Frequently Asked Questions
- What is Responsibility Centered Management (RCM)?
- How is RCM tied to strategic planning and decision making?
- Why did we change to a different budget system?
- How do funds flow in RCM?
- How does it compare to our previous budget system?
- How was the RCM system developed?
- Have other universities done this, and what have they learned?
- What was the timeline for the RCM project?
- Why was it important to have the guiding principles established by the Steering Committee?
- What is a Responsibility Centered Unit (RCU)?
- Are RCUs be charged rent for space and how can they afford that?
- How is the Strategic Planning and Budget Advisory Committee (SPBAC) involved in the RCM process?
- How is the integrity of academic programs and course offerings be maintained under RCM?
- How does a college operate under RCM?
RCM was an inherent part of the Never Settle strategic planning effort. Synergy #5 stated the UA will “Implement a business model that rewards productivity, effectiveness, and entrepreneurship.” RCM follows our strategic direction—it doesn’t set it.
The UA moved to RCM to accomplish three primary goals, consistent with our core mission and values:
- Enhance transparency about both revenues and the costs of operating our institution
- Place greater and clearer authority and accountability at the level of Deans and Vice Presidents
- Strengthen motivations to achieve and optimize revenue generation and cost effective practices
The model takes into the account the all revenue allocations, the facilities cost and the support costs to come up with a funding change that is applied to the overall College budgets. The amount is a lump sum that is posted directly at the college level. The distribution of funds within the college to the departments will be the responsibility of the Dean’s office. Colleges have been directed to allocate funds within their college in a manner which is consistent with the principles of RCM. In addition to allocating funds based on levels of activity, it is important the college provide subventions between departments and maintain the flexibility to provide for strategic investments within the college.
RCM is not designed to provide direct departmental funding as the changes in funding from year to year can vary greatly and become unmanageable. The need to be able to provide subventions between departments is critical in maintaining stability within the university and the ability to strategically invest is critical to the growth of the institution.
- Our previous approach used an incremental budget model in which new programs were funded incrementally based on requests. Deans and unit directors negotiated with the administration to determine annual changes to budgets. These changes were incremental, based on the budget from the prior year.
- In RCM the incremental changes for colleges are based on formulae that take into consideration teaching activities, research, space, and other operational changes such as increases or decreases in faculty or staff. The application of such formulae to both revenue allocation and cost assessment provide transparency in the budget-setting process.
- Successful implementation of RCM requires funds to be set aside for the creation of strategic investment pools.
President Hart asked Provost Comrie to continue the effort to build and implement an incentives-based transparent budget model expanded to include both revenues and costs.
- Provost Comrie convened a Steering Committee that included representation from across campus of shared governance groups representing students, faculty, deans, directors, and administrators.
- Nine subcommittees were established to focus on key subject areas. The Strategic Planning and Budget Advisory Committee (SPBAC) was represented on each subcommittee as well as the Steering Committee. Subcommittee members met regularly, established guiding principles for their work, and developed initial budget modeling recommendations based on 15 Guiding Principles approved by the Steering Committee. Approximately 80 people took part in the Steering Committee and subcommittees combined.
- Initial recommendations from the subcommittees were considered by the Steering Committee. These recommendations were integrated into an iterative modeling and testing phase which shaped the final recommendations coordinated across all the dimensions of RCM.
- Final recommendations were incorporated into a report for President Hart’s review and approval.
Many universities, both private (e.g., Harvard, Duke, Johns Hopkins, Syracuse) and public (e.g., the University of Michigan, University of Delaware, University of New Hampshire) use some form of RCM. The UA adapted RCM to fit our distinctive qualities, culture, organizational elements and mix of mission-related goals.
RCM was developed and has evolved over some 35 years with the University of Pennsylvania being the first higher education institution to implement RCM in 1974. A 2011 Inside Higher Ed survey indicated “interest in responsibility center management among public universities is soaring, with more than 21 percent of public doctoral institutions reporting that they use the RCM model."
Lessons learned, from which we benefited, included:
- Making the transition to RCM can be challenging, but it is considered the best approach and solution for collaborative and responsible financial management going forward.
- Implementing RCM requires ongoing conversations between academic and administrative units to manage changes, take advantage of opportunities, and ensure commitment to core mission and values.
- While the general intent of RCM implementation is to empower academic units, the institutions that have derived the greatest benefits have also learned that they require trust, collaboration and a common sense of purpose among all units in order to be successful.
The transition to the current RCM model went through several stages between FY 2013 and FY 2016.
The first stage was a planning stage between Fall2012 and Fall2013. During this stage the President stated the purpose and guidelines the RCM system should follow. The steering committee and sub-committees were formed and developed guiding principles and initial recommendations where formed.
The second stage was an initial design phase between Spring2014 and Summer2014. During this stage iterative modeling and testing was done to integrate the recommendations from the committee in to a single model, reporting began to be developed and governance models were discussed.
The third stage was the final design stage between Fall2014 and Spring2015. The FY2015 budget was formulated to prototype RCM systems in a pilot modeling year to further examine and compare outcomes before making a final recommendation to the president. This process included several opportunities for campus feedback during Fall2014. Governance processes and improved reporting were also implemented during the final design stage.
The last stage of the implementation process was implementation and monitoring between Summer2015 and Spring2016. Activity during FY2015 was factored into RCM resulting in the FY 2016 being the first year that RCM changed a unit’s budget.(i.e., July 1, 2015). RCM took effect only after the final model was tested, commented on via a campus feedback process, approval by the president, and reporting mechanisms made available to the university community.
The guiding principles established by the Steering Committee used while evaluating alternatives for decisions kept the focus on the right things and gave us the ability to test the various versions of a RCM model design. Our new financial budget model needed to reflect and strengthen our shared values and priorities.
- Under RCM, there are two basic types of RCU: revenue center units and service center units.
- The primary revenue center units are the colleges, in addition to auxiliary units which earn their own revenues. Nonacademic support units—administration and institutional support groups, student support groups, and facilities costs—are examples of service center units.
- RCUs are responsible for a particular function or functions within the University and are under the authority of one person (e.g., a Dean or Vice President).
- Under the RCM model, RCUs are responsible for
- all financial decisions as well as managing revenues, expenditures, and fund balances
- developing strategic and financial plans that align with the overall academic and university plans
The university historically charged the cost of space against central resources, reducing the amount of revenue available to distribute to colleges. In RCM, RCU's RCM budgets were increased by the cost of the space they occupied at the implementation of RCM. The cost of space is then charged back to RCUs. In other words, at the start of RCM nothing changed. But, going forward, as an RCU changes the amount of space that is assigned to them their costs will change so the efficient use of space benefits an RCU.
SPBAC was very involved with the RCM implementation as part of its mission to work with the president, provost, and the University community on strategic planning and budget issues. In addition to having representation on the RCM committees and the steering committee, SPBAC assists in communicating RCM updates to the campus.
Leadership is centered within the colleges hence academic considerations can be given an even greater priority as decisions are made by those closest to the impact of those decisions - at the college, department and unit levels.
College decisions should be based on mission and academic priorities. College leadership should
- be familiar with their internal cost structure
- understand their revenues and costs
- work within university and college shared governance structures
Units need to be able to predict with some level of accuracy changes in enrollment, space requirements, degrees, research expenditures, etc. These have an effect on both revenues and costs to their budgets. Departmental business officers should be familiar with the relevant components of the RCM model.
- Components of the model to be familer with:
- Tuition (All Types)
- State Appropriation
- Revenue associated with Sponsored Activity
- Cost associated with Sponsored Activity
- Cost associated with Space
- Cost associated with Administration, Institutional Support, and Strategic Investments
- Enrollments and credit hours and how to project these into the future for undergraduate and graduate students
- How graduate students are funded