Responsibility Center Management David Proulx, Associate VP for

Responsibility Center Management David Proulx, Associate VP for Finance EMail: [email protected] Budget Office Website: http://www.unh.edu/vpfa/budget RCM Website: http://www.unh.edu/vpfa/rcm Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation process Why RCM? Overview Decentralization of Budget Authority Increase:

Incentives for planning, cost effectiveness and revenue generation Local responsibility and authority Flexibility to match revenue streams with changing program demands Attentiveness to all categories of money Accountability at all levels of management Decrease:

Rigid resource allocation process Involvement of institutional leaders in budgetary detail Mystery and mistrust surrounding UNH finances Use it or lose it mentality at all levels of management Institutional Revenue Old Old Budget Budget System System - Tuition - Indirect Cost Recovery - State Appropriation Revenue

University Budget Panel allocates revenue to departments in form of $142 million E&G Budget Institutional Overhead (Service Units) UNH Divisions - Colleges/Library - Facilities - CIS - Student Affairs - VP Research - General Admin - Academic Affairs

- Research and Public Service Units - Auxiliary Operations Direct Expense - Payroll - Support - Debt service Department (Direct) Revenue - Grant/Contracts - Restricted Gifts/Endowment - Sales of goods/services - Fees Overview

RCM RCM Budget Budget System System Revenue - Tuition - Indirect Cost Recovery - State Appropriation Revenue - Direct Revenue (Grant, Gift, Sales, Fees, etc.) RC Units - Academic - Research - Auxiliary

Direct Expense - Salaries, Wages & Benefits - Support - Debt service Institutional Overhead - Facilities - CIS - Student Affairs - VP Research - General Admin - Academic Affairs Overview RC Units Colleges and Related Service Units

Overview Research and Public Service Units College of Life Sciences and Cooperative Extension Agriculture Research and Public Service College of Liberal Arts Institute for Earth, Oceans and Space College of Engineering and Physical Sciences Whittemore School of Business and Economics College of Health and Human Services UNH Manchester Library Student and Community Life Units Governance, Advancement and

Infrastructure Units Student Affairs Facilities Services Housing UNH IT Hospitality Services General Administration Intercollegiate Athletics Academic Affairs Whittemore Center Arena RCM Principles 1. 2. 3. 4. 5. 6.

Overview Create incentives for good management Fairness/Simplicity Unit plans must align with Universitys mission and strategic plan Smooth transition - no redistribution of resources Credible governance mechanisms required to prevent unhealthy internal competition Same rules for all operations academic, research, auxiliary, administrative RCM Principles, cont. Overview 7. RCM principles/formulas apply to the RC unit level. 8. RC units receive all revenue and are responsible for all expenditures generated by their activities.

9. RC units carry forward excess funds from one year to next and manage reserves at the unit level. 10. RCM is not a cost accounting model but rather a general incentive/allocation model. Shared Governance Overview Central Budget Committee The governing group on budget policy and financial planning for the campus community. Comprised of President, Vice Presidents, 2 Deans, 4 Faculty, 2 RC Unit Directors, Student Treasurer Service Unit Advisory Board

Functions as subcommittee of the Central Budget Committee Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation process Unit Financial Structure Allocation Methodologies Units receive direct revenues (fees, grants, gifts, etc) as well as applicable allocated revenues

(net tuition, state appropriations, indirect cost recovery, CBC allocations and hold harmless) Units are responsible for direct expenses (salaries, wages, fringe benefits, support) as well as indirect expenses (facilities, general and academic overhead) Unspent funds at end of year are allowed to drop to a unit reserve RC Unit Revenues Allocation Methodologies Direct revenues - fees, sales of goods/services, gifts, grants/contracts, endowment income Allocated revenues: Undergraduate net tuition - based on share of

weighted credit hours taught over prior two years. Weights are based on historical average expense per credit hour Graduate tuition - based on enrollment State Appropriations Indirect Cost Revenue - based on actual indirect costs earned RC Unit Expenses Allocation Methodologies Direct Expenses - salaries, wages, fringe benefits, supplies, other direct expenses. Allocated expenses (overhead):

Facilities Services (maintenance, utilities, housekeeping, R&R) - based on net square feet General Administration (President, Research, Finance & Administration, Student Affairs, Academic Affairs) Reserves Allocation Methodologies Under RCM, unspent funds at year end are automatically added to the School/College fund balance. This required a change in Board of Trustee policy. RC units are obligated to meet an agreed upon minimum fund balance level 6% to 10% of revenue.

RC units can access reserves above their minimum with RC unit head approval and below their minimum with VP approval. Unit reserves reduce dependence on limited central reserves Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation Process Student Access Results Improving access to classes for first year students College-based open houses to attract

undeclared students Reviewing courses and curriculum to improve the student experience College based student retention effort Space Utilization Results Colleges transferring college controlled classrooms to Registrars Office to be available for University use Review of lab utilization and the reassignment of lab space at COLSA and CEPS Impact on Service Units Results

Service units have become more accountable and responsive to customer needs: Facilities cost reduction efforts and service provider agreements Library periodical budget/allocation review CIS Customer focus groups and Strategic Plan that focus on service Budget increases for the Central Administration is lower than Colleges and Research Units. Better Management Results Managers at all levels discussing financial impacts of decisions direct and indirect Decisions being made with the long term in

mind vs. short term Decisions aligning with goals in strategic plan Use of all funds not just general fund More communication at all levels of management Recent RCM Review Goals of review: Align RCM incentives with institutional goals

Identify source of central strategic funds Simplify RCM as much as possible Develop greater financial accountability for all RC units including central service units Implement strong incentives for net revenue growth Changes/enhancements to be implemented in FY12: Central administration funding formula Credit hour weights/tuition allocations Slight percentage change in F&A recovery State funding allocation Presentation Outline

1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation Process The Process RCM Implementation Three years to implement Coordinated by a Steering Committee advisory to the President. 12 Working Groups each responsible for separate component of RCM. Reported to Steering Committee. Overall Composition of Steering Committee/Working Groups: 70% academic community members 43% faculty and 28% Deans. Go to Committee page for more detail. Communications

We will meet with anyone, anywhere at anytime to discuss RCM. Multiple meetings with Trustees, Deans, faculty, staff councils, students Web site established to facilitate communication Campus newspapers used as a communication tool. See articles published in campus newspaper by clicking here. Open forums held The Process, cont. RCM Implementation

Site visits to other Universities with decentralized budgeting. Brought administrators, Deans and faculty to meet with counterparts. Click here to see the summaries of those site visits. Board of Trustee Policy communications and support Lots of financial modeling Very complex in the beginning, simplified before implementation Draft models shared with the community Operating manual developed hard copy and on-line RCM Implementation

Academic Concerns About RCM Concerns: larger class sizes/increased teaching loads grade inflation addition of courses by colleges solely for the purposes of revenue generation additional course fees reduced collaboration among colleges for academic and research ventures manipulation of credit hour system to generate additional revenue increased use of graduate students and adjunct faculty for instruction elimination of high quality/low revenue producing programs incentives for student advisors to act in the interests of the college rather than the student for fear of losing tuition revenue Response: Most of these consequences could occur under the old budget system Most of these actions taken by colleges would lead to short-term gain but would have long-term negative consequences Development of policies, oversight mechanisms (UCAPC), institutional academic plan, college strategic plans, ongoing reviews and University Fund allocations can

help to prevent these actions from occurring. Reviews of RCM RCM Implementation Ongoing monitoring of budgets by the Budget Office. Central Budget Committee is responsible for monitoring RCM issues. FY06 - comprehensive review of all aspects of RCM. Committee appointed by the President and chaired by the Provost/VPFA FY09- second review simplification and alignment with mission Keys to Successful Implementation RCM Implementation

Top-level support without President/Provost and Board of Trustee support, implementation will be unsuccessful. Academic/research involvement in developing model users must be part of the process. Communication meet with anyone, anytime, anywhere. Use the Web as a communication tool as well as campus publications. Hold open forums. Establish credible governance mechanisms assurance that RCM will be fair and equitable. Unhealthy internal competition is monitored and academic quality issues addressed. Automatic rollover of unspent funds for units without this, incentives of RCM do not work. No budget reallocation transition does not result in base budget changes hold harmless principle. Keys to Successful Implementation, cont.

RCM Implementation Simplicity most managers do not have financial backgrounds and should not devote significant parts of their time to their budget. They need to be able to understand the model and understand the financial effects of decisions quickly and easily Full-time staff dedicate full-time staff member to coordinate project Business support structure each unit must have access to financial expertise to be successful Site visits go see what others are doing and learn from their experiences Avoid using acronyms such as RCM, RCB, DBS they take on a meaning of their own and impede progress. Timely and comprehensive management reporting. What Would We Do Differently?

RCM Implementation We would not have named our system RCM. We would have called it budget redesign or budget decentralization. Simplification of assessments. Current methodology is too complex. Lots of time being spent in this area by RC units. Cost outweighs the benefits. We would have addressed structural issues before implementation. Urban campus was built into the model using different weighting factors

creating complexity in financial arrangements between campuses. Library funding treated them as a school/college rather than service unit. Issues with rising periodical costs. Athletics funding space cost allocations comprise a significant part of their budget (20%). This is a new expenditure for them under RCM. Indirect cost return to PIs. Kept historical allocation. A Final Thought From our prior Provost, David Hiley in a letter to the University community: We must remember that RCM is merely a tool. Like any tool it can be used well or badly. It is not a substitute for decision-making, judgement or leadership. It is merely an aid. The ultimate success of RCM depends on the people who use it -- on how we at UNH choose to use it, how we prepare ourselves to use it well, and how we are held accountable for using RCM to achieve university-wide goals. More Information The RCM review report and other information

on RCM can be found at the UNH RCM Website at www.unh.edu/rcm

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