Last updated 5/4/2004Last updated 5/4/2004

David Proulx, Senior Financial Analyst - RCM Project ManagerDavid Proulx, Senior Financial Analyst - RCM Project ManagerEMail: d_proulx@unhn.unh.edu EMail: d_proulx@unhn.unh.edu

Budget Office Website: http://www.unh.edu/budgetBudget Office Website: http://www.unh.edu/budgetRCM Website: http://www.unh.edu/rcmRCM Website: http://www.unh.edu/rcm

Responsibility Center ManagementResponsibility Center Management

Presentation OutlinePresentation Outline

1. UNH Overview1. UNH Overview2. RCM Model2. RCM Model

3.3. RCM Implementation ProcessRCM Implementation Process

UNH Background

Public land, sea and space grant University11,739 undergraduate; 2,324 graduate studentsPart of the University System of New Hampshire (USNH) – separate board of trustees17% of current fund budget from State 50th in state support per capita

UNH Overview

UNH Background, cont.

University maintains own fund balance

$360 million current fund budget

$95 million – research expenditures

UNH Overview

VISION

The University of New Hampshire will be distinguished for combining the living and

learning environment of a small New England liberal arts college with the breadth, spirit of

discovery, and civic community of a land grant research institution.

UNH Overview

Unit budgetsReserves Central Budget Committee Provost’s Strategic Planning InitiativePrivate Giving

Process Redesign (Business Service Centers)Responsibility Centered Management Financial Reporting Systems (BANNER)

Planning

ResourceManagement

Implementation

Vision

InstitutionalEffectiveness

Evaluating Responsibility Centered Management Evaluating Academic PlanMonitoring Performance

Financial PerspectiveAcademic PerspectiveStakeholder PerspectiveInnovation and Learning Perspective

Academic PlanningMaster PlanCapital CampaignRC Unit Planning College/School plans Technology Plans Staffing Plans Financial Plans Outreach and Research Professional Development

Assessment Process(Balanced Scorecard)

UNH Overview

Presentation Outline

1. UNH Overview1. UNH Overview

2. RCM Model2. RCM Model

3.3. RCM Implementation ProcessRCM Implementation Process

Why RCM?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

RCM Model

The National ContextA survey completed in 19961 by NACUBO found: 11% of Private Higher Ed institutions employ a decentralized budget

model (75 surveyed) .06% of Public Higher Ed institutions employ a decentralized budget

model (160 surveyed)

A survey completed in 20002 by the Cornell Higher Education Research Institute found:

47% of Private Higher Ed institutions employ a decentralized budget model (71 surveyed)

8% of Public Higher Ed institutions employ a decentralized budget model (127 surveyed)

1 RCM as a Catalyst, NACUBO Business Officer. 8/19972 Survey of the Resource Allocation Methodologies Employed at Public and Private Research and

Doctoral Universities. Cornell Higher Education Research Institute, 1/4/2000.

RCM Model

Old

Budget

System

Old

Budget

System

Institutional Revenue- Tuition- Indirect Cost Recovery- State AppropriationRevenue

UNH Divisions- Colleges/Library- Research and PublicService Units- Auxiliary Operations

Direct Expense- Payroll- Support- Debt service

University Budget Panelallocates revenue to

departments in form of $142million E&G Budget

Department (Direct) Revenue- Grant/Contracts- RestrictedGifts/Endowment- Sales of goods/services- Fees

Institutional Overhead (Service Units)- Facilities- CIS- Student Affairs- VP Research- General Admin- Academic Affairs

RCM Model

RCM

Budget

System

RCM

Budget

System

RCM Model

Revenue- Tuition- Indirect Cost Recovery- State AppropriationRevenue- Direct Revenue (Grant,Gift, Sales, Fees, etc.)

RC Units- Academic- Research- Auxiliary

Direct Expense- Salaries, Wages & Benefits- Support- Debt service

Central Budget Committee

- Incremental fundingdecisions- $700k University Fundallocation- Service Unit Advisory Boardsubcommittee to reviewService Units if necessary

Institutional Overhead- Facilities- CIS- Student Affairs- VP Research- General Admin- Academic Affairs

RC Units RCM Model

Colleges and Related Service Units

College of Life Sciences and AgricultureCollege of Liberal ArtsCollege of Engineering and Physical SciencesWhittemore School of Business and EconomicsSchool of Health and Human servicesUNH - Manchester Library

Student and Community Life Units

Student AffairsHousingHospitality ServicesIntercollegiate AthleticsWhittemore Center Arena

Research and Public Service Units

Cooperative ExtensionResearch and Public ServiceNew Hampshire Public TelevisionInstitute for Earth, Oceans, and Space

Governance, Advancement andInfrastructure Units

Facilities ServicesComputing and Information ServicesGeneral AdministrationAcademic Affairs

RCM Principles

1. Create incentives for good management

2. Fairness/Simplicity

3. Unit plans must align with University’s mission and strategic plan

4. Smooth transition - no redistribution of resources

5. Credible governance mechanisms required to prevent unhealthy internal competition

6. Same rules for all operations – academic, research, auxiliary, administrative

RCM Model

RCM Principles, cont.

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. Each RC unit determines how to manage RCM within

their unit.11. RCM is not a cost accounting model but rather a

general incentive/allocation model.

RCM Model

RC Unit Revenues*Direct revenues - fees, sales of goods/services, gifts, grants/contracts, endowment income

Allocated revenues: Undergraduate tuition - based on weighted credit

hours taught over the past two years. Weights are based on historical average expense per credit hour.

Graduate tuition - based on enrollment State Appropriations - based on faculty salaries Indirect Cost Revenue - based on actual indirect costs

generated

* Go to RCM Allocations for more details

RCM Model

RC Unit Expenses*

Direct Expenses - salaries, wages, fringe benefits, equipment, travel, supplies, other direct expenses.Allocated expenses (overhead):

Facilities Services (maintenance, utilities, housekeeping, grounds and roads, R&R) - based on net square feet ($15.40 per NSF)

General Administration (President, Research, Finance & Administration, Student Affairs, and support units reporting to VP’s) - based on prior fiscal year revenues and personnel expenses. Average rate – 11% of total revenues.

Academic Affairs (Provost, Registrar, Financial Aid Office, Admission and other units reporting to Provost) - based on prior fiscal year revenues and personnel expenses. Average rate – 7% of total revenues.

* Go to RCM allocations for more details

RCM Model

“Balancing Adjustment”Major principle of RCM was that no unit would begin

better

or worse off than they would have been under the old

system –thus they were ‘held harmless’

A "balancing adjustment" was used to bring Units into RCM

in a "revenue neutral" budget position

Balancing adjustments are permanent but not inflatedRC Unit FY01 Original Budget

"Old"Budget System RCM

Direct revenues 1,000,000$ 1,000,000$ UNH budget allocation 19,000,000$ Allocated revenue 27,000,000$ Balancing adjustment 2,000,000$ Total revenues 20,000,000$ 30,000,000$

Direct expenditures 20,000,000$ 20,000,000$ Allocated expenditures 10,000,000$ Total Expenditures 20,000,000$ 30,000,000$

Net -$ -$

RCM Model

The University Fund

Balancing adjustments do not inflate and are funded from state appropriations.

Inflation proceeds become the “University Fund”

“University Fund” is flexible central funding to allocate based on strategic priorities of the institution

Managed by the Central Budget Committee (CBC)

Units make requests via strategic plans to their VP. VP brings requests before the CBC. CBC decides to provide permanent, one time or no funding.

RCM Model

ReservesUnder 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 (initially 1% of prior year expenditures and transfers).

RC units can access reserves – up to 1/3 of balance with Dean/Director approval only; remainder with VP approval.

Unit reserves reduce dependence on limited central reserves

RCM Model

RCM OldFY01 REVENUE: Budget BudgetStudent Fees 205,100$ 205,100$ Other Income 292,005$ 292,005$ University "Block Grant" 25,722,273$ Tuition 38,753,653$ -$

State Appropriations 5,456,715$ -$ Indirect Cost Revenue 779,103$ Total Revenues 45,486,575$ 26,219,378$ Less: Financial Aid 8,775,135$ -$ Net Revenues 36,711,440$ 26,219,378$

FY01 EXPENSES:Salaries/Labor/Benefits 24,451,536$ 24,451,536$ Repairs and Renovations (R&R) 20,000$ 20,000$ Departmental Supplies and Misc Expense 1,684,802$ 1,684,802$ Specific Charges/Transfers 10,141$ 10,141$ Equipment 52,899$ 52,899$ Subtotal - Personnel and Support 26,219,378$ 26,219,378$ General Assessment 5,500,346$ Academic Affairs Assessment 3,161,785$ Facilities Assessment 2,433,327$ Total Assessments 11,095,458$ -$ Total Expense 37,314,835$ 26,219,378$

Net (Balancing Adjustment) (603,395)$ -$

Academic Unit:

RCM Model

Units in Financial DifficultyDeans and Unit Directors as well as responsible VP’s are held accountable for unit performance

Units that have operating deficits are required to: Submit a mitigation plan describing how they plan to

resolve the deficit over a defined period of time Meet with the CFO and responsible VP on a quarterly

basis to provide updates

RCM Model

Presentation OutlinePresentation Outline

1. UNH Overview1. UNH Overview

2. RCM Model2. RCM Model

3.RCM Implementation Process 3.RCM Implementation Process

The ProcessThree 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

RCM Implementation

The Process, cont.Site visits to other Universities with decentralized budgeting.

Brought administrators, Deans and faculty to meet with counterparts. 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

Shared Governance

Central Budget Committee The governing group on budget policy and financial planning for

the campus community. Overall steward of RCM Reviews fee increases 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

University Curriculum and Academic Policies Committee Advisory to Provost – monitors academic quality and curriculum

issues. Comprised of Provost, 11Tenured Faculty, 2 Students, Chair of

Academic Standards and Advising Committee

RCM Implementation

Academic Concerns About RCMConcerns:• 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 revenueResponse:• 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.

RCM Implementation

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.

June, 2006 – report due to the President

Keys to Successful 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.

RCM Implementation

Keys to Successful Keys to Successful Implementation, cont.Implementation, cont.

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

RCM Implementation

What Would We DoDifferently?

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.

RCM Implementation

A Final ThoughtFrom our 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.“