1. Responsibility Centered Management (RCM) Case Study: Engineering and Technology By H. Öner Yurtseven Indiana University Purdue University Indianapolis March 1, 2006 Asian Institute of Technology, Thailand

2. Indiana University Largest state funded university in Indiana Eight campuses with 92,619 students Two core and six regional campuses –Indiana University, Bloomington (36,200 students) –Indiana University Purdue University Indianapolis (28,193 students) –Each campus has a chancellor reporting to Indiana University President –IUPUI Chancellor is also Indiana University Executive Vice President

3. Indiana University -2 Centralized budgeting and administration –Vice President and Chief Financial Officer for all eight campuses –Vice Chancellor for Administration and Finance at IUPUI reports to the Chief Financial Officer and also to the Chancellor of IUPUI –Similar arrangements are in place for Bloomington campus and for all regional campuses

4. Indiana University Purdue University Indianapolis (IUPUI) Urban and research campus Comprehensive (liberal arts, business, medicine, science, engineering and technology, etc.) 16 Indiana University Schools 2 Purdue University Schools Merger of IU and Purdue: 1969 Over 180 degree programs are offered The second largest School of Medicine in US The largest School of Nursing in US

5. IUPUI -2 Each of the academic units has budget director and/or assistant/associate dean for finances who reports to dean of the school directly They are liaisons to IUPUI Budget Office and to University Budget Office They meet monthly with Vice Chancellor for Finance and Administration

6. Purdue School of Engineering and Technology Degree programs –2 year AS programs in technology –4 year BS programs in engineering and technology –MS programs in engineering and technology –PhD programs in engineering Size –2,100 undergraduate and 200 graduate students –80 full-time and 75 part-time faculty, 30 staff –Teach 48,000 credit hours/year with $3.5M annual research Organizational structure –3 engineering and 5 technology departments –Centralized support services

8. Centralized Services in the School Research support Student Services (recruitment, internships) Academic Programs (admissions, registration, graduation) Computer Network Center Development and External Relations (fund raising, alumni) Finance and Administration (department accounts, grants, contracts) –Associate Dean –Budget Director –Grants and Contracts Coordinator –Human Services Coordinator –Support staff

9. Objectives for RCM Integrate and coordinate both academic and fiscal planning Decentralize the decision-making to the responsible units Match costs with benefits and responsibility with authority Increase awareness of costs and positive incentives for income generation Make the tradeoffs between choices more explicit Foster an “information rich” arena for discourse on the budget Reward multi-year planning with the carry-forward of surpluses and deficits

10. RCM does not produce more money for an institution; or set academic priorities with its budget. Thomas Ehrlich - Former President of Indiana University

11. Basic Principles of RCM Assign all costs and income attributable to each academic unit (income from fees and grants; costs of admission and library services) Assign cost of a support unit to all academic units (cost of computing services are divided by all academic units using and sharing the services) Create appropriate incentives for each academic unit to increase income and reduce costs to further a clear set of academic priorities (allow the academic unit keep the additional fees generated by short courses)

12. Steps to Establish RCM Identify RCM centers Create new accounts or consolidate existing accounts Attribute income to academic RCM centers Assign cost of support RCM centers to all academic RCM centers Build budgets

13. Identifying RCM Centers Academic unit carries the academic mission of the university by awarding degrees and bringing income through student fees and research grants and contracts (school of business, college of arts and sciences, combined smaller degree programs) Support unit is responsible for providing the services in support of the academic mission and it does not offer degree programs and it usually does not have core faculty (physical plant, library, combined offices of registrar, admissions, and financial aid) Executive management coordinates and guides planning efforts among academic and support units, establish policies, and allocates resources to the other RCM centers (chancellor or president’s office, vice presidents, institutional planning office)

14. Standards for Defining RCM Centers Organizational structure Clear definition of management responsibility Number of centers to reflect size and complexity Approximate parity among units Intracenter decentralization at the discretion of each center Policy issues Inclusion of all fund groups

15. Indiana University Operating Budget (2004-05) Income –State appropriation (24%)$530,565,000 –Student fees (27%) 680,045,000 –Other income (49%) 335,513,000 Total $1,546,123,000 Expenditures –Compensation (64%) $1,332,963,000 –Financial Aid (4%) 86,195,000 –Other expenditures (32%) 629,306,000 Total $2,048,464,000

16. IUPUI Operating Budget* (2005-06) Income –State appropriation (45%)$208,249,464 –Student fees (41%) 187,545,188 –Other income (14%) 62,915,893 Total$458,710,545 Expenditures –Compensation (63%)$289,562,944 –Financial Aid (3%) 11,853,328 –Other expenditures (34%) 157,294,273 Total$458,710,545 * General (instructional) Funds only

17. IUPUI Budget Summary General Funds ($458M) –Academic Units: $305M (67%) –Support Units: $153M (33%) Auxiliary Funds ($502M) –Grants and contracts –Utilities –Designated funds

18. Academic Responsibility Centers Business ($21M) Columbus (satellite campus of IUPUI-$6.4M) Dentistry ($29M) Education ($5.8M) Engineering and Technology ($13.3M) Health and Rehabilitation Sciences ($3.1M) Herron Art and Design ($5.7M) Informatics ($6M) Journalism ($0.7M) Law ($16.4M)

19. Academic Responsibility Centers - 2 Liberal Arts ($24.2M) Medicine ($120M) Nursing ($12.6M) Other Academic ($4.4M) –Labor Studies –Library and Information Sciences –Music Physical Education ($3.8M) Public and Environmental Affairs ($5.2M) Science ($23M) Social Work ($4.5M) University College ($7.9M)

20. Support Responsibility Centers Academic Support ($27.5M) Administration and Finance ($13.2M) Executive Management ($26.6M) External Affairs ($2.8M) Facilities Debt ($18.4M) Library ($8.6M) Physical Plant ($41.3M) University Tax ($14M) University Information Technology Services ($10.5M)

21. School of Engineering and Technology 2005-06 Income Student Fees (53.2%) Indirect Cost Recovery (1.8%) State Appropriation (45%) Assessment Revenue (29.1%) Total Research Contracts and Grants Grand Total $9,817,507 350,000 8,276,130 - 5,368,836 $13,074,801 3,438,458 $16,513,259

22. School of Engineering and Technology 2005-06 Expenditures Compensation (64.4%) General S&E (3.1%) Other* (3.4%) Total *travel, capital, reserves, and transfers $11,894,956 556,239 623,606 $13,074,801

23. Income Types assigned to RCM Centers State support Student credit hour fees Course related fees Other fee income Indirect cost recovery income Rent income Interest income Gifts and grants Sales and service income

24. Methods of Income Attribution State support: Combination of a portion based on central administration decision and a portion based on specified performance indicators. In practice, however, IUPUI started with 1987-88 levels funding levels and adjusted the increase and decrease based on the original proportions Credit hour fees: Income goes to centers according to courses taught Course-related fees: Income goes to centers according to courses taught

25. Methods of Income Attribution -2 Other fees: Continuing education course income go to centers teaching them. Applications, transcript, late charge income go to registrar and bursar Indirect cost recovery: Income goes to RCM center Rental: Income goes to center managing the space Interest income: Goes to executive management Gifts and grants: Income goes to centers receiving them

26. Methods of Income Attribution -3 Auxiliary service charge: Income goes to center managing the services Sales and service: Income and other general income go to centers generating the income or to executive management if not determinable

27. Examples of Income Attribution State appropriation –Initial attribution was done in 1987-88 using the existing distributions –Any change in State funding is carried on to RCM centers using the same formula Indirect cost recovery from research contracts –Campus retains 20% –Schools receive 80%

28. Assigning Costs to RCM Centers Academic Support: academic affairs, research and graduate programs, learning resources, academic personnel Administration and Finance: admissions and registrar, student financial aid, bursar, non academic personnel Executive Management: Vice president at IUPUI, chancellor, and vice chancellors External Affairs: Community relations, alumni

29. Assigning Costs to RCM Centers -2 Facilities Debt: Bonding for new buildings Library Physical Plant: Buildings, utilities, maintenance University Tax: Trustees, President and university wide offices (research, international programs) University Information Technology Services: computer networks, computing infrastructure, telecommunication

30. Examples of Early Cost Allocation Library: Weighted total for a center = 1.00 x faculty FTE + 0.05 x undergraduate FTE + 0.25 x graduate student FTE Academic computing: Weighted total for a center = (1.00 x faculty FTE + 1.50 x student FTE) x 0.75 x Physical Plant: Assigned cost for a center = unit cost x assignable square feet past unfunded usage for a center total part unfunded usage for a center

31. Examples of Early Cost Allocation -2 Academic Support: Distribute in proportion to credit hour enrollment Administration and Finance: Distribute to centers in proportion to total direct expense of general, designated, and restricted funds Executive Management: Distribute in proportion to total direct expenses of general, designated, and other restricted funds as well as some auxiliary and service costs

32. Current Cost Allocation Assign the total cost of each support RCM center to academic RCM center using the equal weights of –Student credit hours generated by the unit –Total full-time equivalent of faculty and staff members –Space in sq ft occupied by the unit

33. Budget Process Academic RCM centers report projected student credit hours for the coming fiscal year to campus budget office (all types of fees) Academic RCM centers also report projected indirect cost recovery funds and other income Campus budget office determines projected State appropriations and expenditures for each RCM center Each RCM center is given a proforma budget based on these projections and based on the assumptions of tuition increases, salary increases, and assessments Each RCM center then plans for its budget using the information on proforma

34. Budget Process -2 At the school level, department/program budgets are built by using either a similar RCM methodology or traditional budgeting Total salary increase budget for faculty and staff are given to chairs/directors to decide Indirect cost recovery income is distributed –20% to PI and 20% to department –40% stays in the school Salary savings are distributed –PI, department, and school share equally

35. School of Engineering and Technology Assessment Revenues Academic Support (22%) Administrative Affairs (9.6%) Exe Management-IUPUI (5.3%) External Affairs (2.8%) Library (8.2%) Physical Plant (22%) University Tax (10%) UITS (9.5%) » Total $ 1,131,253 493,971 275,736 142,489 423,594 1,657,285 528,994 488,136 $5,141,458

36. Resources Responsibility Center Budgeting, Edward L. Whalen, Indiana University Press, 1991 RCM Review Reports, 1993, 1998, and 2003 Conversations with Vice Chancellor for Administration and Finance, and with Associate Dean for Finance and Administration in the School