Last updated 5/4/2004 David Proulx, Senior Financial Analyst - RCM Project Manager Budget Office Website: RCM Website: Responsibility Center Management

Presentation Outline 1. UNH Overview 2. RCM Model 3.RCM Implementation Process

UNH Background Public land, sea and space grant University 11,739 undergraduate; 2,324 graduate students Part of the University System of New Hampshire (USNH) – separate board of trustees 17% of current fund budget from State 50 th in state support per capita UNH Overview

UNH Background, cont. University maintains own fund balance $360 million current fund budget $95 million – research expenditures UNH Overview

VISION The University of New Hampshire will be distinguished for combining the living and learning environment of a small New England liberal arts college with the breadth, spirit of discovery, and civic community of a land grant research institution. UNH Overview

Unit budgets Reserves Central Budget Committee Provost’s Strategic Planning Initiative Private Giving Process Redesign (Business Service Centers) Responsibility Centered Management Financial Reporting Systems (BANNER) Planning Resource Management Implementation Vision Institutional Effectiveness Evaluating Responsibility Centered Management Evaluating Academic Plan Monitoring Performance Financial Perspective Academic Perspective Stakeholder Perspective Innovation and Learning Perspective Academic Planning Master Plan Capital Campaign RC Unit Planning College/School plans Technology Plans Staffing Plans Financial Plans Outreach and Research Professional Development Assessment Process (Balanced Scorecard) UNH Overview

Presentation Outline 1. UNH Overview 2. RCM Model 3.RCM Implementation Process

Why RCM? 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 RCM Model

The National Context A survey completed in by NACUBO found: 11% of Private Higher Ed institutions employ a decentralized budget model (75 surveyed).06% of Public Higher Ed institutions employ a decentralized budget model (160 surveyed) A survey completed in by the Cornell Higher Education Research Institute found: 47% of Private Higher Ed institutions employ a decentralized budget model (71 surveyed) 8% of Public Higher Ed institutions employ a decentralized budget model (127 surveyed) 1 RCM as a Catalyst, NACUBO Business Officer. 8/ Survey of the Resource Allocation Methodologies Employed at Public and Private Research and Doctoral Universities. Cornell Higher Education Research Institute, 1/4/2000. RCM Model

Old Budget System Old Budget System RCM Model

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

RC Units RCM Model Colleges and Related Service Units College of Life Sciences and Agriculture College of Liberal Arts College of Engineering and Physical Sciences Whittemore School of Business and Economics School of Health and Human services UNH - Manchester Library Student and Community Life Units Student Affairs Housing Hospitality Services Intercollegiate Athletics Whittemore Center Arena Research and Public Service Units Cooperative Extension Research and Public Service New Hampshire Public Television Institute for Earth, Oceans, and Space Governance, Advancement and Infrastructure Units Facilities Services Computing and Information Services General Administration Academic Affairs

RCM Principles 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 RCM Model

RCM Principles, cont 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 Each RC unit determines how to manage RCM within their unit RCM is not a cost accounting model but rather a general incentive/allocation model. RCM Model

RC Unit Revenues* Direct revenues - fees, sales of goods/services, gifts, grants/contracts, endowment income Allocated revenues: Undergraduate tuition - based on weighted credit hours taught over the past two years. Weights are based on historical average expense per credit hour. Graduate tuition - based on enrollment State Appropriations - based on faculty salaries Indirect Cost Revenue - based on actual indirect costs generated * Go to RCM Allocations for more detailsRCM Allocations RCM Model

RC Unit Expenses* Direct Expenses - salaries, wages, fringe benefits, equipment, travel, supplies, other direct expenses. Allocated expenses (overhead): Facilities Services (maintenance, utilities, housekeeping, grounds and roads, R&R) - based on net square feet ($15.40 per NSF) General Administration (President, Research, Finance & Administration, Student Affairs, and support units reporting to VP’s) - based on prior fiscal year revenues and personnel expenses. Average rate – 11% of total revenues. Academic Affairs (Provost, Registrar, Financial Aid Office, Admission and other units reporting to Provost) - based on prior fiscal year revenues and personnel expenses. Average rate – 7% of total revenues. * Go to RCM allocations for more detailsRCM allocations RCM Model

“Balancing Adjustment” 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 RCM Model

The University Fund Balancing adjustments do not inflate and are funded from state appropriations. Inflation proceeds become the “University Fund” “University Fund” is flexible central funding to allocate based on strategic priorities of the institution Managed by the Central Budget Committee (CBC) Units make requests via strategic plans to their VP. VP brings requests before the CBC. CBC decides to provide permanent, one time or no funding. RCM Model

Reserves 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 RCM Model

Academic Unit: RCM Model

Units in Financial Difficulty Deans and Unit Directors as well as responsible VP’s are held accountable for unit performance Units that have operating deficits are required to: Submit a mitigation plan describing how they plan to resolve the deficit over a defined period of time Meet with the CFO and responsible VP on a quarterly basis to provide updates RCM Model

Presentation Outline 1. UNH Overview 2. RCM Model 3.RCM Implementation Process

The Process 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.Committee page 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.here Open forums held RCM Implementation

The Process, cont. Site visits to other Universities with decentralized budgeting. Brought administrators, Deans and faculty to meet with counterparts. 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 Operating manual developed – hard copy and on- line RCM Implementation

Shared Governance Central Budget Committee The governing group on budget policy and financial planning for the campus community. Overall steward of RCM Reviews fee increases 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 RCM Implementation

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

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. June, 2006 – report due to the President

Keys to Successful 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. RCM Implementation

Keys to Successful Implementation, cont. 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. RCM Implementation

What Would We Do Differently? 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. RCM Implementation

A Final Thought From our 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.“