Responsibility Center Management: Enhancing Budget Flexibility & Oversight

1. Responsibility Center Management RCM 401 David Proulx, Assistant Vice President for Financial Planning and Budgeting EMail: david.proulx@unh.edu Budget Office Website: http://www.unh.edu/budget RCM Website: http://www.unh.edu/rcm

2. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. 5 year review

3. RCM 401 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

4. RCM 401 Overview Old Budget System

5. Revenue - Tuition - Indirect Cost Recovery - State Appropriation Revenue - Direct Revenue (Grant, Gift, Sales, Fees, etc.) Central Budget RC Units Committee - Academic - Incremental funding - Research decisions - Auxiliary - $700k University Fund allocation - Service Unit Advisory Board subcommittee to review Service Units if necessary Direct Expense Institutional Overhead - Salaries, Wages & Benefits - Facilities - Support - CIS - Debt service - Student Affairs - VP Research - General Admin - Academic Affairs RCM 401 Overview RCM Budget System

6. RCM 401 RC Units Overview

7. RCM 401 RCM Principles Overview 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

8. RCM 401 RCM Principles, cont. Overview • RCM principles/formulas apply to the RC unit level. • RC units receive all revenue and are responsible for all expenditures generated by their activities. • RC units carry forward excess funds from one year to next and manage reserves at the unit level. • RCM is not a cost accounting model but rather a general incentive/allocation model.

9. RCM 401 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 • 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

10. RCM 401 National Context Overview • 47% of Private vs. 8% of Public Universities employ an RCM model • UNH Presented at EACUBO Annual Convention • Representatives from numerous institutions visited UNH to explore RCM (UMASS, UVM, URI, UCONN, UMAINE, UColorado at Denver,Southern Mississippi, Eihme University in Japan, Ohio University, Queen’s University, Ontario, University of Alberta and Universities from Russia, Switzerland and Pakistan) • Numerous consultations with other institutions (South Carolina, North Texas, Idaho, University of Wisconsin, Iowa State, Pace University, Kutztown University) • Wrote a chapter in a NACUBO book about RCM. • UNH RCM Website receives 10,000 hits per year. *Survey of the Resource Allocation Methodologies Employed at Public and Private Research and Doctoral Universities. Cornell Higher Education Research Institute, 1/4/2000.

11. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. 5 year review

12. RCM 401 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”

13. RCM 401 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 (30%) - based on faculty salaries • Indirect Cost Revenue - based on actual indirect costs earned

14. RCM 401 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) - based on prior year revenues and personnel expenses • Academic Affairs (Provost, Registrar, Financial Aid Office, Admissions) - based on prior year revenues and personnel expenses

15. RCM 401 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 (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

16. RCM 401 “Balancing Adjustment” Allocation Methodologies • 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

17. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. 5 year review

18. RCM 401 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

19. RCM 401 Space Utilization Results • Colleges transferring ”college controlled” classrooms to Registrar’s Office to be available for University use • Review of lab utilization and the reassignment of lab space at COLSA and CEPS

20. RCM 401 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.

21. RCM 401 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

22. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. 5 year review

23. RCM 401 Timeline • Dec. 2004 – April 2005 – open discussions with all RC units on RCM • April 2005 – August 2005 – Data accumulation and review structure development • August 2005 – January 2006 – Subcommittee review and Steering Committee recommendations • February 2006 – Central Budget Committee Review and President decision • July 1, 2006 – Implementation of changes

24. RCM 401 Participation • Steering Committee and 7 subcommittees • 17 meetings and 2 open forums for information gathering/feedback. 2 open forums for initial recommendations.

25. RCM 401 Review Results • RCM works well for UNH and should remain as budgeting tool • Enhance communications in some areas • Allocation formulas changed to create better incentives/more alignment with Academic Plan • Elimination of hold harmless allocation and review of assessment funded units • RCM should be reviewed again in FY11

26. RCM 401 More Information The RCM review report and other information on RCM can be found at the UNH RCM Website at www.unh.edu/rcm