A Model for Long-Range University Budget Planning under Uncertainty

A linear control model of a university budget is presented as an aid to developing optimal strategies for dealing with major exogenous uncertainties. The specific uncertainties treated are those associated with inflation, endowment returns, and fund-raising. The model seeks to stabilize budget growt...

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Bibliographic Details
Published in:Bell Journal of Economics 1978-10, Vol.9 (2), p.396-420
Main Authors: Grinold, Richard C., David S. P. Hopkins, Massy, William F.
Format: Article
Language:English
Subjects:
Budgeting
Budgets
Colleges & universities
Endowment
Endowments
Financial budgets
Financial planning
Hedge funds
Index funds
Inflation
Inflation rates
Long term
Optimal policy
Optimization
Ratios
Tuition
Uncertainty
Universities
Working capital
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Summary:A linear control model of a university budget is presented as an aid to developing optimal strategies for dealing with major exogenous uncertainties. The specific uncertainties treated are those associated with inflation, endowment returns, and fund-raising. The model seeks to stabilize budget growth by adhering as closely as possible to prescribed limits for certain critical financial ratios, such as the ratio of the budget to the endowment. Sample runs for Stanford University are given, along with an analysis of the financial effects of varying the level of investment risk carried by the endowment.
ISSN:0361-915X
0741-6261
2326-3032
1756-2171
DOI:10.2307/3003590