The public school superintendent and his or her senior team have come to develop a finely calibrated sense of how to best manage the year-to-year challenges in their districts. For issues such as growth in student population, significant building projects and major changes to curriculum, they are able to make good decisions based on experience, intuition and analysis.
This year, however, threatens to be different. Throughout the past year, the level of uncertainty facing school districts has changed dramatically. The effects of a nation and world lurching through an unprecedented economic recession are trickling down to school districts throughout the country in unprecedented ways. All of the sudden, the future looks highly unpredictable and the well-honed decision-making skills driven from experience no longer seem applicable.
It is also clear that the funds districts will receive from the American Recovery and Reinvestment Act (ARRA) may have strings attached and cannot be used as either a stopgap to plug a district's shortfall nor a regular revenue stream to fund a district's long term operations.
But, does the current economic climate present an opportunity? This crisis is not good news and its effects are likely to last several years. But, it is also true that in this crisis lies opportunity for both planning and refocusing on core values. This is a time for the nation's public schools to revisit their mission statements and to keep a strict eye on their goals. In short, it is an opportunity to refocus on the priorities.
At a recent meeting of school district chief financial officers, there were a wide range of responses to the budgeting problem posed by the economic crisis and the potential for significant ARRA funds. A few districts stated that they would essentially ignore the uncertainty, plan as usual, and come up with a budget. Others stated that they would go ahead with a "gut" guess as to what the future would look like and do the best they could. But most said they were taking a wait-and-see approach and hoping for guidance from the states on how the stimulus dollars could be spent. While it may seem logical to postpone making an important decision until there is greater clarity, it is unlikely that uncertainty will completely evanesce; more likely, new dimensions of uncertainty will arise. With proactive preparation, districts can manage the downside risk, and seize the upside opportunity that uncertainty creates. The key to transforming the current crisis into a strategic opportunity is to accept the uncertainty of the current fiscal situation, recognize the uncertain dimensions of each individual decision, and structure the strategic planning process accordingly.
School districts need a new tool by which they can make good decisions in the face of highly uncertain information. That tool is scenario planning, a process that can be adopted in any school district to approach the economic uncertainty that is going to be here for several years. It is a similar process to one used by The Wall Street Journal to provide a framework for investors to rethink and readjust their investment mix. Rather than ignoring uncertainty, holding steady with one predetermined investment strategy or shifting aimlessly from one investment product to another, scenario planning prompts investors to deliberate on more rigorous terms about the forms that the future could take.
The process is no different for school districts. To start, it is useful to categorize uncertainty into four distinct levels. At each level, a different amount of uncertainty can be determined and the rest remains uncertain. The first level, we are calling Level 1: A Clear Enough Future. At this level, business is pretty much "as usual," with the projection of possibilities pointing toward one dominant strategy. Level Two: Alternate Futures, is one characterized by a set of mutually exclusive, exhaustive scenarios that describe each potential outcome. Level Three: A Range of Futures represents a set of three to five scenarios that largely cover the range of potential outcome. Level Four: True Ambiguity is the most challenging, characterized by integrated sets of assumptions that one would "have to believe" about the future to support different proposed strategic options.
To illustrate the process, we tell the story of a fictional district, "Fairview Union," as they employ scenario planning. Since "Level Three: A Range of Futures" decisions are the most prevalent for school districts in today's fiscally challenging environment, we illustrate the Level Three scenario planning process through the story of this fictional district. Though Fairview is fictional, its storyline represents a composite of several districts that have employed scenario planning.
Fairview Union's superintendent started this school year knowing that the district would have to brace for major budget cuts. The recession augured an ominous future for Fairview Union's revenue. The final revenue number, depending on tax receipts and the status of grants and aid would not become clear for many months, but the superintendent knew that it would be unwise to wait to start factoring the fiscal crisis into Fairview Union's budget planning. With a range of possible outcomes in the critical area of district funding, the case for scenario planning was clear. The district leadership agreed with the superintendent, and a subset of the leadership team convened as a scenario planning team. The scenario planning began in earnest with the onset of the budget season in the fall. As with any previous decision Fairview Union had made, the scenario planning team began by establishing a "fact-base" of key information. It identified all of the factors: economic, business, and demographic-that impinged on the overall budget number. Because the revenue that Fairview Union ultimately received would depend largely on what the city of Fairview would allocate to the schools, the district also gleaned data by maintaining an ongoing dialogue throughout the scenario planning process with municipal officials. District-city collaboration allowed each entity to learn more about the other's budget priorities and reduction philosophy. It also enabled the scenario planning team to make more concrete estimates of how much money Fairview Union could expect to receive from the city. Up to this point, the steps Fairview Union followed- defining the need, garnering support, forming a team, and collecting information-essentially matched the district's standard and well-honed decision-making process. The third stage, creating discrete scenarios, unlocked the full power of scenario planning.
This stage commenced with mapping the "axes of uncertainty," the decision dynamics of both high-importance and high-uncertainty. For Fairview Union, the overarching question of funding depended on two axes of uncertainty. One was the extent to which Fairview Union's normal sources of revenue would decline as a result of the recession. The other axis, which emerged later in the fall, was the promise of the federal stimulus dollars. While mollifying the need for immediate budget cuts, the guarantee of a federal infusion raised its own issues of uncertainty. The scenario planning team had to consider how much money Fairview Union would receive through the stimulus, when this money would come, and what stipulations might be attached to it. The spectrum of uncertainty that the axes presented became the basis for the set of scenarios. The scenario planning team juxtaposed combinations of potential amounts the district would be granted through the federal stimulus. To facilitate decision-making, the team distilled the myriad possibilities into three possible and meaningfully distinct outcomes. It wrote a description of each scenario:
"Tier 1: Scratching the Surface" represented the need for only relatively minor cuts, possible through increased efficiencies and reductions that could be easily and swiftly restored.
"Tier 2: Digging Deep" encompassed significant reductions in programs and services that would take a decade to recover.
"Tier 3: No Tomorrow," the most far-reaching, would bring severe reductions that would take decades to recreate. Under this scenario, there was the possibility of noncompliance with state standards.
As they developed the scenarios, the district and municipal administration worked together to inform employees and the public about the budget process and to provide opportunities for them to make suggestions. Feedback was solicited as to how participants prioritized the district's programs and which services they would be willing to see cut. The scenario planning and community input became mutually reinforcing activities. As the scenario planning team crafted more detailed scenarios, the district and municipal administrators were able to galvanize community members to wrestle with the harsh realities of specific budget constraints and necessary trade-offs. Similarly, as the district and municipal administrators learned more about the community's priorities, they were able to refine their projections about how much revenue the district would require and how much the city would be willing to provide. The three scenarios the scenario planning team had charted, as well as the information about the community's priorities gleaned through outreach, provided the framework within which Fairview Union's decision-making process took place. Assuming that each scenario became reality and envisioning the future under each scenario, the leadership went line-by-line through the district's entire school budget and, in light of how much money had to be cut overall, discussed alternatives for each program. District leadership designed a combination of cuts that matched the total cut necessary for each given scenario. Each scenario held vastly different consequences for the district. Some highly popular programs, such as reading initiatives, and some compliance-driven necessities such as special education, faced few, if any, cuts across all three scenarios. But, in other areas, the move from one tier to another portended millions of dollars in funding differences.
For example, if the scenario of "Tier 1: Scratching the Surface" became reality, the decision-making team would choose to maintain core high school instruction at level funding. Yet, in a "Tier 2: Digging Deep" scenario, the team planned to cut core high school instruction by several million dollars. If the worst-case, "Tier 3: No Tomorrow" scenario prevailed, the team would seek to eliminate many more millions from the same program. To be sure, scenario planning did not remove the grave challenge facing Fairview Union. Some of the proposed reductions that could prove necessary would certainly be painful. As difficult as these cuts would be, however, they represented the product of a proactive and analytical process that prioritized instructional quality and targeted reductions away from the classroom. Not all districts would make the same tradeoffs as Fairview Union, but, this is precisely the benefit of scenario planning. It can convert a fiscal crisis into an opportunity for collective discussion about what is most vital for the district. By constructing a clear framework for thinking about potential cuts, the scenario planning process prepared Fairview Union to adapt to any scenario becoming reality.
The rigorous structure of the process prompted both district leaders and the community to reflect on their fundamental priorities for the district. The consensus that emerged around the need to maintain core academic and enrichment programs across scenarios simultaneously informed the city of Fairview as it finalized budget allocations.
In other words, the priorities of upholding and promoting student standards that the scenario planning process elicited helped to assure that these priorities became reality.
Other school districts can easily replicate Fairview Union's approach. Here is a Four-Step Process for Scenario Planning:
1. Set the Stage
Articulate which major decision the scenario planning process is designed to address. By conveying the importance of this decision, establish the buy-in of your leadership team for using scenario planning. Drawing on the skills of your executives, form a scenario planning team and communicate the process going forward.
2. Create a "Fact-Base" of Key Information
Identify the key factors, such as money, staff, and time, that affect the decision. Also determine the dynamics, such as growth or funding, that make the future of these factors uncertain. Gather available data and projections to ascertain as much as possible about the decision factors and the paths they will follow.
3. Create Discrete Scenarios to Evaluate
It is at this stage that the real power of scenario planning becomes clear. While steps one and two apply to a standard decision-making process, the creation of scenarios structures the future into a set of concrete possibilities. This set of scenarios should cover the full spectrum of uncertainty. Pick points along the spectrum that represent meaningfully distinct visions of the future. For each, write out a description of what the future would look like. In the Fairview Union story, the descriptions were the three tiers of "scratching the surface," "digging deep," and "no tomorrow."
4. Make a Decision
Consider the steps that you would take under each scenario to further your strategic goals. With a grasp of the actions and the outcomes that each scenario would entail, arrive at and communicate a decision.
Historically, districts have successfully navigated the future with an effective combination of intuition, experience, and analysis. However, the fiscal crisis, combined with unprecedented federal stimulus funds, has created a situation that requires school district leaders to employ a more rigorous set of tools in order to ensure that they can successfully navigate the future in a strategic and proactive way.
Scenario planning, an approach that has been successfully used in a variety of industries, can also be adopted by public school districts. By following the Four-Step Process for Scenario Planning, school districts should be ready, like Fairview Union, to confront change and think strategically whatever the fiscal crisis may bring.
Do we have tools and processes to confront the unprecedented level of uncertainly created by both the recession and the possibility of ARRA dollars?
Have our prior budget cuts or additions been made in an "across the board," manner or by a process of reviewing the district's long term strategic goals?
Are we engaging other stakeholders and constituents in the discussion? Do we have a process to engage our district officials, our community?
Pay-for-Performance Programs: Strategies, Structures, and Funding
By Nicholas P. Morgan & Daniel Schiff
