Transcript May 2015 Chancellor Study Group Budget Structures

Budget Study Group
Lori Worm, John Koker, Fred Yeo, M. Ryan Haley
26 May 2015
Where excellence and opportunity meet.™
Our Charge
 Outline UWO’s current budget model, including
strengths and weaknesses.
 Outline other budget models used in higher
education, including strengths, weaknesses, and
specific examples.
 Outline attributes of a well-functioning budget
model, with a focus on the university-tocollege/units budget level.
Desiderata: A Budget Model Should…
 be transparent, flexible, and include accountability
 incentivize cost controls and revenue generation
 align with strategic planning, mission, values, and shared
governance
 be installed efficiently
 balance the academic and economic aspects of higher
education
 encourage innovation
Current UWO Challenges
 No general tuition setting authority
 Four-year tuition freeze at below average levels
 Unable to charge market-based tuition rates because of tuitionprice regulation
 UWO has very low tuition within UWS
 Cost-to-continue funding will disappear
 Unpredictable budgets inhibit long range planning
 Faculty/staff salaries
 Time to graduation
 Enrollment needs
Five Budget Models of Higher Ed
 IBM: Incremental Budget Management
 RCM: Incentive-Based Budget Management
 PBBM: Performance-Based Budget
Management
 FBBM: Formula-Based Budget Management
 ZBBM: Zero-Based Budget Management
IBM In Brief
 Centralized – allocation determined by
university and sent to colleges/units
 Prior allocations have heavy influence
 Budgets are adjusted via increments
IBM: Advantages
 Relatively easy to administer
 Traditionally popular in higher education
 Can work well when GPR funding is
abundant
 Induces some stability in year-to-year
funding
IBM: Disadvantages
 Little incentive for colleges/units to innovate
 Little incentive for colleges/units to control
costs
 Little incentive to grow enrollment
 Can cause imbalanced workloads
 Tends to falter when GPR funding is low
 Reallocations are difficult
 Has a “passive” flavor
RCM In Brief
 Decentralized – college/unit budget is
generated not allocated
 Empowers deans and unit leaders
RCM: Advantages
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College/unit budgets are activity based
Inherently transparent; easy to understand
Clear accountability
Incentivizes enrollment growth and program
revenue generation
 Incentivizes cost controls
 Increasingly popular in higher education
RCM: Disadvantages
 Can cause curricular redundancies and
competition for students
 May induce too much focus on revenue
generation
 Can inhibit interdisciplinary programs
 Can be slow to install
 Requires budgetary acumen by college/unit
leaders
PBBM In Brief
 Semi-centralized
 Links budget allocation to performance in
areas such as
 Graduation rates
 Enrollment
 Job placement rates
PBBM: Advantages
 Generally quite flexible
 Allows for reallocations across
colleges/units based on performance and
need
 Incentivizes performance and outputs
 Allows administrators to directly steer
faculty actions
PBBM: Disadvantages
 Defining accurate performance metrics is
often difficult
 Performance targets can be gamed
 Monitoring costs can be high
 Dynamic benchmark problem
FBBM In Brief
 Centralized approach that uses extensive
formulae to allocate resources
 Clinical version of PBBM
FBBM: Advantages
 Once established, offers an automated
approach to resource allocation
 Can help ease political complications of
reallocating resources across colleges/units
 Instills a form of equity, insofar as the
formulae are able
FBBM: Disadvantages
 Formula creation can be contentious
 Requires numerous formulae, which can
become a labyrinth
 Can result in an over-reliance on formulae
 Formulae must be well calibrated to avoid
biased allocations
 Formulae can be gamed
ZBBM In Brief
 Centralized approach that re-zeros
college/unit budgets each year
 College/units then re-justify full allocation
each year
ZBBM: Advantages
 Forces colleges/units to fully justify all
expenses each year, and not just
incremental changes to their budgets
 Keeps colleges/units focused on producing
outcomes to aid the justification process
 Allows for reallocation of funds based on
need and performance
ZBBM: Disadvantages
 Budget requesting process is onerous
 “selling ability” vs. actual value
 Can devolve into IBM if central planners
rubber stamp the ongoing budget core
(e.g., faculty salaries) and focus instead
only on incremental changes
 Can induce unstable year-to-year funding
Current UWO Budget Model
 Typical IBM for decades
 Oddly timed budget request process
 Mostly a cost allocation
 Differential Tuition
 Segregated Fees
 Fee For Service
 Chargebacks
 Cost Recovery Programs (e.g., CAPP)
 Indirect Cost Recovery (Grants)
A Path Forward?
 Do more with less in the low-GPR reality
 Selecting a new budget model:
 Understand the core tenets of the “big five”
 Select the best model for university needs
 Create the “right flavor” of the chosen model
 Our inquiry suggests RCM to be the best fit
 Budget Model Installation Committee
Questions?
Thoughts?
Comments?
Where excellence and opportunity meet.™