenting timely information another

institutional obligation to its supporters both government

and private, is to explain in a manner that is understand-

able where the money is being spent and what the money is

producing. In order to meet these obligations institutions

are, according to Grimshaw, Nolan and Brody, (1973, p.36)

needing to acquire cost data in a different format than is

now available. One of the currently promoted methods at

the time of this research (mid 1970's) was an accounting

system which provides cost information on a program basis,

called program costing and budgeting.

The basic framework for a program costing and budget-

ary accounting system was presented by Grimshaw et al.

when they wrote:

Individual account numbers or groups of account num-
bers connotate the various programs. The center digit
of the number signifies the function (i.e. research,
teaching, patient care, administration, and so forth)
to which the department belongs. As an example, the
Department of Medicine would have the following
account numbers:
67060 Department of Medicine, teaching account
67260 Department of Medicine, research
67360 Department of Medicine, extension and public
service
Within a function, separate programs can exist or the
function itself can be considered a program. The
hospital accounts are represented by the center digit
"1", yet the entire function (i.e., the sum of all 1
center digit accounts) is considered the patient care
program. In the College ("O" function), the Intern
and Resident Program is represented by one account
number. All Allied Health teaching activity is repre-
sentedby the block of accounts (57001-57090). By
using a flexible account numbering system, it is









accounts. For example, the Intern and Resident
Program, the Allied Health Program, the Undergraduate
Medical Program, and the Graduate School Program are
together considered the instructional program, repre-
sented by the center digit "0". (1973, p.37)

A closing thought on Financial Accounting by

Zlatkovich (1966, p.30) is that accounting does not now ful-

fill all the requirements that are made of it. This is

evidenced by (1) "a growing body of accounting, financial

and economic literature in which criticism of and contro-

versies over accounting information are common; (2) the

research efforts of organizations such as the American

Accounting Association, the American Institute of Certified

Public Accountants, and others seeking to improve account-

ing information; and (3) the increasing concern of

governmental bodies, stock exchanges, and other groups with

the adequacy of accounting information."



Identified Problems in Financial Accounting


1. In those Medical Centers where the financial records
are processed and maintained by the main campus there
is too great a time delay in receiving necessary
information for up to date reporting purposes.

2. The format of the reports as generated by the main
campus is not in a meaningful format for internal and
external reporting requirements of the Medical Center.

3. Where the main campus.processes and exercises control
of the final bill payment efforts to assure timely
payments to vendors in meeting with limited success.

4. The accounting system has been designed to serve a
University's total needs as opposed to the needs of
the individual colleges within it. It is therefore
difficult to obtain a clear picture of the Medical










Center's functions in program budget terms. As a
consequence, the lack of program definition within
the basic accounting structure makes it difficult to
relate resources to programs and objectives.


Criteria Derived from the Literature

1. A trade off may be necessary in the receiving of
accounting information on a timely basis between the
sacrificing of some accuracy and the increase of
timeliness.

2. In order to provide the most useful information for
decision making, financial reports should articulate
with each other primarily to make the information more
understandable and useful for decision making.

3. College financial statements should be restructured
to depict the financial status of the college as an
entity rather than as a combination of a number of
independent funds.

4. Economic activity is carried on during specifiable
periods of time thus time frames as expressed on
vendor invoices should be adhered to by the disbursing
authority on campus and not some central authority
hundreds of miles from campus.

5. In order to meet the Medical Center's functions in
program budget terms an accounting system which
provides cost information on a program basis should
be developed.


Budget Preparation and Control

Budgeting as a decision-making process can best be

understood in terms of a system, which can be defined

according to Miller (1965) as "a set of units with relation-

ships among them" (p.200). Budgetary decision making

consists of the actions of executive officials (both in a

central organization, such as the governor's office or

university president's staff and in departmental line

units), legislative officials and organized interest groups.









Lee and Johnson (1973, p.19) felt that the actions and

interactions of the relationships between the above

mentioned executive and legislative officials could best be

achieved by thinking in terms of complex systems.

Lee and Johnson (1973) stated:

A complex social system is composed of organizations,
individuals, the values held by these individuals,
and the relationships among these units and values.
A system may be thought of as a network typically
consisting of many different parts with messages
flowing among the parts..
In a budgetary system, the outputs flowing from this
network of interactions are budget decisions that will
vary greatly in their overall significance. Not every
unit of the system will have equal decisional authority
or power. A manager of a field office for a state
health department is likely to have less power to
make major budgetary decisions than the administrative
head of the department, the governor, the members of
the legislative appropriations committee. Yet, each
participant does contribute some input to the system.
That field manager may alert others in the system to
the rise of a new health problem and in doing so may
have contributed greatly to the eventual establish-
ment of a new health program to combat the problem.
(p.19)

The concern for information on the programs as well as

on resources, involving both outputs and inputs, reflects

an increasing tendency toward a systems orientation in

budgeting. Shortzberger (1972, pp.20-22) inferred that a

system approach asks questions about the purposes of organ-

ized behavior and about how the operation of the system

serves these purposes as opposed to viewing the budgetary

process strictly from the standpoint of specific partici-

pants.

In addition to a systems theory, Ronen and Livingstone

(1973, p.671) d-iscussed the implementations of budgets for









motivation and behavior in the context of expectancy theory

as developed in the psychology of motivation. Specifically

Ronen and Livingstone (1975) in summarizing stated:

The literature on the effects of budgets on behavior
is quite fragmentary and draws upon many diverse and
partial areas of behavioral science. This is the case
for the five general assumptions made in accounting
with respect to budgets and behavior. These assumptions
are:
(A) that standards should be reasonably attainable,
(B) that participation in the budgeting process leads
to better performance,
(C) that management by exception is effective,
(D) that noncontrollable items should be excluded
from budget reports, and
(E) that budgetary accounting should be restricted
to criteria measurable in monetary terms.
We then introduced an expectancy model of task moti-
vation within which, with some refinement, it was pos-
sible both to reconcile the fragmentary and contra-
dictory past research findings and to explain the five
assumptions in a consistent manner.
Motivation, the dependent variable in the expectancy
model, can be used as an indication of the probability
that the task will be performed, given the ability of
the subordinate. In other words, the probability that
a task will be performed is a function of motivation
and ability. To the superior it is important to assess
this ability in order to both evaluate the merit of
competing activities and to allocate effectively people
to tasks. (pp.683,684)

Yet another theory discussed in relationship to budget-

ing is that of conflict theory. Research conducted by

Pondy (1973, p.277) revealed that subgroup loyalties develop

not only because of a common professional background of the

subgroup members, not only because of a selective exposure

to the business environment, not only because in-groups

communication supports and reinforces subgroup goals, but

also because each subgroup engages in competition with every

other subgroup for an adequate share of the available










resources. Pondy's (1973) research revealed that two

factors were sufficient for intergroup conflict to exist:

subgroup loyalties and intergroup competition. Both

factors were shown to be present in the budget-resource

allocation process in the modern large corporation. The

writer feels both factors are present in universities and

academic medical centers in addition to corporations.

Pondy (1973) concludes when he stated:

Budgeting can be viewed as a process of resolving
intergroup conflicts. This finding has crucial impli-
cations for the design of budgeting systems. Not only
must the system provide procedures for the rational,
economic analysis of budget proposals, but it must
also provide procedures for the resolution of inter-
group conflict over scarce resources that will
inevitably arise. (p.280)

Another budgetary theory which appears to be gaining

momentum and acceptance is that of internal pricing. Ac-

cording to Minahan (1974, p.39) the theory made its formal

appearance at a workshop sponsored by the Ford Foundation

Research Program for administration in 1971 at the Univer-

sity of California at Berkeley. The workshop dealt with

internal pricing mechanisms as a way of achieving optimal

resource allocation for academic funds. Theoretically, it

was proposed that the most effective way of increasing the

price/cost efficiency of academic programs is to treat each

academic department as a small business.

Minahan (1974) further elaborated on the internal pric-

ing theory when he said:

Each department purchases from the college or univer-
sity certain raw materials or resource inputs in the










persons of a given number of students. The purchase
price for students is, of course, not a cash exchange
but is actually a promissory note offered by the
department to the administration with the commitment
that the department will academically serve the
interests of the students enrolled in its programs
in a way that will at least adequately account for the
expenditure of public monies. The department then
manufactures an academic product the final value of
which is determined by (a) the expense of the input
(how much it costs in faculty salary for course
instruction minus tuition and fees), plus (b) the
expense of the process (the total cost of an academic
curriculum including total staff salaries, student
support, secretarial services, equipment and major
capital expenditures, plus (c) the level of output
as measured in total number of students instructed,
matriculated or graduated from a program.
Each department then wins a budget calculated accord-
ing to the value of its output which is measured by
(a), (b), and (c) internally in relation to other
departments. The department then uses this budget
to purchase more input resources and the process
begins all over again. Theoretically, under this
system each department has an incentive to reduce
costs while maximizing output since it naturally
wishes to maintain or increase its operating budget.
(pp.39,40)

Additionally, Balderston (1974) stated:

Internal pricing is an approximation of the invisible
hand of a market system as an alternative to the
visible hand of administratively determined allocations.
There is considerable interest in-using this device
in universities to stimulate managerial rationality
in both the producer and the user of services. (p.229)

A word of caution is offered by Balderston (1974) when

he said, "pricing approaches are potentially suitable for

allocating some scarce resources within a university, but

it might well be a mistake to try them for other allocations

when higher-level coordination and guidance of the insti-

tution as a whole are directly involved" (p.229).

For additional information, see Breneman (1971) where

he discussed the opportunities and the problems, including










some of the practical difficulties of implementation of an

internal pricing system.

In the design of a budget system Baker (1972, p.39)

felt that a budget is used for both planning and control.

Therefore it is essential that a wholesome environment

exist in the institution to insure successful use of the

budget. Factors influencing this environment are according

to Baker called "prerequisites" necessary to the establish-

ment of a budgetary system. These prerequisites were listed

by Baker (1972) when he wrote:

1. A set of well-defined policies and objectives.
2. A sound organizational structure, including
involvement by all levels of management.
3. A responsibility accounting system.
4. A functionally classified system of accounts.
5. The accumulation of adequate statistical data,
incorporating knowledge of significant trends.
6. An established budgetary fiscal year.
7. A formal reporting program. (p.39)

"Before the budget is started, it is necessary to

determine the course of action to be used with all levels

of management in coordinating the budget" (Pluhacek, 1972,

p.31). He also felt that one of the first things that the

budget coordinator should do is to make a complete outline

of the people involved and what each of their duties will

be.

Additionally, Seawell (1975) stated, "While the budget

is a cooperative endeavor . a specific individual must be

assigned the responsibility for developing the various

inputs and integrating them into a coordinated master plan"

(p.140).









In developing the plan Pluhacek (1972) said:

The budget coordinator should meet with all the depart-
ment heads and explain their role in formulating the
budget. He should have at least one year's historical
data for each department so that each one has guide-
lines as to what is expected from it. (p.31)

Furthermore, Kaludis (1973) argues for an open, de-

centralized, budget-making process guided by a conception of

institutional objectives and supported by an adequate system

of financial information.

Balderston (1974) draws from Kaludis (1973) and con-

cludes:

What is needed, then is a dialogue between the two
valid perspectives: those of the decentralized
operating units and of the central administration.
One way to start from a semblance of realism is to
have the central administration issue for the forth-
coming fiscal period budget guidelines that include
the preliminary forecasts of work-load changes, for
each unit to use as a starting point in assembling its
request. (p.215)

Scheps and Davidson (1970) indicated that there are two

broad phases in the preparation of the budget: "(1) the

estimation of expenditures, and (2) the estimation of

revenue" (p.91).

In the state institution, Scheps and Davidson (1970)

stated:

The predominant sources of revenue are appropriations
by the state legislature, funds for sponsored programs,
student fees, sales of organized activities relating
to instruction, and auxiliary enterprises. Revenues
from the last three sources may be estimated in advance
with a reasonable degree of accuracy, but estimating
the amount the legislature will appropriate presents
difficulties. Usually the institution estimates as
carefully as possible the revenues that are more or










less under its control, then forecasts the appropria-
tion obtainable from the legislature. In some states,
funds are dedicated to the college by constitutional
provision, so that the total revenue can be estimated
with greater accuracy. As regards legislative appro-
priations, the political situation may be a factor.
Many states maintain budgetary departments which
correlate needs of the various state agencies with
anticipated revenues before budgets are presented to
the legislature. In such conditions the state insti-
tution secures aid from the budget department in
estimating legislative appropriations. (p.91)

In discussing the revenue budget for private insti-

tutions, Balderston (1974) wrote:

A private university does not have to run the gauntlet
of master negotiation for its basic support budget.
Some steps in the process are eliminated, because
negotiation with the state is not required. But the
private university faces two other requirements that
are more demanding for it than the state institution.
It relies proportionately more on extramural research
funding and foundation grants than does the state-
supported institution, and it is also more sensitive
to variations in the income yield from endowments and
in the income from tuition. Its revenue forecasting
must therefore be very exacting. (p.218)

An additional revenue budget situation involves the

academic medical center revolving around the charges for

patient services. Howe (1972) researched this topic and

said:

The first step in developing the revenue budget is to
determine the adequacy of current rates in relation to
budgeted costs after anticipated volume increases have
been recognized. This is accomplished by dividing the
current years revenue by the occasions of service
(patient days, number of procedures, etc.) to arrive
at the average revenue per unit produced. The average
revenue is then multiplied by the estimated occasions
of service for the budget year. The resulting figure
is the revenue that current rates are expected to
generate. If these revenues fall short of budgeted
expenses, either the revenue figure or the expense
figure should be adjusted. With or without formal
budget procedures, it is possible to recognize the










value of these computations in rate setting. A prob-
lem encountered in establishing rates, and in
budgeting as well, is estimating third party discounts,
as well as determining how much actual net revenue a
dollar increase in rates will generate. For beginning
budgeting purposes, an overall percentage reduction
based on previous experience will suffice. A refine-
ment would be the application of an individual per-
centage to the estimated billings which will be made
to each third party. Two amounts must be known to
compute individual percentages for each third party -
total discounts (already recorded) and gross billings.
The latter amount is readily available for Medicare
and Blue Cross patients, but not normally for other
third party patients. (p.35)

Studies completed by Seawell (1975), Balderston (1974),

and Groff (1972) indicate the entire budgetary cycle, that

is, initial departmental requests up through the approval

and adoption of the entire institutional budget by the

governing body should take between five and eighteen months

with the average around eight months.

In those institutions where the budgetary cycle involves

more than twelve months a university may have to keep track,

simultaneously, of up to four fiscal year budgets and their

interrelations. Balderston (1974) identified the four as:

(1) the most recently completed fiscal year, as a
fully known and completed base; (2) the current fiscal-
year budget, for control and administration in its own
right and as a base for the following fiscal-year
budget; (3) the preparation and defense of the fol-
lowing fiscal-year budget; and (4) the earliest
indicators of developing issues for the second -
following fiscal year. (p.218)

An interesting sideline and closing comment to the

entire complex topic of budget preparation and control was


made by Hicks (1972) when he said:










Despite all of the current popularity of program
budgets, zero bases budgets, and the like, governors
and their staffs are still mightily impressed with
presentations which stress the following:
1. Enrollment increases, and funds reasonably
required to handle additional undergraduate
students, when the evidence is clear that the
additional students will, in fact, materialize;
2. Funds required to keep pace with inflationary
cost increases, where evidence is also offered
that internal economies are being stressed to
compensate for inflation;
3. Modest requests for programs which have sub-
stantial likelihood of increasing the economic
competitiveness of the state, and
4. Anything closely related to expansion of medical,
health or environmental education. (p.34)

Hicks is stressing the point that no matter how complex

the budget document is, its likelihood of acceptance and

approval may depend upon additional information not directly

related to the budget document itself.

Identified Problems in Budget Preparation and Control

1. Extensive lead time required in submission of the budget
to state authorities, often as much as 15 months in
advance of the beginning of the fiscal year.

2. Extensive multi-level review and approval of the budget.

3. Projecting annual income from local, state and federal
sources.

4. The establishment of adequate guidelines at the time
budget worksheets are distributed to deans and depart-
mental chairmen for preparation of budget requests, thus
eliminating poor understanding of forms and the budget
process.

Criteria Derived from the Literature

1. The entire process of budget formulation through adop-
tion should be completed within a time frame that does
not subject the institution to keep track of more than
two different fiscal years at a time excluding biennial
budgets.

2. There should be enough review levels of the budget to
insure the expectancy of complying with it through
superior-subordinate motivation and ability.









3. Under the adoption of internal price theory at the
departmental level and college level, the necessity of
multi-level budgeting review is negated due to treating
each academic department as a small business, each
department wins its budget according to the value of
its output in relation to other departments.

4. In estimating revenue from state appropriations each
state should establish a state level budgetary depart-
ment which would, among other things, correlate the
needs of the various state agencies with anticipated
revenues and prepare estimated legislative appropria-
tions.

5. Budget guidelines should be developed by the budget
coordinator for the entire campus, the guidelines
should be explained to each department head by the
coordinator and at least one years historical data
given to each department to be used as a starting
point in assembling the new budget.


Physical Plant

There is evidence from the literature, (Andrew &

Moir, 1970; Barnard, 1938; Griffiths, 1959; Simon, 1947;

Tannenbaum, 1959) to suggest that decision theory can be

applied to educational problems and priorities. If we

consider the entire educational process of a university or

academic medical center to be a system then the operation

of the physical plant would be one of the many sub-systems.

The physical plant as a sub-system may have use for the

application of decision theory in many of the problems and

priorities that it must face.

Etzioni (1971) wrote:

The systems framework assumes that some means have to
be devoted to such non-goal functions as service and
custodial activities, including means employed for
the maintenance of the unit (organization) itself.
(p.36)









In other words Etzioni is inferring that resources be

allocated to activities that are only indirectly related to

the organization's immediate social objective.

Simon (1947, p.4) stated, "the aim of decision theory

is to increase the level of rationality of organizational

decisions."

Griffiths (1959, p.74) said, "the specific function of

administration is to develop and regulate the decision

making process in the most effective manner possible."

Furthermore, Gibson, Ivancevich, and Donnelly (1973)

wrote:

One way of viewing the entire organizational system is
as a dynamic decision-making network. In this con-
ceptualization managers decide first on broad objec-
tives. The managers then engage in planning decisions
to achieve these objectives. Managers are also engaged
in organizational decisions in that they must design
the most potentially efficient set of job and authority
relationships for implementing the organization's
plans. They must also develop control mechanisms so
that acceptable limits of objective achievement are
maintained. (p.187)

The decision theory as put forth by Simon (1960, pp.5-8)

identified two types of decisions, programmed and non-

programmed. He identified decisions that can be stated in

terms of decision rules and concern situations that are well

structured, often conceptually simple, and that occur rou-

tinely and repetitively. In contrast, nonprogrammed

decisions are those that are ill-structured, typically

complex in nature, and that occur once in a while and often

involve major consequences.










Andrew and Moir (1970) offer a caution to Simon's

theory when they said:

In the area of programmed decisions, there may be a
tendency to make decisions automatically and without
thought. What is needed is a method by which pro-
grammed decisions are reviewed from time to time
to determine if the habitual courses of action are
still the best in light of new developments. Another
danger is using nonprogrammed methods on specific
repetitive decisions. (p.15)

Griffiths (1959) included six steps in his concept of

the decision making process:

1. Recognize, define and limit the problem. This
starts the process in motion, and to an extent
defines the boundaries within which the problem
will be solved. Certain variables affect the
success of this step:
a) Psychological variables may cause the de-
cision maker to ignore problems that threaten
him,
b) Knowledge variables how is the problem per-
ceived, what background does the decision
maker have, and
c) Semantic variables here the words play a
major role in how we perceive a situation.
2. Analyze and evaluate the problem. In this step an
attempt is made to put the problem in proper
perspective.
3. Establish criteria or standards by which solution
will be evaluated or judged or acceptable and
adequate to the need.
4. Collect data. The data should be relevant, that
is either free from bias or with the bias clearly
indicated.
5. Formulate and select the preferred solution.
a) The formulation of several solutions or
decisions,
b) Weighing the consequences of each solution
(assign probabilities), and
c) Selection of a single solution as most likely
to succeed.
6. Put into effect the preferred solution. Imple-
mentation of the decision and any necessary
modification as a result of feedback takes place
in this final step. (p.94)









An aid in developing solutions to programmed type

decisions was discussed by VanDusseldorp, Richardson and

Foley (1971) when they wrote:

Rules for making decisions in recurring situations
can be conveniently shown through decision tables.
A teachers' salary schedule is a familiar form of a
decision table. Through the use of decision tables,
administrators can spell out rules for decisions.
Other personnel can then use those rules to make
individual decisions, in specific situations. For a
decision table to be complete it must:
1. Account for all possible conditions, and
2. Show actions for all combinations of conditions
that can possibly occur. (p.30)

In the determination of cost estimates for physical

plant projects, Molnar (1975, p.26) felt there were three

levels, those being, "ballpark guesstimates, unit cost

estimate, and take-off estimates." The three represent a

hierarchial structure from least accurate to most accurate.

Molnar (1975) felt managers must develop a technique

that would permit them to perform confidently in an area

frequently foreign to them when he stated:

The method recommended is the "unit-cost estimating".
The first step is to develop a program that will
provide the necessary itemization of the various
segments of the project. The most important element
of the "unit-cost estimating" concept is to determine
the number of units involved. In all but the smallest
and simplest project, there is need to develop at
least a sketch or drawing, depending upon the magni-
tude of the work to be performed. The next most
important element is to determine the unit cost.
This can be done in any one of several ways:
Suse of an estimating manual
Discussions with local vendors and contractors
bids showing individual costs. (pp.27,28)

In addition to projects, funds must be expended to keep

the physical plant in operating condition. Braun and









Jordan (1973) discussed a model developed for the purpose of

estimating either the average direct cost or average full

cost of departments. The model was conceptualized by

members of the office of institutional planning at the

University of Kentucky and first presented in an unpublished

document in 1969. Relating the model to a physical plant

operation, Braun and Jordan (1973) said:

Cost should be allocated on the basis of net assign-
able space. A standardized allocation rate is applied
even though it is realized that M & O costs vary
depending upon the type of space involved (e.g. class-
room, laboratory and office) and the age of the
structure in which it is located. (p.21)

An alternative to allocable costs is the system recom-

mended by Scheps and Davidson (1970) who wrote:

Costs of ordinary recurring repairs to buildings and
equipment should be considered current expenses and
paid out of current funds (departmental), but dis-
bursements for extraordinary repairs, replacements,
and renewals should not be reported as current
expenses. Disbursements of this nature should be
made out of Funds for Renewals and Replacements and
reported as part of the transactions of that fund
group. (p.262)

It appears that there is more than one acceptable

method of assigning or calculating costs of the physical

plant for ordinary recurring repairs to buildings and

equipment. The writer feels each institution should be

aware of the alternatives and select the most appropriate

one consistent with the accounting structure of the insti-

tution.

Identified Problems in Physical Plant

1. Difficulties in accomplishing priorities with the main
university physical plant department in order to have








construction and alteration work completed within
the framework of Medical Center deadlines.

2. Determination of what should be charged to departments
for maintenance and operation and that which should be
funded by the physical plant department.

3. Control of and the determination of a unit cost for
various projects.

Criteria Derived from the Literature

1. The determination of project priorities should be based
on a logical decision theory, employing the use of
decision tables where appropriate, with conditions
ranging from "life-threatening" to routine items.

2. Cost of ordinary, recurring repairs to buildings and
equipment should be paid by the individual departments
affected. Extraordinary repairs and replacements
should be paid for by the physical plant.

3. Familiarity with estimating techniques is essential for
the ability to determine unit costs of both minor and
major projects and should be used in conjunction with
internally or externally managed projects.

4. Programmed decisions should be renewed periodically
to determine if the habitual course of action is still
the best in light of any new developments.


Personnel Services

It has been indicated by Calhoon (1967, p.18) that a

sound foundation for the management of personnel begins

with basic philosophy and proceeds through concept, prin-

ciple, policy and procedure. More specifically Calhoon

(1967) stated:

A well-established philosophy is necessary in order
to provide a framework of thought and attitude for
administration. Philosophy establishes fundamental
criteria for determining and shaping action. More
specifically, in the management of personnel,
philosophy integrates an organizations fundamental
social, economic, and employee relations objectives.
It encompasses the beliefs and convictions of










management, the ideas of what is right and logical
in terms of broad perspective. (p.18)

McFarland (1968) took a similar approach to the study

of personnel management when he wrote:

Organizations are stable social and technical systems
which bring the factors of production together in a
coordinated effort to achieve given ends. The human
elements of the organization are the special concern
of employee relations, but employee behavior must be
studied in its relation to the structure of tech-
nology and the structure of the interrelationships
among the organization's employees. Organization
theory is that portion of behavioral science which
seeks to understand and explain the characteristics
and behavior of organizations and the nature of
individual and group behavior within organizations.
(p.24)

Yet another approach to the study of personnel manage-

ment was discussed by French (1964) when he said:

A "process-systems approach provides a convenient
way of studying personnel management. This approach
utilizes a model of the organization (i.e. a way of
visualizing the organization) and a model of the
manager's job, which in turn permits the development
of a model of personnel management. These models
permit (a) a description of personnel management
as a dynamic whole rather than as an aggregate of
unrelated parts; (b) an analysis of the relationships
between the various aspects of personnel management;
(c) an analysis of the usefulness of different
devices and practices in personnel management; and
(d) an analysis of who should manage which aspects
of personnel management. (p.44)

For a further discussion of various models see,

(Homans, 1950; Katz & Kahn, 1966; Likert, 1967; Schein,

1965).

A comprehensive personnel management program will

according to Millett (1972) include policies and procedures

involving a number of important aspects. He stated:










A total systems approach incorporating a table of
organization, with job descriptions and job classi-
fication, and procedure for training and development
must be devised in such a way that the entire
enterprise is well organized, but not inflexible.
Set standards in wage and salary management, recruit-
ment and placement, work supervision and evaluation,
promotion, tenure and separation, fringe benefits,
and safety and health will preclude many traditional
problems. Finally, grievance procedures, retirement
and collective bargaining are current issues requiring
careful attention. (p.l)

Also discussing the systems approach McFarland (1968)

wrote:

The social system is a theoretical concept of utmost
importance to employee relations, for it provides one
of the scientific foundations on which researchers
build their explanations of human behavior within the
organization. Viewing corporations in this way has
led to the discovery of key variables that influence
the attitudes, actions, and decisions of managers and
employees. Knowledge of an organization as a social
system can help the executive toward better decision
making and problem solving. (p.464)

Within the context of a total system point of view, we

may postulate and observe the presence of subsystems.

Treating personnel management as a subsystem of the larger,

business affairs system, French (1964, p.53) felt that

personnel management is comprised of a unique constellation

of vital interdependent subprocesses, one of which is a

compensation process. In discussing the philosophy of wages

and salaries French (1964) said:

Externally, philosophy can take the direction of
paying the highest possible level of wages and salaries
consistent with an organization's objectives or at the
other extreme regarding wage costs as a necessary evil,
can slant toward keeping wages as low as possible with-
out jeopardizing organizational stability. In between
is a philosophy embodying resignation to paying pre-
vailing wages and salaries, coupled with the recognition









that wages are an integral cost of competitive business.
Internally, philosophy can also be of these three
general degrees, with variants in between. (p.288)

Strauss and Sayles (1972) wrote:

Wage administration is a systematic procedure for estab-
lishing a sound compensation structure. By reducing
inequities between employees' earnings, a good wage-
administration program raises individual morale and
reduces intergroup friction. It also sets wages high
enough to permit the company to recruit satisfactory
employees, motivates people to work for pay increases
and promotions, reduces union and employee grievances,
and enables management to exercise centralized control
over the largest single item of cost: wages and
salaries. (p.553)

A major element in the determination of what employees

should be paid comes from wage and salary surveys. French

(1964, p.244) infers that wage and salary practices of other

firms have an effect on the selection, morale, and retention

of employees, attention is ordinarily given to prevailing

community or industry wage levels.

Grigsby and Burns (1962) said:

Most firms either participate in wage surveys and
receive copies, or else they make their own. These
surveys may be made by mail, telephone, or interview.
(p.275)

Furthermore, relating specifically to educational

institutions a compilation of 163 ways to save money, re-

duce costs or avoid problems in personnel administration

was compiled in conjunction with the Conference on Confront-

ing the Financial Crisis in May, 1972. Millet (Note 3)

indicated that one of those ways was to use compensation

surveys prepared by the U.S. Office of Education (HEGIS) and

the College and University Personnel Association for national









market data on professional administrative positions. Also,

relating to the topic under discussion and as an outgrowth

of the conference was to view compensation as total compen-

sation (cash plus benefits plus perquisites) and make inter-

nal and external comparisons on this basis, not just on the

basis of cash alone. Review such practices as subsidized

housing, sabbaticals, and faculty/staff travel.

As a concluding point to personnel management the topic

of merit ratings warrants mentioning. Strauss and Sayles

(1972) wrote:

In theory, merit ratings should relax the rigidity of
job evaluation and should provide recognition for
performance. It should also raise both productivity and
morale, since employees who do a good job are rewarded.
Employees may become demoralized when they reach the
top of their range, particularly if there is little
realistic chance of their being promoted to a higher
ranking job. Under such circumstances there is often
great pressure to raise the top of the range. (p.578)

The writer interprets Strauss and Sayles to be in favor

of a "floating" top range thus decreasing the demoralized

effect of an employee who has reached the top of their

"fixed" pay range.


Identified Problems in Personnel Services

1. State Personnel Plan is not adequately responsive to
specialized needs of the vast array of health related
positions.

2. Employee dissatisfaction when reaching the top of
their pay ranges, thus allowing for no further merit
increases.

3. Maintaining benefit programs which are competitive
with those in the community and with other institu-
tions.









Criteria Derived from the Literature

1. The central office of the state personnel classifi-
cation office should have health professionals on
their staff to act as liaison with the various state
agencies employing personnel in health related occu-
pations to insure timely, accurate, and fair classi-
fications.

2. There should be an effective wage administration at
both the institutional and state level. A viable and
fair merit system should be established with a float-
ing top range not a fixed dollar amount.

3. Frequent use should be made of authoritative wage
surveys. These surveys should show local, state and
national figures and be used by the wage administration
when recommending wage rates.


Purchasing

Cantor (1970) stated:

It is no longer satisfactory for the purchasing execu-
tive to be knowledgeable only about his own function.
Before the purchasing executive can effectively select
the systems options that are most meaningful for his
business, he should undertake a preliminary study of
business systems theory and the materials management
concept. (p.10)

Another approach to the study of purchasing was dis-

cussed by McElhiney and Cook (1969) who took the approach

using the economic theory of utility when they wrote:

Economists have long classified the characteristics
which give goods usefulness into form utility, place
utility, and time utility. Form utility is created
by the manufacturer of a product. Place utility is
created by moving a product from where it is not
needed, and time utility by having it there when it
is needed. Marketing specialists, also have spoken
of the possession utility given to goods by trans-
ferring title in them to the ultimate user. The new
cost frontier is concerned with people who produce
place, time, and possession utility. (p.l)

Many terms for the new emphasis have been coined.

McElhiney and Cook (1969, p.l) have referred to them










variously as "business logistics, materials management,

physical distribution and rhochrematics."

McElhiney and Cook (1969) concluded when they said:

Although purchasing is a primary logistic activity,
the purchasing department does not initiate the
logistics flow in a business enterprise. The flow is
started by the user departments which need material
to perform their functions. Specifications and
requisitions are sent to the purchasing department
and a series of activities is started which eventually
involves the traffic, receiving, warehousing, inventory
and other activities of the company. Thus, the
purchasing department is one unit in a system which
provides the physical supply of goods needed to
operate a business. (p.3)

The advent of the systems approach to material manage-

ment analysis will be speeded by two concurrent trends

according to ("The Systems Approach", 1964, p.35): "The

kind of competition that allows little room for inefficiency;

the accelerating pace of technological change."

It appears that the major gain from a systems study is

that facilities decisions will be tailored to the overall

needs of the university immediate and long range.

McElhiney and Hilton (1968).said:

A modern business firm is essentially an open system.
It receives inputs from the environment, uses and
operates on these inputs and finally produces an
output which to some extent changes the environment.
A business logistics system is a subsystem of the
business enterprise, and every business enterprise
has one, although it may be unrecognized and crudely
developed. (p.62)

One team of experts, Mossman and Morton (1965) refer-

red to the parts of a logistic system when they wrote:

The parts of the system are determiners, components,
and integrators. The determiners are thought of as
things outside the system which it must accept and










deal with. In logistics these would at least include
suppliers, customers, and carriers. The term deter-
miners is very appropriate because these people often
determine the limits of what a logistics system can do.
Components are the physical things of which the system
is built; they include the people, buildings, machines
and departments which have been arranged according to
a plan and should operate according to a design. Inte-
grators are the intangible factors which tie the
components of the logistic system together. They are
essentially the management activities and techniques
which make the thing work. (p.15)

McElhiney and Hilton (1969) wrote:

The purpose, or objective of any business logistics
system must be approximately the same as the purpose
or definition of the entire field of business
logistics itself. This definition is stated as "that
phase of economic activity which concerns itself with
assessing the need of goods and services for time
utility and place utility and providing them with
these utilities". (p.65)

A great deal of purchasing of both standard and special

items is done on the basis of competitive bids. Heinritz

and Farrell (1965) noted:

In governmental purchasing, which is very sensitive
to charges of favoritism and patronage, which is
specifically dedicated to the conservation of tax-
payers' money, and where the buyer as a public
servant must operate "in a goldfish bowl" for all to
see, the bid system is usually mandatory. (p.147)

Benevelli (1969, p.148) said "a contract should be

awarded to the lowest responsible bidder". He enumerated

what he felt to be eight qualifications of a responsible

bidder.

Lintz (1969) in discussing the bid procedures of Los

Angeles said:

Los Angeles is fortunate in that its charter provides
that award shall be based on not only the lowest
responsible bid, but also the lowest ultimate cost to
the city. This provides us with considerable latitude









in recognizing true costs, in addition to the initial
bid price. (p.145)

In concluding this discussion on purchasing Bolton

(1969) wrote:

Most purchasing departments spend 80 per cent of their
time buying low value, high use supplies that account
for only 20 per cent of the dollars they spend. This
waste of time, money and efficiency can be avoided
through the use of a new purchasing technique: systems
contracting. System contracting is simply a purchasing
concept designed to help both buyer and seller improve
the reordering of repeatedly used materials or services
with an absolute minimum of administrative expense,
but with adequate business controls. Systems con-
tracting is a direct route to substantial savings in
all areas in the procurement cycle stores, accounting,
purchasing, receiving and supply functions. (p.197)

Briefly outlined, systems contracting according to

Bolton (1969) involves the following:

1. First the institution selects a supplier, or
several suppliers if necessary. Then the company
analyzes (1) the general categories of materials
needed from each vendor, (2) the specific items
within each category and (3) the varieties of
each item.
2. The items are listed in a catalog for general
distribution. The number of priced catalogs should
be restricted to only those departments that need
to know prices, i.e. Purchasing Accounting
Auditing.
3. User departments prepare a requisition and send
directly to vendor.
4. Vendor assigns an order number and indicates
prices on requisition.
5. Original requisition is shipped back with supplies
and serves as a packing slip. (p.200)

The systems contracting concept is designed to elimin-

ate paperwork, order error, excess inventory and obsoles-

cence; improve service and efficiency; save floor space,

time and money; and free the purchasing department for more

important functions such as value analysis and overall cost


reduction.









Identified Problems in Purchasing

1. Required use of state contracts for certain items that
can be obtained cheaper at local outlets.

2. Extensive lead time required in processing certain
services, equipment, etc., that must use the bid
procedure.

Criteria Derived from the Literature

1. Where state contracts are presently in force the pur-
chasing director should evaluate the possibility of
systems contracting for greater savings to all areas
of the institution while at the same time promoting
place, time, and possession utility.

2. In accepting a bid the purchasing department should
consider not only the lowest responsible bidder but
also the bidder who offers the lowest ultimate cost.

3. The purchasing department should be cognizant of time
utility in the bid procedure and where appropriate use
such devices as the telephone and telegram.



Auxiliary Services

Allen (1967) stated:

Economic theory, as developed by contemporary writers,
is divided into two major divisions. Microeconomics
is the economics of small units and is concerned in
large part with the firm as the basic economic unit.
The heart of microeconomics is price theory. Macro-
economics is the economics of large units and is
concerned with aggregates.

Price theory according to Ward (1967, p.3) "is the

study of the reasons for and the consequences of using

prices in economic decision making, and of the means by which

prices are determined."

The fundamental problem with which price theory is

concerned is the allocation of resources (Allen, 1976,


p.362). He further said:










Man's wants are virtually unlimited, but the means
available for satisfying his wants are limited. This
creates the problem of scarcity and means that somehow
it must be decided what will be produced, how it will
be produced, and for whom it will be produced: in
some way, choices must be made. There are essentially
two methods by which resources may be allocated:
either by force through the state, or possibly through
tradition and precedent, or through the operation of
the pricing system. (p.363)

Specifically discussing auxiliaries, Balderston (1974)

wrote:

Many auxiliary enterprises operate on the break-even
principle, charging their individual or organizational
clients enough to defray the operating costs and some-
times enough to cover depreciation and capital charges
as well. This policy of self-funding through recharges
makes the manager of the enterprise responsible for
balancing income and expenses. But it does not
guarantee that the service will be produced and
delivered at an (unsubsidized) price that is as low
as the open market price, because the university's
service unit may not be operating at the most efficient
scale. Also, university policy often accords an
internal monopoly to the service unit, and this
reduces the pressure for cost minimization. (pp.78,79)

According to Ward (1967, p.90) in discussing the

monopoly, stated, "the monopoly maximizes its own profits by

producing at the output at which marginal cost equals mar-

ginal revenue and the price it charges is the price at

which that output will be bought by consumers."

Furthermore Allen (1967) said:

For a seller enjoying some degree of monopoly power,
there is no unique combination of price and quantity
supplied; for the monopolist the amount supplied
depends not only on his marginal-cost curve but also
on the shape and position of his marginal-revenue
curve. (p.364)

Boulding (1955, p.77) defined marginal revenue as "the

amount by which total revenue increases when one more unit









of the good is sold" and marginal costs as "the amount by

which total cost increases when one more unit of the good

is produced."

Besides using a price theory approach another method

available is known as price strategy. Oxenfeldt (1975)

explained the what and the why when he stated:

Price strategy is an explicit line of thinking and
accompanying actions designed to achieve a stated
objective by effective means. Its key elements are
(1) a specific objective, (2) a nonobvious logic or
line of thinking that would achieve that objective
with particular effectiveness, and (3) a program of
action that implements that line of thinking. It is
almost self-evident that actions in business in
general and in marketing and pricing in particular
should be goal-oriented and that an executive should
always take action for purpose. An executive should
not only know clearly what he is trying to achieve
but also be able to identify the most effective means
available to him. (p.5)

What kinds of things should a price setter know and

from what sources might he learn them? In very general

terms, he should have a fairly deep understanding, accord-

ing to Oxenfeldt (1975) of the following:

1. The many effects of a change in price on the
various parties to the business process. Those
parties include his colleagues, ultimate customers,
suppliers and the government
2. The manner in which price differs from the other
available ways to influence sales
3. The manner in which price changes interact with
other marketing actions
4. The circumstances in which customers are most
responsive to changes in prices
5. The difference between the initial impact of
price changes and the longer-run effects. (p.11)

Identified Problems in Auxiliary Services

1. Determination of the optimum method of financing such
services as animal facilities; machine shop; photog-
raphy shop; medical illustrations; and bioelectronic
shop.










Criteria Derived from the Literature

1. A working knowledge of price theory is desirable when
setting a pricing structure for auxiliary enterprises.

2. Price strategy when used by the auxiliary director
should be goal oriented in terms of the entire
institution.



Other Areas of Concern

In addition to the previously mentioned theories and

general discussions, the writer feels two additional areas

bear merit for the diversified topic under consideration.

These areas are the related subjects of information and

communication theory.

Steiner (1969) said:

The cornerstone requirement for excellent information
systems is understanding of each manager's needs for
knowledge. Information is management information only
to the extent a manager needs and wants it. Infor-
mation is useful to a manager only in terms of his
scale of values, his accumulated knowledge, his
personal responsibility and the uses he has for it.
(p.481)

Answering the question of what information does a

manager need to manage effectively? Sanders (1974) stated:

A common need basic to all managers is an under-
standing of the purpose of the organization, i.e., its
policies, its programs, its plans, and its goals. But
beyond these basic informational requirements, the
question of what information is needed can be answered
only in broad general terms because individual
managers differ in the ways in which they view infor-
mation, in their analytical approaches in using it,
and in their conceptual organization of relevant facts.
(p.12)

Before informational needs of managers at different

levels can be established, Steiner (1974, p.483) felt that










the organizational structure of a company and lines of

authority and responsibility must be understood. This is

particularly important when discussing an academic medical

center with the overlapping responsibilities of physicians

and administrators in the various schools or colleges and

the teaching hospitalss.

Commenting on the difficulties of developing infor-

mation systems, Cordiner (1965) said:

It is an immense problem to organize and communicate
the information required to operate a large, decentral-
ized organization...This deep communication problem is
not solved by providing more volume of data for all
concerned, by faster accumulation and transmittal of
conventional data, by wider distribution of previously
existing data, or by holding more conferences. Indeed
the belief that such measures will meet the...
(management information) challenge is probably one of
the great fallacies in business and managerial think-
ing. What is required, instead, is a far more pene-
trating and orderly study of the business in its
entirety to discover what specific information is
needed at each particular position in view of the
decisions to be made there. (p.102)

It appears therefore that the ultimate goal of infor-

mation systems is to assure that all managers at all levels

are suitably informed, on all developments which affect them.

Steiner (1969) felt there were three ways to tackle

the task of redesigning information systems and explained

them when he wrote:

The first is the spasm approach. This is a "quickie"
examination of current systems, undertaken to spot
obvious duplication or to add new sources and flows
of information. These undertakings usually are
fruitful but do not go far enough and are made too
infrequently. A second approach is to mount a
thorough going study of information needs and the
systems to meet them. The third is to charge a
person or a staff with the responsibility to review









continuously the major information systems and to keep
them up-to-date. The latter two methods are obviously
the preferred ones. (p.491)

In order to maintain and keep current a viable infor-

mation system, communication becomes extremely important.

Hall (1972) wrote:

Communication is most important in organizations and
organizational segments that must deal with uncer-
tainty, are complex, and have a technology that does
not permit easy routinization. Both external and
internal characteristics affect communication's
centrality. The more an organization is people- and
idea-oriented, the more important communication
becomes.

In communicating the organization's policies and pro-

cedures the choice normally is between oral and written

statements. Steiner (1969) said:

Arguments for recording policies in a policy manual
or code book are strong. Executives obviously cannot
execute policies to achieve objectives unless they know
what policies are. Without written statements, policy
obviously has to be communicated orally. This usually
is considered a poorer means of transmission because
of misinterpretation, incompleteness in expressing
policy, and other short comings of oral communications.
(p.274)

Additionally, Morphet, Jones and Reller (1974) in

discussing policies and procedures said:

It (policy and procedure guide) serves to give each
party involved a better understanding of his responsi-
bilities and thus lessen misunderstandings...The
development of too detailed a code that would result
in rigid organization and operation should be avoided.
A rigid organization which fails to recognize that the
informal organization may be as important as the formal
one is not likely to result in an effective educational
system. (p.319)

In conclusion Steiner (1969) offers a number of guide-


lines for developing and using policies:











Relating to Environment and Organization
1. Policies should be in harmony with the economic,
political, and social environment of the company.
2. Policies must reflect the internal organization
of a business.
3. Policies predominantly must be based upon and
effectively and efficiently guide the organization
in achieving its network of aims.
Developing Policies
4. The locus of authority to make different type
policies should be clear.
5. Participation in policy-making, as in planning,
is likely to produce beneficial results.
6. Policies should be developed on the basis of as
good a factual analysis as possible.
7. Policies should be stated as simply and unequivo-
cally as possible and appropriate to the level of
policy.
8. Policies should complement and supplement one
another.
9. A policy should be comprehensive enough to cover
a range of actions over a normal span of variations
in business activity.
The Policy Structure
10. The policy structure should be based upon defin-
itions of terms.
11. The policy structure should be reasonably compre-
hensive and cover major areas of importance.
12. The basic policy structure should be reasonably
stable.
Documentation
13. Policies should be written and made available to
executives who need to know what they are.
14. Policy manuals should be separated from management
directives and standard operating procedures.
Policy Interpretation and Review
15. A suitable plan for educating management about the
meaning of company policies should be developed.
16. Some procedures for testing compliance with
policies should be established.
17. Policies should be reviewed systematically for
obsolescence. (pp.281-284)

Steiner's guidelines although written with the private

corporation in mind appear to have definite value for

institutions of higher education, both public and private.










Identified Problems in Other Areas of Concern

1. Poor property control both in terms of records and
keeping up with the individual pieces of equipment.

2. Legal services required by the Medical Center which
are performed by the main campus can take too long a
time period before responses are received to inquiries.

3. Development of adequate systems and procedures and
promulgation of such written documents so that person-
nel affected by them are aware that such written pro-
cedures exist and can use and understand them.

4. Compliance with OSHA provisions.

Criteria Derived from the Literature

1. Capital equipment should be assigned property identi-
fication control numbers for accountability purposes
with ultimate responsibility for the individual pieces
of equipment residing with departmental heads.

2. A priority system should be developed between the
medical center and campus attorneys in order to meet
the time utility of legal inquiries.

3. There should be established a systems and procedures
department within the medical center to review con-
tinuously major information systems and to keep them
updated.

4. Promulgation of policies and procedures should be in
written format and fall under the responsibility of
the systems and procedures department.

5. Budgetary allocations should be made for a gradual
phasing in on a priority basis in order that the
institution comply with OSHA requirements.

Summary of the Criteria Derived from the Literature

Financial Accounting

1. A trade off may be necessary in the receiving of
accounting information on a timely basis between
the sacrificing of some accuracy and the increase
of timeliness.

2. In order to provide the most useful information for
decision making, financial reports should articulate
with each other primarily to make the information
more understandable and useful for decision making.









3. College financial statements should be restructured
to depict the financial status of the college as an
entity rather than as a combination of a number of
independent funds.

4. Economic activity is carried on during specifiable
periods of time thus time frames as expressed on
vendor invoices should be adhered to by the dis-
bursing authority on campus and not some central
authority hundreds of miles from campus.

5. In order to meet the Medical Center's functions in
program budget terms an accounting system which
provides cost information on a program basis should
be developed.

Budget Preparation and Control

1. The entire process of budget formulation through
adoption should be completed within a time frame
that does not subject the institution to keep track
of more than two different fiscal years at a time
excluding biennial budgets.

2. There should be enough review levels of the budget
to insure the expectancy of complying with it
through superior-subordinate motivation and ability.

3. Under the adoption of internal price theory at the
departmental level and college level, the necessity
of multi-level budgeting review is negated due to
treating each academic department as a small
business, each department wins its budget according
to the value of its output in relation to other
departments.

4. In estimating revenue from state appropriations each
state should establish a state level budgetary
department which would, among other things, correlate
the needs of the various state agencies with
anticipated revenues and prepare estimated legis-
lative appropriations.

5. Budget guidelines should be developed by the budget
coordinator for the entire campus, the guidelines
should be explained to each department head by the
coordinator and at least one years historical data
given to each department to be used as a starting
point in assembling the new budget.










Physical Plant

1. The determination of project priorities should be
based on a logical decision theory, employing the
use of decision tables where appropriate, with
conditions ranging from "life-threatening" to
routine items.

2. Costs of ordinary, recurring repairs to buildings
and equipment should be paid by the individual
departments affected. Extraordinary repairs and
replacements should be paid for by the physical
plant.

3. Familiarity with estimating techniques is essential
for the ability to determine unit costs of both
minor and major projects and should be used in
conjunction with internally or externally managed
projects.

4. Programmed decisions should be renewed periodically
to determine if the habitual course of action is
still the best in light of any new developments.

Personnel Services

1. The central office of the state personnel classi-
fication office should have health professionals
on their staff to act as liaison with the various
state agencies employing personnel in health
related occupations to insure timely, accurate,
and fair classifications.

2. There should be an effective wage administration
at both the institutional and state level. A viable
and fair merit system should be established with a
floating top range not a fixed dollar amount.

3. Frequent use should be made of authoritative wage
surveys. These surveys should show local, state
and national figures and be used by the wage
administration when recommending wage rates.

Purchasing

1. Where state contracts are presently in force the
purchasing director should evaluate the possibil-
ity of systems contracting for greater savings
to all areas of the institution while at the same
time promoting place, time, and possession utility.

2. In accepting a bid the purchasing department should
consider not only the lowest responsible bidder but











also the bidder who offers the lowest ultimate
cost.

3. The purchasing department should be cognizant of
time utility in the bid procedure and where
appropriate use such devices as the telephone
and telegram.

Auxiliary Services

1. A working knowledge of price theory is desirable
when setting a pricing structure for auxiliary
enterprises.

2. Price strategy when used by the auxiliary director
should be goal oriented in terms of the entire
institution.

Other Areas of Concern

1. Capital equipment should be assigned property
identification control numbers for accountability
purposes with ultimate responsibility for the
individual pieces of equipment residing with
departmental heads.

2. A priority system should be developed between the
medical center and campus attorneys in order to
meet the time utility of legal inquiries.

3. There should be established a systems and procedures
department within the medical center to review
continuously major information systems and to keep
them updated.

4. Promulgation of policies and procedures should be
in written format and fall under the responsibility
of the systems and procedures department.

5. Budgetary allocations should be made for a gradual
phasing in on a priority basis in order that the
institution comply with OSHA requirements.












CHAPTER IV
REVISION OF THE CRITERIA BASED ON THEIR
THEORETICAL FEASIBILITY BY THE PANEL


This chapter consists of two sections, the first is a

brief synopsis of information relating to the panel members.

The second section, and major portion of the chapter,

depicts the agreement, recommendations for revisions and

disagreement with the criteria based on their theoretical

feasibility as cited by the panel members.



Brief Synopsis of Information Relating to the Panel Members

Two of the panel members were chief business officers

in their respective academic medical centers, and were con-

sidered to be the practitioners of the panel. A third mem-

ber of the panel was the Chairman of the Graduate Program

in Hospital Administration at a major university, and was

considered to be the academician on the panel. The fourth

member of the panel was the Vice President for Health

Affairs at a major academic medical center and was consider-

ed to be the chief executive on the panel.

The total combined years of experience of the panel

in being associated with academic medical centers was

seventy-two years.










Recommended Revisions of the Criteria
by the Panel

In this portion of the chapter are presented the

results of the submission of the criteria to the panel. In

retrospect, these criteria were developed from the liter-

ature. The format of this chapter follows the format of the

criteria submitted to the panel (Appendix C). The chapter

is divided into the following operational areas:

Financial Accounting

Budget Preparation and Control

Physical Plant

Personnel Services

Purchasing

Auxiliary Services

Other Areas of Concern

Each of these operational areas is divided into sub-

sections containing first, the criterion as it appeared when

sent to the panel (Appendix C); second, the recommendations

of the panel; and third the finally revised criterion con-

taining the suggested revisions.

If recommendations that substantively altered the

criterion were made, the concurrence of three of the panel

members, as interpreted by the writer, was required before

the change was made. If three of the panel members agreed

with the criterion as written and the other did not, the

disagreement was noted but the criterion remained as

written. If two panel members agreed with the criterion









as written and two disagreed with the criterion the writer

revised the criterion to reflect both opinions.

For one of the criteria the panel members provided

four differing opinions and allowed the writer no clear

recommendation for the final criterion. In this case the

writer deleted the criterion based on his interpretation of

the view prevalently expressed by these persons.

Where revisions were recommended by any of the panel

members that did not substantively alter the criterion, but

as interpreted by the writer, added to clarity, they were

incorporated into the criterion.

The following sections show the results of submission

of the criteria to the panel.

Financial Accounting

Criterion 1. The criterion as developed from the

literature was written as follows:

A trade off may be necessary in the receiving of
accounting information on a timely basis between
the sacrificing of some accuracy and the increase
of timeliness.

The panel in reviewing this criterion offered the fol-

lowing opinions as to the theoretical feasibility.

There was general agreement with the criterion if

revisions were made. The revisions were to add the word

"comprehensiveness" and to state the criterion in a more

positive manner.

The following criterion resulted from and reflects the

opinions of the panel:










The receipt of accounting information on a timely
basis must be balanced against additional accuracy
and comprehensiveness which would be gained with
more time.

Criterion 2. The criterion as developed from the

literature was written as follows:

In order to provide the most useful information for
decision making, financial reports should articulate
with each other primarily to make the information
more understandable and useful for decision making.

The panel in reviewing this criterion offered the fol-

lowing opinions, as to the theoretical feasibility.

Three of the panel members agreed with the criterion as

written. The fourth offered two revisions. The first being

that "the highest level of reporting for a university is

required to be in a format which is generally accepted, and

generally understandable by persons who receive these reports

as they compare and relate to those of other colleges and

universities." The second revision dealt with the financial

reports to the Vice President for Health Affairs or the

Dean of the College of Medicine in which "the reports should

attempt to identify particular matters which need management

attention."

The following criterion resulted from and reflects the

opinions of the panel:

In order to provide the most useful information for
decision making, financial reports should articu-
late with each other primarily to make the infor-
mation more understandable and useful for decision
making at all levels of institutional management.









Criterion 3. The criterion as developed from the

literature was written as follows:

College financial statements should be restructured
to depict the financial status of the college as an
entity rather than as a combination of a number of
independent funds.

The panel in reviewing this criterion all agreed with

the criterion as written. Therefore, the criterion remained

unchanged.

Criterion 4. The criterion as developed from the

literature was written as follows:

Economic activity is carried on during specifiable
periods of time thus time frames as expressed on
vendor invoices should be adhered to by the dis-
bursing authority on campus and not some central
authority hundreds of miles from campus.

The panel in reviewing this criterion offered the fol-

lowing opinions as to the theoretical feasibility.

Three of the panel members agreed with the criterion

as written. The fourth agreed only under the assumption that

there was a disbursing authority on the campus. Further-

more, the fourth panel member added that "the issue seems

to be primarily one of being certain that those who have

the responsibility for'vendor relationships are fully aware

of this responsibility and that it is handled consistently."

The following criterion resulted from and reflects the

opinions of the panel:

Economic activity is carried on during specifiable
periods of time thus time frames as expressed on
vendor invoices should be adhered to by the dis-
bursing authority on campus in a consistent manner
and not some central authority hundreds of miles
from campus.










Criterion 5. The criterion as developed from the

literature was written as follows:

In order to meet the Medical Center's functions in
program budget terms an accounting system which
provides cost information on a program basis should
be developed.

The panel in reviewing this criterion offered the fol-

lowing opinions as to the theoretical feasibility.

Three of the panel members agreed with the criterion as

written. The fourth felt the statement was theoretically

accurate, but as of this time felt "the definition of

program continues to be so vague that it is not practical to

implement."

The criterion, because of agreement of three of the

panel members and the absence of clarifying revisions from

the fourth, remained unchanged.

Budget Preparation and Control

Criterion 1. The criterion as developed from the

literature was written as follows:

The entire process of budget formulation through
adoption should be completed within a time frame
that does not subject the institution to keep
track of more than two different fiscal years at
a time excluding bienniel budgets.

The panel in reviewing this criterion all agreed with

the criterion as written. Therefore, the criterion remained

unchanged.

Criterion 2. The criterion as developed from the

literature was written as follows:









There should be enough review labels of the budget
to insure the expectancy of complying with it
through superior-subordinate motivation and ability.

The panel in reviewing this criterion offered the

following opinions as to the theoretical feasibility.

Three of the panel members agreed with the criterion

as written. The fourth felt that the words "but no more

than" be added to further clarify the criterion.

The following criterion resulted from and reflects the

opinions of the panel:

There should be enough review levels of the
budget, but no more than to insure the expectancy
of complying with it through superior-subordinate
motivation and ability.

Criterion 3. The criterion as developed from the

literature was written as follows:

Under the adoption of internal price theory at
the department level and college level, the neces-
sity of multi-level budgeting is negated due to
treating each academic department as a small
business, each department wins its budget accord-
ing to the value of its output in relation to
other departments.

There were no similar opinions regarding this criter-

ion other than three panel members totally disagreed with

it and the fourth wanted it revised. One panel member

felt there were two problems with it. The first problem

relates to an underlying assumption, i.e. "that all depart-

ments on the campus are motivated toward the same

objective growth which is not likely." The second

problem noted was that "departments would be trying for a

higher volume of production at the lowest possible cost,










and that the objective of the department is to educate not

operate in a competitive market place." Another panel

member indicated the difficulty was in determining "output".

"Numbers alone are not sufficient, production of a physical

therapist, physician, and hospital administrator are not the

same." Another panel member felt the criterion was ac-

ceptable if the middle phrase were omitted.

As mentioned previously in a case such as this, the

criterion resulted from an interpretation by the writer of

the prevalent view expressed by the panel. The writer de-

termined that the criterion was not appropriate as expressed

by the views of the panel and therefore was deleted.

Criterion 4. The criterion as developed from the

literature was written as follows:

In estimating revenue from state appropriations
each state level budgetary department which would,
among other things, correlate the needs of the
various state agencies with anticipated revenues
and prepare estimated legislative appropriations.

The panel in reviewing this criterion all agreed with

the criterion as written. Therefore, the criterion remained

unchanged.

Criterion 5. The criterion as developed from the

literature was written as follows:

Budget guidelines should be developed by the
budget coordinator for the entire campus, the
guidelines should be explained to each department
head by the coordinator and at least one year's
historical data given to each department to be
used as a starting point in assembling the new
budget.










The panel in reviewing this criterion offered the fol-

lowing opinions as to the theoretical feasibility.

Two of the panel members agreed with the criterion as

written. The other two agreed if revisions were made. The

revisions were to delete "each department head" and replace

with "all concerned" and to reword the last prepositional

phrase.

The following criterion resulted from and reflects the

opinions of the panel:

Budget guidelines should be developed by the budget
coordinator for the entire campus, the guidelines
should be explained to all concerned by the
coordinator and at least one year's historical data
given to each department as one component of the
data base to be used in assembling the new budget.

Physical Plant

Criterion 1. The criterion as developed from the

literature was written as follows:

The determination of project priorities should be
based on a logical decision theory, employing the
use of decision tables where appropriate, with
conditions ranging from "life-threatening" to
routine items.

The panel in reviewing this criterion all agreed with

the criterion as written. Therefore, the criterion remained

unchanged.

Criterion 2. The criterion as developed from the

literature was written as follows:

Costs of ordinary, recurring repairs to buildings
and equipment should be paid by the individual
departments affected. Extraordinary repairs and
replacements should be paid for by the Physical
Plant.










The panel in reviewing this criterion offered the fol-

lowing opinions as to the theoretical feasibility.

Three of the panel members felt that the costs of

ordinary recurring repairs should be paid for by a centrally

administered fund within the Physical Plant Division. The

panel split on the issue of extraordinary repairs and re-

placements. Two panel members felt these costs should be

departmental responsibilities, however, one of these panel

members clarified himself by referring to "elective reno-

vations or alterations." The other two felt that the

Physical Plant through a central fund should bear the cost.

The following criterion resulted from and reflects the

opinions of the panel:

Costs of ordinary, recurring repairs to buildings
and equipment should be paid for out of a fund
centrally administered by the Physical Plant
Division. Extraordinary repairs and replacements
should also be paid for through a fund centrally
administered by the Physical Plant Division.
Elective renovations or alterations should be the
responsibility of the individual department.

Criterion 3. The criterion as developed from the

literature was written as follows:

Familiarity with estimating techniques is essential
for the ability to determine unit costs of both
minor and major projects and should be used in
conjunction with internally or externally managed
projects.

The panel in reviewing this criterion all agreed with

the criterion as written. Therefore, the criterion remain-

ed unchanged.




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