Default Choice
Default is the preset choice among available options that will continue until a new decision is made. For example, many of us stick with the same auto and home insurance company year after year despite receiving ads from its competitors that remind us of the options we have and the money we could save by switching from the default.
Defaults are powerful. As Nobel Laureate Richard Thaler and his colleague Cass Sunstein express in their bestseller Nudge: Improving Decisions about Health, Wealth, and Happiness, most people tend to take the option that requires the least effort or the path of least resistance. Defaults provide that.
When it comes to finances, the default in many school districts is the automatic continuation of most if not all line items under the budgeting model, generally characterized as incremental budgeting. With this default, decision makers avoid the “trouble” of scrutinizing spending for efficiency and effectiveness or the “inconvenience” of potentially offending colleagues or facing angry parents and staff members affected by their decisions. However, such choice architectures have proved to respond poorly to changing district needs and priorities—hence, the zero-based budgeting (ZBB) model.
With ZBB, a new year’s budget starts from scratch and each line item is examined on the basis of specific district criteria, such as needs and costs. In essence, ZBB is intended to reform choice architecture by changing the default of budget items from automatic renewal in incremental budgeting to justification needed before approval.
Fully implementing ZBB is a tedious and time-consuming process that requires a great deal of discipline and commitment. Consequently, its adoption has been limited. Even in school districts that adopted this model, it eventually tends to become zero-based in name only.
Building on the strengths of ZBB, cycle-based budgeting (CBB) is a renewed attempt to remake the default in choice architecture for budget decisions. Different from ZBB in which all budget items are treated equally and scrutinized for continuation, CBB distinguishes between operation expenditures that are necessary for a school district to function and investment expenditures that are intended for improvement.
For operation expenditures, the default is an automatic renewal, as in incremental budgeting. For investment expenditures, the default is a more flexible version of ZBB. That is, instead of being examined annually, each investment item is reviewed on the basis of an investment cycle that can span one year or multiple years.
With this design, decision makers can focus their attention and energy on a limited number of investment items instead of the entire budget each year, which makes CBB easier to implement while maintaining the integrity and effectiveness of the annual review.
Anchoring Choice
Anchoring takes place when a decision is influenced by information that serves as the reference point or benchmark—for example, people use Kelley Blue Book to assess price fairness for the vehicle they are thinking about purchasing. Anchoring is ubiquitous, and human beings routinely resort to it to facilitate decision making, especially when dealing with novel things or unfamiliar objects.
Anchoring can occur on multiple dimensions. While price is one of the most important factors, when shopping for a car, we also consider many other features, such as safety rating, fuel economy, performance, etc. On each dimension, how we make sense of information and render judgment is often influenced by the anchor point we use. A shopper might shy away from buying a pair of $200 shoes because they are too expensive compared with most pairs he owns, but he will make the purchase when he sees the original $400 price tag, deeming it too good a deal to pass up.
Leaders will tend to anchor their thinking on the dimensions that matter most to them.
In situations of collective decision making, disagreement can quickly arise when people anchor their thinking on different dimensions and use different anchor points to make assessments and render judgment. For example, when a couple shops for a car, one might focus on fuel economy and reliability while the other eyes appearance and performance. For the same price, one might think it is affordable but the other considers it beyond budget. When both are driven by their own dimensions and anchor points, the couple may struggle to reach an agreement, which will require a change of mind and or a compromise.
Similarly, district leaders’ difficulty reaching consensus on which new program to fund and which existing program to defund is due partly to the fact that leaders often anchor their deliberation on dissimilar dimensions and might use different anchor points for decision making. That is, leaders will tend to anchor their thinking on the dimensions that matter most to them, while simultaneously ignoring or paying little attention to other dimensions that seem less important to their areas of interest and responsibility.
Even on dimensions that all leaders care about, it can still be challenging to forge consensus when leaders use different anchor points because of distinct focuses, diverse experiences, and varying circles of influence. This dynamic will likely persist as long as individual departments continue to be both the starting point (where improvement ideas are formulated and proposed) and the end point (where responsibility is assigned with resources allocated) of budget prioritization.
Budget Prioritization
Prioritizing budget items, by nature, is a challenging task. That said, SBOs can facilitate the process by doing two things:
- Work with district leaders to build consensus on the criteria that need to be considered when making decisions about investing in new programs and discontinuing existing programs. Serving as anchors, these factors make it easier for leaders to see where they have consensus, where they are close to agreement, and where differences lie. Additionally, these criteria help leaders address issues that might have been ignored or overlooked but that are critical for the success and sustainability of the proposed programs.
Factors that SBOs might consider include alignment with organizational priorities, evidence of impact, cost per pupil, political support, implementation feasibility, and coherence with existing programs. (For details, see “To Fund or to Defund: Making the Hard Decisions,” School Business Affairs, September 2018.)
- For each of the identified factors, further support leaders by providing an anchor point whenever it is possible and appropriate. For example, district leaders can use the average and range of cost-per-pupil information from typical programs implemented in the district to decide whether a newly proposed program is affordable or too pricy.
For implementation feasibility, based on research or local experience, SBOs can suggest a maximum number of programs a department should implement concurrently. This approach helps leaders know whether a department might be beyond capacity if its proposal is approved, risking successful implementation of both the new and existing programs.
In many ways, building a choice architecture that explicitly spells out factors for budget decisions is akin to building search functions for websites like Match.com or Cars.com that help people refine choices and make decisions.
A thinking process anchored on the identified factors helps leaders filter out choices that do not meet their criteria and retain choices that can be further examined. While district leaders remain in control of which factors to focus on, a carefully crafted choice architecture can influence leaders to make good decisions, or at least avoid bad decisions.
Even in districts that already have such a choice architecture developed and implemented, SBOs need to continually examine the design and impact of that choice architecture by asking the following questions:
- What anchors and anchor points do we intentionally or unintentionally provide or fail to offer?
- Of those anchors and anchor points we provide, which tend to help leaders make sound decisions that lead to improved student outcomes or other successes? Which tend to bias their assessment and judgment, resulting in investments that are ineffective and costly? And which tend to be ignored by decision makers?
- How can we refine the presentation of the anchors and anchor points we currently provide to make them more effective?
Framing Choices
The way a decision point is presented or “framed” through different wordings, settings, and situations can influence our choices. For example, research shows that people tend to react differently when making a decision framed as a gain versus a loss. For instance, you receive $50 at the end of each month if you meet an exercise requirement versus earning $50 at the beginning of each month but losing it if you don’t meet the exercise requirement.
When it comes to school and district finances, leaders’ ability to make the best decisions about resource use and to communicate those decisions to stakeholders is often hampered by how those choices are framed.
For example, the choice of which new programs to fund from a pool of proposals is often framed as choosing the ones that are most aligned with district priorities. This framing poses two challenges for leaders: First, alignment with district priorities is largely a qualitative question that quantitative data cannot always help answer. For reasons discussed earlier, this is also a dimension on which leaders tend to use an anchor point reflecting their interest and responsibilities. As a result, reaching a consensus is often difficult.
Second, it trumps the importance of other important factors to consider, such as program strengths (e.g., evidence base, implementation feasibility, teacher and principal buy-in), cost (e.g., total cost, cost per student, financial sustainability), and coherence with the current improvement strategies (e.g., no overlap or redundancy with existing programs).
In other words, the problem should not be a matter of just picking programs that are most aligned with district priorities, as often narrowly framed in many budget discussions. Rather, it is about investing limited resources in programs that have the best possibility of contributing to student achievement at a low or reasonable cost, without creating new problems.
In addition to alignment, leaders should ask whether it is wise to fund a proposed program to meet certain student needs that lacks the ingredients to deliver the promise; or do they want to support a department’s proposal for a new literacy program that could potentially cause confusion or lead to competition for time and attention, when a different department is already running a literacy initiative?
Another factor is the framing of the choice about whether to discontinue an existing program. When news about a program potentially being cut gets out, program supporters line up at the board meeting, pleading with district leaders not to take the resources away from kids. This framing is often further perpetuated by local media showing a parent on TV talking about how his or her kid has greatly benefited from the program.
When framed in this way, the decision problem puts leaders in an indefensible position regarding the planned cuts. After all, how can you take resources away from kids who need them? As a result, some district leaders scale back or completely abandon the proposal.
However, the decision was not about taking resources away from kids as framed by supporters and the media; it was about making the best use of limited resources to benefit most students. Despite benefiting a handful of students, the program proposed for elimination has failed to help most students in the program improve. At the same time, other urgent student needs demand resources for an evidence-based program that has a high potential to effect meaningful change. This dynamic is usually what motivates leaders to propose the cuts, and this is how the choice should be framed.
That is not to say that this framing will help leaders easily implement the proposed cuts. At the very least, it will present a full picture of the challenges that leaders face and the viable, though imperfect, choices they must make to gain understanding and support.
New Perspectives
Under the current choice architectures, district leaders face many challenges to make the best decisions about the optimal use of limited financial resources to help students succeed. It is by no means easy to apply the concepts presented here; however, it is hoped that the discussion provides SBOs with a new perspective that they can do more than just present budget proposals together with the district’s financial situation and outlook.
Further, this new perspective will help SBOs look at the deficiencies in the choice architecture of their own school district and consider how to improve it so that the deliberation will be more rational and objective instead of driven by emotions, conviction, or convenience.
More importantly, the reengineered choice architecture will lead to better decisions that help students succeed.