Responsibility Centered Management

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Responsibility Centered Management

• University Planning Council
• 800-930 a.m.
• Union, Room 418

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Newspaper Headlines
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Newspaper Headlines
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Newspaper Headlines
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Newspaper Headlines

• The New York Times
• Editorials/Op Ed
• Colleges Caught in a Vise by Stanley Fish
• September 18, 2003
• Taxpayers estimate that 75 of a universitys
  operating costs are covered by public fundsthe
  figure is just 25 and heading downward
• John Boehner Howard McKeon (Republicans on the
  House Education Committee) issued The College
• Cost Crisis holding that institutions of higher
  education are not accountable enough to parents,
  students and taxpayersthe consumers of higher
  education.

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Newspaper Headlines

• Colleges Caught in a Vise (continued)
• Howard McKeon bill to cut federal financing to
  colleges whose tuition hikes are more than double
  the rate of inflation or the consumer price
  index.
• Even if states impose salary and hiring freezes,
  they would be more than offset by increases no
  state government can control raises mandated by
  union contracts, skyrocketing utility and
  insurance rates, the cost of replacing worn-out
  equipment, the cost of replacing equipment
  declared obsolete after three years, the cost of
  buying equipment that did not exist 18 months
  ago, the cost of maintaining a crumbling physical
  plant, the cost of security measures deemed
  necessary after 9/11.

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Newspaper Headlines

• Colleges Caught in a Vise (continued)
• if a business were to find itself with rising
  costs and falling revenues it would top off
  unprofitable lines, close units, downsize the
  work force, relax quality control and, of course,
  raise prices to whatever level the traffic would
  bear. In university terms, this would mean
  offering fewer courses, closing departments,
  sending students elsewhere, skimping on advising,
  hiring the pedagogical equivalent of migrant
  workers, eliminating remedial programs, ejecting
  the students for whom remedial programs are
  necessary, reducing health and counseling
  services, admitting fewer students and inventing
  fees for everything from registration to
  breathing.
• If the revenues sustaining your operation are
  cut sharply and you are prevented by law from
  raising prices, your only recourse is to offer an
  inferior product.

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Newspaper Headlines

• USA Today
• Public Students Take Double Hit for College
  Funding Woes
• September 18, 2003
• Bruising state budget cuts to higher-education
  funding are shrinking class offerings and putting
  students in a double financial bind. First they
  face rising tuitions 40 this year in
  California 15 over two years in Virginia 40
  over three years in Iowa. Then, students closed
  out of required courses because of limited
  offerings face the prospect of paying for summer
  terms or extra semesters.
• Already the average student at a four-year public
  university graduates with 16,000 in debt. And
  extra year adds 4,500, excluding lost wages or
  living expenses.

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Newspaper Headlines

• Public Students Take Double Hit for College
  Funding Woes (continued)
• Virginia Gov. Mark Warner proposed a plan that
  would place more advanced college credits into
  the pockets of ambitious high school seniors.
• Colleges remain mostly untouched by the
  accountability movement that has swept K-12
  schools during the past decade. According to a
  report released this month by a congressional
  education committee, tuition increases can be
  avoided. Wasteful spending, not state budget
  cuts, are the real problems on campus..especially
  wasteful are costly research projects.

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Newspaper Headlines
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July 9, 2003 President Gates Issues Memo
Regarding Budget Update

• reductions will total 20,500,000
• The University will eliminate approximately 250
  positions. Because of the hiring freeze imposed
  last January, 211 of these positions currently
  are vacant. Thus, we are looking at over-all
  lay-offs of fewer than 40 people currently in
  jobs.
• It is obviously of little consolation to
  individuals directly affected by the lay-offs,
  but many other universities, both in Texas and
  elsewhere nationwide, are facing similar and, in
  fact, far worse cutbacks. For example, the
  University of Texas at Austin last week announced
  lay-offs affecting 140 employees.
• Nationwide, state funding for higher education is
  declining as a percentage of expenditures. Texas
  is no exception. Accordingly, the leadership of
  universities must be more rigorous in evaluating
  programs and performance, finding ways to cut
  costs, establishing priorities, and re-allocating
  resources in order to sustain and to improve the
  quality of education and scholarship. We must do
  our part to make the university as efficient and
  as cost-effective as we can consistent with our
  educational mission before turning to students
  and their parents for additional tuition. We must
  also invest in our future. Achieving these goals
  requires making choices, and that is always
  difficult. It is especially difficult when those
  decisions affect the lives of individuals in the
  university community - members of our family. We
  will continue to do all we responsibly can do to
  protect our Aggie family, but there will be times
  when we must make difficult and painful
  decisions.
• likely some anxiety caused by uncertainty about
  the budget.

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July 21, 2003 President Gates Issues Statement
Regarding Layoffs Announced Today   I regret to
announce that 35 members of our staff were
notified today they are being laid off because of
budget restrictions and reorganizations that are
part of the plans I outlined on July 8, 2003, to
redirect some campus activities and increase
program efficiencies.
 
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Texas Law H.B. 3015

• Sec. 54.0513. Designated Tuition
• (a) The governing board...may charge any student
  an amount designated as tuition that the
  governing board considers necessary for the
  effective operation of the institution.
• (b) A governing board may set a different
  tuition rate for each program and course
  level...to increase graduation rates, encourage
  efficient use of facilities, or enhance employee
  performance.

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Texas Law H.B. 3015 (cont.)

• Sec. 54.0515 Legislative Oversight Committee
• (e) ...each institution of higher education, as a
  condition to tuition deregulation ...reasonably
  implement the following
• (1) ...make satisfactory progress towards the
  goals provided in its master plan and in "Closing
  the Gaps"...
• (2) ...meet acceptable performance
  criteria...such as graduation rates, retention
  rates, enrollment growth, educational quality,
  ...minority participation, ...financial aid, and
  affordability

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Why Passage of H.B. 3015 The Creation of
an Education Marketplace

• Relatively Little Discretion in Budget
• 16.6 of State Budget is Discretionary
• Increasing Demands on the Discretionary Part
• of State Revenue
• Public Education
• Public Safety and Criminal Justice
• General Government
• Health and Human Services
• Higher Education

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Why Passage of H.B. 3015 The Creation
of an Education Marketplace (cont.)

• Political Agenda No New Taxes
• Responsibility of raising tuition and fees moved
  from the Legislature to the institution's board
• UT Austin Lobbied for Passage
• Campus at Capacity
• Students Willing to Pay for Reputation
• Desire to Move up in National Rankings

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Economic Outlook for Public Higher Education

• The federal government and now state governments
  are treating higher education as a private good
  rather than a public good.
• The responsibility and authority for raising a
  significant portion of the cost of operating
  institutions of higher education have been
  transferred to the institution (typically through
  boards of regents).

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Economic Outlook for Public Higher Education
(cont.)

• Students will be responsible for a larger share
  of the cost of higher education (tuition and
  fees). 1985 Texas started raising tuition.
• The shift from "state supported" to "state
  assisted" institutions of higher education will
  continue.

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UNT History

• Incremental Budgeting
• Base Level
• Incremented by Some Amount
• Needs
• Opportunities
• State Budget Capacity
• Political Process (Construction, Special Items)
• No incentives for improvement at the margin (cost
  reduction or revenue enhancement)
• No encouragement of a shared sense of
  responsibility
• Causes administrators to dispense massive numbers
  of small favors through a black box process

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Decentralized Budgeting

• Responsibility Centered Budgeting (Pennsylvania)
• Responsibility Centered Management (Indiana)
• Value-Centered Management Budgeting (So.
  Carolina)
• ETOB Every Tub on its Own Bottom (Harvard)
• Budget Redesign (New Hampshire)
• Budget Decentralization (New Hampshire)
• Revenue Centered Management (Southern California)
• Incentives for Managed Growth (Minnesota)

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References

• Cornell
• Indiana
• Ohio State
• UCLA (new president)
• U of Illinois
• U of Oregon
• U of Pennsylvania
• U of Southern California )
• U of Toronto

• U of South Carolina
• U of Michigan
• U of New Hampshire
• U of Minnesota
• Southern Illinois University (new president)
• U of Idaho
• Brandeis University

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References (cont.)

• Clemson University
• Harvard University
• Washington University of St. Louis
• Mercer University
• Cal Tech University
• Vanderbilt University
• Duke University
• Auburn University
• Clarkson University
• Purdue University

• Temple University
• West Chester University (PA)
• Central Michigan U. of Iowa
• University of Alaska
• University of Connecticut
• McGill University
• Florida International University
• RPI
• Claremont Graduate
• University of Denver

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Overview

• Decentralizing budgeting, regardless of name, is
  an arrangement used by a growing number of
  universities in which a unit's revenues and
  expenditures are largely determined by its own
  actions. It allows for an appropriate level of
  cross-subsidization among units, as well as for
  substantial central funds to encourage
  interdisciplinary activity and other such
  initiatives.
• Decentralized budgeting is a mechanism (tool) for
  allocating resources to schools, colleges and VP
  areas.

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Principles of Decentralized Budgeting

• The closer the decision maker is to the relevant
  information the better the decision is likely to
  be
• The degree of decentralization of an organization
  should be proportional to its size and
  complexity
• Authority should be commensurate with
  responsibility

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Principles of Decentralized Budgeting
(cont.)

• Clear rewards and sanctions are required
• Resource expanding incentives are preferable to
  resource dividing rules
• Requires use of a common information system and
  database and
• Outcome measures are preferable to input controls.

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Desirable Qualities of Decentralized Budgeting

• All costs and income attributable to each school
  or other academic unit should be assigned to that
  unit.
• Appropriate incentives should exist for all
  academic units to increase income and reduce
  costs.
• All costs of other support and service units
  should be allocated to the academic units.

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University of MichiganUniversity Budget Model
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Purpose of Decentralized Budgeting

• To allow resource allocation decisions to be
  driven by the values, core mission and academic
  and institutional priorities of the University.
• To provide a framework for decisions consisting
  of knowledge of the true resource flows
  throughout the University. RCM is a tool to
  assist the process of allocating resources to
  academic and institutional priorities.

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Purpose of Decentralized Budgeting
(cont.)

• To allow both academic and administrative units
  to participate in making resource allocation
  decisions. RCM helps realize the objectives of
  collegial governance.
• To allow us to verify the true costs of the
  educational process and better defend our tuition
  and fee decisions to external critics.

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Purpose of Decentralized Budgeting
(cont.)

• Decentralized Budgeting does not
• Produce any more money for an institution
• Set academic priorities.

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Potential Problems with Decentralized
Budgeting Systems

• Decisions are driven more by financial than
  academic considerations.
• Financial incentives might encourage
  inappropriate academic leadership and faculty
  behavior in schools/colleges.
• Tensions are exacerbated because financial
  performance is public and priorities are made
  clear.
• Public information invites meddling from Regents,
  Coordinating Board, and Legislators.

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Potential Problems with Decentralized
Budgeting Systems

• Units may create low-quality, large-enrollment
  courses.
• Units may limit enrollment of their students in
  other units.
• Units may not allow faculty to participate in
  interdisciplinary activities.
• Local optimization may prevent global
  optimization.
• The rich could get richer.

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Selected Handouts

• Curry, John R. and Strauss, Jon C. Whither
  Decentralized Management? Responsibility Center
  Management 25 Years Later. Paper presented in
  2001.
• Snyder, David Pearce, Edwards, Gregg, and Folsom,
  Chris. The strategic context of education in
  America 2000 to 2020part 1. On the Horizon.
  (MCB UP Limited, Volume 10 Number 2 2002, pp
  6-12.)
• Snyder, David Pearce and Edwards, Gregg. The
  strategic context of education in America 2000 to
  2020part 2. On the Horizon. (MCB UP Limited,
  Volume 11 Number 2 2003, pp 5-18.)

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Links

• University of South Carolina
• http//www.sc.edu/library/pubserv/value.html
• University of Idaho
• http//www.webs.uidaho.edu/ipb/rcm.htm
• Indiana University
• http//www.indiana.edu/vpcfo/economic_model/index
  .html
• University of New Hampshire
• http//www.unh.edu/rcm/
• University of Illinois-Urbana Champaign
• http//www.provost.uiuc.edu/provost/budget/budgeta
  ry.html
• Ohio State University
• http//www.rpia.ohio-state.edu/Budget_planning/Bud
  get_restruct.htm

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Action Plan

• Introduce the Concept of RCM
• Appoint Task Force to Study/Recommend Specific
  Version of RCM
• Study, evaluate, and determine if a version of
  RCM will provide UNT with an effective tool to
  assist in meeting new responsibilities.
• Collect information about alternative budgeting
  systems and tools to assist decision makers in
  determining tuition/fees.
• Hold public forums present options and collect
  feedback.
• Evaluate alternatives.

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Action Plan (cont.)

• Develop Recommendations
• Identify units to receive budget authority
• Identify operating parameters, e.g., carry
  forward, required balances, institutional funds
• Identify organization structure
• If Decision to go Forward
• Provide Training
• Operate Concurrently (neutral budget)
• Operate New System

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Task Force Membership
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Responsibility Centered Management

• University Planning Council
• 800-930 a.m.
• Union, Room 418