American University

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American University
Budget Forum

• January 19, 2001

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Agenda Items

• FY2002 Budget Timeline
• Data Warehouse Update
• Quarterly Reviews
• Responsibility Center Management
• Year-end Processing

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FY2002 Budget Timeline

• Budget call from President on Nov. 28th
• Budget proposal due Dec. 22 to the President
• Senate Finance Committee's presentation to Full
  Senate on February 7th
• BOT meetings on Feb 22 and 23
• Budget allocation letters to the provost/VPs in
  early March
• Special report from the President to the
  Community in early
  March
• Line-item budget to the Budget Office by the end
  of March
• Testing and uploading budget data in April
• FY2002 budget available on-line on May 1

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Data Warehouse Update

• Secondary User Access has been provided
• Security is maintained in the Budget Office
• Access is provided by 6-digit GL string
• Leave Balance Report Update
• Suggestions for improvement?

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Quarterly Reviews

• Feedback on quarterly graphical presentations
• Is it perceived as a useful management tool?
• Recommendations for improvement
• 3rd Quarterly Reports distribution

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• Responsibility Center Management (RCM)

at American University
Budget Office
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Responsibility Center Management

• Types of Budgeting Approaches
• Responsibility Center Management (RCM)
• - What is RCM?
• - Principles
• - Major Components
• - Benefits and Risks
• - Other Universities
• - Responsibilities of Administrative and
  Support Services
• - Implementation Questions
• Lessons Learned from the University of Southern
  California Visit
• Current RCM Models and Future Plans

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Types of Budgeting Approaches

• Zero Base Budgeting
• Incremental Budgeting
• Program Budgeting
• Responsibility Center Management (RCM)

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What is RCM?

• A conceptual framework for the development and
  implementation of a budget for university
  operations. It is designed to integrate academic
  planning and fiscal management. It provides an
  incentive for individual colleges and programs to
  gain greater rewards for better performance.
• RCM Interchangeably used with
• - Incentive Budgeting
• - Revenue Center Budgeting
• - ETOB (Every tub has its own bottom)

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Definitions

• Responsibility Center
• Auxiliary Center
• Cost Center
• Gross Revenues
• Direct Costs
• Indirect Costs
• Contribution to the university (i.e.,
  participation fee, common cost)
• Surplus/Loss
• University Bank
• Program Seed Money (Venture Capital)

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Principles of RCM

• Strengthens academic planning and builds upon
  strategic goals and financial management
  objectives
• Ties authority to accountability in a
  decentralized environment
• Provides autonomy for the dean or program head
• Facilitates multi-year academic and fiscal
  planning
• Shift from budget control to program performance
• Create a win-win situation
• University policies and guidelines still
  applicable

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Major Components of RCM

• Enrollment and revenue targets, including all
  sources of income such as research overhead
  income, gift income restricted to the RCM unit
• All direct costs
• Basis for a share of indirect costs
• Determine formula (e.g., indirect cost as a
  percent of revenue, I/E ratio)
• Return of year-end savings to units
• Reduction/reallocation of funds if revenue goals
  are not met

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Benefits and Risks

• Benefits
• - Financial incentive to those schools which
  exceed established goals
• - Strong sense of ownership
• - Fairness
• - Integrates strategic planning
• - Participatory management and open process
• - Optimize general and discretionary fund
  allocation

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Benefits and Risks

• Risks
• - Internal competition
• - Duplicated efforts
• - Pursuit of independent department goals at
  the expense of the university as a whole
• - Misunderstanding of cost allocations for
  support functions
• - Insufficient funds to promote
  institution- wide initiatives
• - Unexpected institutional obligations

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RCM at Other Universities

• University of Southern California
• Columbia University
• University of Pennsylvania
• Case Western Reserve
• Georgetown University
• Harvard University
• Indiana University
• Cornell University
• Stanford University
• Carnegie-Mellon University

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Responsibilities of Administrative and Support
Services

• Distribute management information on a timely
  basis
• Continue to periodically assess performance and
  communicate through audits and process
  improvement
• Ensure unit budget managers have budget and
  financial management skills and training
• Develop written plans to ensure high quality
  service in light of academic plans
• Communicate ongoing process improvements through
  benchmarking

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How to Determine RCM Formula

• 1. Historical Trend Review
• 2. Overhead model allocating indirect costs
• 3. Institutional Funding Initiatives
• 4. Consider a growth factor
• 5. Establish of revenue for unit to keep and a
  minimum revenue expectation amount

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What We Learned from USC

• The Provosts Subvention pool must be large
  enough to start new initiatives.
• Time is wasted and nothing is accomplished by
  overstudying the participation rate.
• Money is wasted if indirect expenses are required
  to be measured across the board.
• Academic Planning and Responsibility are the key
  to success. Departments cannot act outside the
  borders of their own approved academic plans.

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What We Learned from USC (continued)

• Accumulating savings in the central bank ensures
  long term health.
• General education must be defined in a way that
  prevents every schools entry into the market for
  the sake of revenues.
• Administrative operations have traditionally been
  accountable through a series of audits, process
  improvements, and management decisions. Extra
  scrutiny does not accomplish any real savings or
  improvements.

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Current RCM Models Future Plans

• Current RCM Model
• Washington College of Law
• WAMU 88.5FM Radio Station
• Institutes
• Kogod School of Business
• Future Plans (FY2002)
• Washington Semester
• Residence Hall operations

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References