RCM Budget Models -- who wins and who loses?

[Hibush]

Why does this sound so... Dilbertesque?

1995. Our adminicritters are not exactly cutting edge with this disruptive method.

Good point about the janitorial BBU. If anyone can get the AC turned on on weekends, it's them.

[dillon]

My university moved to a budget model akin to RCM a few years ago.  (We don't, for example, charge for space/facilities in our model.) It has worked fairly well. We like it at the college level because it gives us more predictability in our budgeting. It also has helped us manage our faculty lines, as previously approval for searches had to be approved by the provost. (A department could have a faculty member retire and have that faculty line taken from them by the provost. Now all those decisions happen at the college level.) It hasn't been perfect, but on the whole we like it much better than what it replaced. Not sure if the OP had a specific question, but if so, I'm happy to share things from our experience.

[AJ_Katz]

A lot is going to depend on how the university defines "unit". Do you need to break even at the level of colleges?  divisions? departments?

The institute / division will be the center of the RCM for us.  From what I understand, however, at least a portion of the return to the department will be dependent on credit hour generation.  No one has explained how or if this affects return of overhead. 

The biggest drawback I've seen is that it incentivizes some really stupid things that are bad for the university and the students. Like an engineering school may want to offer their own "English" classes so they can keep those tuition dollars in the unit. Or a med school may decide to offer an undergraduate biology major that competes with the Arts and Sciences version.

Yep -- we're already starting to re-think the idea of co-teaching courses with people in other departments (strong incentive not to under an RCM).

Also some departments have "revenue" that is easy to measure, such as tuition per head. Others are more difficult to measure, such as counseling which helps keep that tuition per head coming in.

Departments that are not able to generate revenue, like counseling, IT, and libraries, for example, are allocated funding through a "tax" assessed on each of the revenue-generating departments.  We're told there will be different levels of services that the departments can "opt in" to, so, presumably larger departments that have greater allocations can obtain more services.  Again, it's completely unclear how traditional facilities charges will be paid.

In general, it seems like this really won't affect much of our bottom line for the department, largely because we're a heavy grants / minor teaching unit.  However, I've spoken with the head at another institution that has had the RCM implemented since the late 90's and hu's impression to me was that it's been very challenging to work in and has affected the department negatively. 

My university moved to a budget model akin to RCM a few years ago.  (We don't, for example, charge for space/facilities in our model.) It has worked fairly well. We like it at the college level because it gives us more predictability in our budgeting. It also has helped us manage our faculty lines, as previously approval for searches had to be approved by the provost. (A department could have a faculty member retire and have that faculty line taken from them by the provost. Now all those decisions happen at the college level.) It hasn't been perfect, but on the whole we like it much better than what it replaced. Not sure if the OP had a specific question, but if so, I'm happy to share things from our experience.

Interesting. Our faculty lines already go back to the college pool when vacated so that the administrators can battle over whose position gets filled next, with preference given to dual-department hires.  It would be great if there was more predictability in ability to hire at the college level.  Right now, there's basically all of this work to identify the next positions and then no idea if anything will come of all the work.

I guess my specific question is with respect to teaching heavy vs. research heavy departments and how this is going to affect my research heavy department.  What happens to indirect costs in these RCM budget models? 

[onthefringe]

I guess my specific question is with respect to teaching heavy vs. research heavy departments and how this is going to affect my research heavy department.  What happens to indirect costs in these RCM budget models?

That is an excellent question, and one you should try to clarify. Where I am, indirects get taxed centrally, the rest comes back to the college, and the college passes some (fairly significant) fraction back to the department. HOWEVER, and this is a big however, early on they took a baseline of indirects and baked it into our annual budget, with the expectation that we would keep bringing in the same amount of indirects. This means that if we keep tooling along at the same level, that part of our budget is fine. If we bring in more indirects, whee! free money! BUT, if our level of indirects drops, we actually OWE the university money.

The undoubling of the NIH has been...ummm... problematic?

[Hibush]

Departments that are not able to generate revenue, like counseling, IT, and libraries, for example, are allocated funding through a "tax" assessed on each of the revenue-generating departments.  We're told there will be different levels of services that the departments can "opt in" to, so, presumably larger departments that have greater allocations can obtain more services.  Again, it's completely unclear how traditional facilities charges will be paid.

Library is a big expense for us. Before RCM, the librarians would always complain that the provost would not increase the budget fast enough to keep up with the cost of subscriptions. After RCM, the cost is allocated to the units on a per-capita basis. They can collectively choose to increase or reduce the capitation rate, and therefore the library budget. (Units don't have the option of opting in or out, the per capita rate is the same for everybody.) The librarians have more to complain about now, and the unit leaders have a much tenser relationship with the head of the library. The provost is happy to blame the unit leaders for the library's discontent. Faculty are more aware of how much the library services cost to deliver, and may be more appreciative of that while also being resentful of the hit their department budget takes.

[Directional_State_U]

One downside of RCM from my experience --> It increases the disconnect between colleges / programs, especially where the funding model is based on butts in seats. It really make interdisciplinary programs a challenge because the various component programs/groups start fighting for revenue sharing. At my Uni, it has made pretty much all interdisciplinary programs dysfunctional.

[AJ_Katz]

One downside of RCM from my experience --> It increases the disconnect between colleges / programs, especially where the funding model is based on butts in seats. It really make interdisciplinary programs a challenge because the various component programs/groups start fighting for revenue sharing. At my Uni, it has made pretty much all interdisciplinary programs dysfunctional.

Based on the descriptions they've provided about what their rolling out, that's what I'm predicting will happen too.

[dr_codex]

Bookmarking.

Major structural changes announced during the summer at my place, and it wouldn't shock me if it was done in large part for budgeting. (Some ... odd ... groupings were made, with the effect/side-effect that all of the new units are roughly equal in size.)

dc

[fast_and_bulbous]

I was at a R2.5 directional point compass school that transitioned to RCM. As chair, it was great, because I essentially had my own stash of money that I could spend and I didn't have to send every request up the flagpole (hence, the "responsibility" part). The dean of the college (science etc.) used to squirrel away money and used it to give out generous startups to attract faculty who wouldn't otherwise come to Bunghole, East Dakota to live. So basically each "director" had autonomy and was responsible for their own little group. Prior to this I understand that pretty much everything had to be signed off by the provost (including things like hiring adjuncts etc.).

I was even given a book written about it, which I promptly did not read.

[Porcupine]

My institution is moving (quickly, and without advance planning) to an RCM model. People at institutions where RCM is used already, I could use some advice: how do you best support arts & sciences programs that contribute heavily to gen ed, but have fewer majors of their own?

[Hibush]

My institution is moving (quickly, and without advance planning) to an RCM model. People at institutions where RCM is used already, I could use some advice: how do you best support arts & sciences programs that contribute heavily to gen ed, but have fewer majors of their own?

Make sure that the allocation model pays departments by student credit hours taught and charges departments overhead and financial aid based on the number of majors.

That is terrible policy for the institution, but it would do for the department what you are asking. At least in the short term. Long term, every department will teach its own intro courses in composition and math.

[dlehman]

I am not familiar with the RCM acronym but I doubt it is much different than the general idea of trying to establish financial metrics for individual programs/operations.  I did such an exercise 10 years ago for the institution I was at and more recently did one at my new institution.  In economic terms (I am an economist) there are standard economic issues involved - but they are complex and difficult to operationalize.  And they are political and often contentious.  On one hand, just seeing where the direct revenues and costs for a "department" stand is useful information.  It can be uncomfortable, and many academics think they know the answers without even trying the analysis, but it is worth actually documenting the revenue and cost flows (because they are not often understood).  I think it is important to not portray such an effort as single purpose - grow programs with positive net revenues and shrink those with negative ones.  The university has multiple purposes and money is not the single purpose (though it is one purpose).

The real issues come in with the common costs (sometimes called "shared" costs or "overhead").  Accountants are very good at allocating these - economists never want to allocate them.  You should try to attribute them, not allocate them, where ever possible.  I believe no costs should be allocated - in the end, you want to see how each program contributes towards covering the true common costs of the entire institution.  But there will be fights over cost attribution.  Just imagine when you try to decide how the sports budget should be attributed to programs - e.g., graduate vs. undergraduate.  The undergraduate programs are the most difficult since many costs are common to all programs and because students take courses across the campus and change majors often.  All of these things make it very difficult to attribute undergraduate costs to individual programs.  It is much easier (though still complex and political) to deal with graduate or specialized programs since they have easier to identify revenue and cost streams.

In any case, I believe any institution attempting such an analysis would find time well spent to establish buy-in and a shared understanding of the purposes and limitations before embarking on this.  It is political and can be (mis)used in ways that will undermine morale and collegiality.  It is not a trivial exercise and it can produce valuable insights.  But it can easily lead to resentment and bolster the "silo" mentality.  I think it is best to acknowledge this up front and hear people's concerns.  Otherwise, I think it is predictable how the numbers will fall out and who will end up being upset.

To cite just one example:  the General Education program.  Someone has already mentioned the issue of how to deal with a department that teaches a lot of Gen Ed courses.  In the analysis I did, I created a matrix of majors and credit hours taken in different departments, and then used this matrix to attribute the costs of Gen Ed to the majors that were in those classes, not to the department teaching the classes.  This is not without some difficulties (such as changes in major), but it is feasible and avoids some of the glaring faults of just charging the costs to the teaching department's majors.  What this example illustrates is the political nature of such an analysis.  I fear that some schools go through the exercise just to justify reducing the budgets for some departments and steering resources to other "growth" areas.  While that may be one outcome - and perhaps a needed one - if you go into the exercise with that goal, then I'd skip the analysis and just make overtly political decisions.

[dr_codex]

Thank you very much, dlehman, for sharing your insights. You've given me much to ponder.

dc

[Porcupine]

Thanks for the helpful thoughts, Hibush and dlehman.

[Hibush]

Thanks for the helpful thoughts, Hibush and dlehman.

As proposals and policies are rolled out, consider whether the financial incentive they create are consistent with your institution's goals. (That is different from your department's competitive advantage relative to other departments at the institution.) If you find that it is financially beneficial, or even essential, to do things that are contrary to the institution's well being, it is important to give that feedback. The magic words seem to be "perverse incentive."

One example is the policy I gave above, where departments get funding for teaching and research based on student credit hours taught but charged overhead for majors. The strong incentive is to teach large classes for non-majors and to avoid completely teaching small advanced classes for majors. If every department did that, you'd hardly have a school. But departments that fail to do so will not be able to pay their instructors.