The principal of Dundee University has said that more than £3m of savings must be made over the next two years.
Sir Alan Langlands has blamed a "disappointing" funding package from the government and the pressure of increasing wages and utility bills.
He also acknowledged that the problems in the world economic market had had an impact on universities.
Sir Alan plans to make savings by continuing the voluntary redundancy programme.
The aim is to save £1.9m in 2008/9 and £1.2m in 2009/10.
"I am in no doubt that we will weather the storm and be invigorated by it"
Sir Alan said: "The success of the university must never be determined solely by the strength of its balance sheet - financial sustainability is a means to an end, albeit an important one.
"It is for this reason that some of the more uncomfortable financial decisions have to be set alongside many successes which pave the way for further growth and development."
The achievements he highlighted included bringing new professors to the university, early signs of success in new masters' programmes and winning grants for research.
Sir Alan concluded his message to pupils and staff: "Maintaining the excellence and the momentum of the university through a period of financial restraint will require every ounce of our determination, innovation and creativity but, this is our aim.
"I am in no doubt that we will weather the storm and be invigorated by it."
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