Responsibility Center Management

David Proulx, Senior Financial Analyst - RCM Project Manager EMail: [email protected] Budget Office Website: http://www.unh.edu/budget RCM Website: http://www.unh.edu/rcm

Why RCM?

RCM Model

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

The National Context

RCM Model

  A survey completed in 1996 1 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 2000 2 Research Institute found:   by the Cornell Higher Education 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. 8/1997 2 Survey of the Resource Allocation Methodologies Employed at Public and Private Research and Doctoral Universities. Cornell Higher Education Research Institute, 1/4/2000.

Old Budget System

Institutional Revenue - Tuition - Indirect Cost Recov ery - State Appropriation Rev enue University Budget Panel allocates rev enue to departments in form of $142 million E&G Budget Institutional Overhead (Service Units) - Facilities - CIS - Student Affairs - VP Research - General Admin - Academic Affairs UNH Divisions Colleges/Library - Research and Public Serv ice Units - Auxiliary Operations Department (Direct) Revenue - Grant/Contracts - Restricted Gifts/Endow ment - Sales of goods/serv ices - Fees RCM Model Direct Expense - Payroll - Support - Debt serv ice

RCM Budget System

Revenue - Tuition - Indirect Cost Recovery - State Appropriation Revenue - Direct Revenue (Grant, Gift, Sales, Fees, etc.) RCM Model 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 Central Budget Committee

- Incremental funding decisions - $700k University Fund allocation - Service Unit Advisory Board subcommittee to review Service Units if necessary

RC Units

RCM Model Colleges and Related Service Units Research and Public Service Units College of Life Sciences and Agriculture College of Liberal Arts College of Engineering and Physical Sciences Whittemore School of Business and Economics School of Health and Human services UNH - Manchester Library Student and Community Life Units Student Affairs Housing Hospitality Services Intercollegiate Athletics Whittemore Center Arena Cooperative Extension Research and Public Service New Hampshire Public Television Institute for Earth, Oceans, and Space Governance, Advancement and Infrastructure Units Facilities Services Computing and Information Services General Administration Academic Affairs

RCM Model

RCM Principles

1. Create incentives for good management 2.

3. Fairness/Simplicity Unit plans must align with University’s mission and strategic plan 4. Smooth transition - no redistribution of resources 5.

6.

Credible governance mechanisms required to prevent unhealthy internal competition Same rules for all operations – academic, research, auxiliary, administrative

RCM Principles, cont.

RCM Model

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 * See appendix for more details

RC Unit Expenses*

RCM Model

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.

* See appendix for more details

“Balancing Adjustment”

RCM Model

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 inflated

RC Unit FY01 Original Budget

Direct revenues UNH budget allocation Allocated revenue

"Old" Budget System

$ 1,000,000 $ 19,000,000 Balancing adjustment Total revenues $ 20,000,000

RCM

$ 1,000,000 $ 27,000,000 $ 2,000,000 $ 30,000,000 Direct expenditures Allocated expenditures Total Expenditures Net $ $ 20,000,000 20,000,000 $ $ 20,000,000 $ 10,000,000 $ 30,000,000 $ -

The University Fund

RCM Model

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.

Reserves

RCM Model

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 (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

Units in Financial Difficulty

RCM Model

Deans 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

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.

Spring, 2006 – report due to the President

Current Status

Fourth year of RCM – overall a success

Current Status

Increased discussion about budgetary impact of decisions among faculty and deans More collaborative budget process Has improved attentiveness to student needs – more sections, new programs, restructuring of existing programs Faculty workloads and program reviews have occurred Service units more attentive to customers and redesigning processes to increase efficiency

Current Status, cont.

Current Status

RCM has facilitated strategic planning at the unit level Institutional leaders focus on institutional strategic issues vs. small dollar budgetary requests Library reviewing journal collections and alternative forms of information services Unit budgets vary with activity (slide) – some units in financial difficulty Reserves have increased significantly (slide)

Annual Growth in General Fund Budgets FY01 - FY05

Whittemore School of Business and Economics UNH Manchester Research and Public Service College of Engineering and Physical Sciences Institutional * College of Life Sciences and Agriculture School of Health and Human Services College of Liberal Arts Library Facilities Services Computing and Information Services Central Administration 13.14% 8.68% 7.13% 6.79% 6.72% 6.55% 6.38% 6.21% 6.15% 6.01% 5.92% 5.12% 0% * USNH cent ral s ervice co s t , ins urance and UNH co nt ing ency.

2% 4% 6% 8% 10% 12% 14% 4/25/2020

General Fund Reserve Summary

$16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ 1995 1996 1997 1998 1999 2000

Fiscal Year

2001 2002 2003 Note: Increases in General Fund Reserve are the result of the transition to RCM, and the ability of all RC Units to keep their fund balances. Many units have planned uses for these fund balances. While the reserve levels are much improved, UNH remains undercapitalized. T o put the reserve balance in perspective, if UNH were an indivitual making $45,000 per year, that person would have $2,052 in savings. 2004 RC Unit Reserves Institutional Reserve

A Final Thought

From 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.“