RCM 401

1. Responsibility Center Management RCM 401 David Proulx, Associate VP for Finance EMail: david.proulx@unh.edu Budget Office Website: http://www.unh.edu/vpfa/budget RCM Website: http://www.unh.edu/vpfa/rcm

2. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation process

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.) RC Units - Academic - Research - Auxiliary 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

10. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation process

11. 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”

12. 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 • Indirect Cost Revenue - based on actual indirect costs earned

13. 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, Academic Affairs)

14. 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 – 6% to 10% of revenue. • RC units can access reserves above their minimum with RC unit head approval and below their minimum with VP approval. • Unit reserves reduce dependence on limited central reserves

15. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation Process

16. 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

17. 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

18. 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.

19. 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

20. Recent RCM Review • Goals of review: • Align RCM incentives with institutional goals • Identify source of central strategic funds • Simplify RCM as much as possible • Develop greater financial accountability for all RC units including central service units • Implement strong incentives for net revenue growth • Changes/enhancements to be implemented in FY12: • Central administration funding formula • Credit hour weights/tuition allocations • Slight percentage change in F&A recovery • State funding allocation

21. RCM 401 Presentation Outline 1. Overview 2. Allocation Methodologies 3. Results thus far 4. Implementation Process

22. RCM 101 The Process RCM Implementation • Three 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

23. RCM 101 The Process, cont. RCM Implementation • Site visits to other Universities with decentralized budgeting. • Brought administrators, Deans and faculty to meet with counterparts. Click here to see the summaries of those site visits. • 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

24. RCM 101 • Academic Concerns About RCM • Concerns: • 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 revenue • Response: • 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

25. RCM 101 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/VPFA • FY09- second review – simplification and alignment with mission

26. RCM 101 Keys to Successful Implementation RCM 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.

27. RCM 101 Keys to Successful Implementation, cont. RCM Implementation • Simplicity – most managers do not have financial backgrounds and should not devote significant parts of their time to their budget. They need to be able to understand the model and understand the financial effects of decisions quickly and easily • Full-time staff – dedicate full-time staff member to coordinate project • Business support structure – each unit must have access to financial expertise to be successful • Site visits – go see what others are doing and learn from their experiences • Avoid using acronyms such as RCM, RCB, DBS – they take on a meaning of their own and impede progress. • Timely and comprehensive management reporting.

28. RCM 101 What Would We DoDifferently? RCM Implementation • 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. • Indirect cost return to PI’s. Kept historical allocation.

29. RCM 101 A Final Thought From our prior 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.“

30. 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