A New Budgeting Model for Academic Departments, Part 2: Budgeting Research and Lab Fee Income and Additional Benefits of the Model
Let’s start by reviewing the budget components we assembled in part one:
- Total academic year costs for part-time (adjunct) instruction from the previous year
- Total costs the department paid for summer instruction in the previous year
- Total of graduate costs (stipends, tuition, fees, insurance) the department paid in the previous year
- Total credit hours generated N times X
- Number of registered undergraduate, master’s, and PhD majors times A, B, andC, respectively
- Number of (full-time) tenure track faculty, non-tenure-track faculty, and staff times Q, R, and S, respectively
Values for X, A, B, C, Q, R, and S are dollar amounts that the dean will determine. Values are constant across departments.
Research income. From our brief discussion of research income in part one, you will recall that this income is called indirect cost recovery (ICR) because it compensates the university for its costs (the indirect costs) in hosting the research.
University administration can keep ICR dollars and apply them to the indirect costs of conducting the research (e.g., space charges, help with budget construction for the research proposal, compliance, library resources, and accounting). Most universities, however, use the ICR to replace their own resources budgeted to cover the indirect costs and return the freed-up university funds to where the ICR was generated as a way of stimulating further grant-writing activity on the part of the schools, departments, and faculty responsible for their success.
ICR is difficult to predict and requires special efforts to tally because it is withdrawn from grant accounts as direct costs are expended and faculty can have high and low expenditure rates throughout the grant period. How much of the ICR comes to the department depends on the campus budget model and who is responsible for paying the indirect costs. For example, in responsibility-centered management (RCM), schools are credited with all (tuition, fees, grant overhead, state appropriation) the income they generate. Campus then assesses them for its costs, including indirect costs, using three main drivers: student FTE, faculty and staff FTE, and space. The result of this is that the school covers the research space costs for its departments in proportion to their individual research space footprints. This means that the school retains a substantial portion of the indirect cost dollars it receives.
It is important to note that the actual ICR is expended on real research costs, and what we are spending are liberated campus funds in the same amount. Thus, the department can spend these funds on any category of expenses.
Because it is difficult to predict and complex to tally, ICR may be paid out two to four times per year. For a successful research department where the institutional ICR rate is 50 percent with a 25 percent department return rate, the department’s budget would receive $125,000 per $1 million in direct costs over the life of the award or grant (typically three to five years).
Student fees. Universities usually charge fees to students for services and other items that are outside the realm of tuition. Common campus-level fees are student activities fees and technology fees. The fees I am concerned with here are course fees that are set to cover the costs of laboratories. Do your lab fees cover the entire cost of laboratories? I suspect that most readers will say no. They are correct, probably without considering some of the costs I will raise.
About 15 years ago, the IUPUI School of Science was in debt due to administrative overspending. RCM allows for the carryover of positive balances (flexibility!) and mandates the same for negative ones. There are no bailouts. The school went into austerity mode while at the same time trustees placed a cap on tuition. There were no restrictions on course fees, and the interim dean set an agenda for the departments to recover the full costs of their laboratories in their lab fees as part of our strategy for paying off our debt. Campus administration supported this venture as long as we justified every dollar of the fee. Hence, we have the mindset that the course fees are not to be used for costs beyond their intended purposes (i.e., the laboratories).
I realize that the present attitude toward increases in student costs is extremely unfavorable. But I will provide the items we included should a more favorable climate occur in the future. All schools should be able to work with category 1 and 2 items. If all staff salaries are paid centrally (by the dean), then they would also have to be part of the request.
So, what are the cost categories associated with laboratory courses? The first thing to come to mind might be consumables (category 1—solutions, media components, plasticware, reagents, and many others); these are single-use items. If the department employs students to set up and clean up the labs, enter their wage total here as well. There are also items (category 2) designed for many uses (balances, pH meters, models, slides, glassware, power sources, microscopes, gel boxes, and others), including some large, expensive items (autoclave, NMR spectrometer). Do you have full-time staff who are responsible for lab setup? If yes, include their salaries and benefits (category 3). Finally, space (category 4) might be included. Labs run 1,000–1,400 square feet in size. Unless you are operating under RCM (transparency!), you may have no idea what the cost rate is for this type of space. Taking into account the total space the school operates for labs, it generates a large bill each year. So, we have four categories of expenses for running labs: consumables, permanent items, personnel, and space. Calculating the costs for expendables for every lab course taught over the past year is a good place to start. Also, make a list of the permanent items (category 2) with current prices for their replacement. Decide on how long they are expected to last (standard for electrical items is 10 years; computers are three years); amortize these costs over the various time frames. Glassware and slides have life expectancies based on accidental breakage—consult with the lab prep staff on how frequently that occurs. We discussed the salaries of lab prep staff, but are other staff involved in supervising the prep staff or ordering lab materials? If so, estimate the percentage of their time and compensation and enter them as lab costs. Space, like personnel, has partial entries. Beyond the teaching labs and prep labs, there are autoclave areas, cold rooms, stock rooms, and incubation rooms that are shared with others.
To calculate the lab fee, combine the total costs in the four areas and divide them by the number of lab credits taught in the previous year. The amount for consumables goes to the department, the amounts for personnel and space go to the school (it pays these bills), and dollars for equipment replacement go to an escrow account from which departments can access them when needed.
How can the budgeted resources be spent? There are no restrictions on expenditures beyond the basic university rules. Exceptions may be campus initiatives to which campus has made funds available to the school or local promises made (the story on raising lab fees). Under this model, there should be no stories about groups of students who cannot get the courses they need, because departments receive the same instructional resources for the next year as they did the present year. The dean will also appreciate not having to listen to chairs asking for more resources (at least, not at the same frequency).
Additional benefits of the budget model. The budget presented here funds the items critical for efficient department operation (part-time and summer costs of instruction, funding that supports both research and teaching missions and incentivizes actions that expand the department’s resource base). Beyond these positives is the fact that this budget model will boost retention, support good teaching, and improve advising if the dean and chair appropriately support it. This means reminding faculty and staff of the importance of student retention and of how much a positive classroom environment promotes student success as well as stating the importance of good advising in keeping students on track to their degrees. Student recruitment is another area that may benefit from this budget model. The prospect of new resources for the department (for conference attendance, a student helper for large course sections, a student research assistant) can motivate faculty.
Chairs are critical in making the model work. They must be vigilant in following enrollments so they know when sections fill or when they are irrevocably low. They must be active in opening new sections, expanding the enrollment of some sections, and canceling others (low enrolling) at a time that gives the few students enrolled the opportunity to select another section. They also may have to negotiate with faculty who have set firm enrollment limits in their courses.
In terms of scheduling, classes should be offered according to the needs of the students and not the preference of faculty. Chairs will recognize that offering that faculty-recommended course recommended that enrolls five students comes at a real hit to the department’s budget.
The entrepreneurial chair who grasps the full potential of this budget model will do well. One can envision the appearance of new degree programs, minors, and other credentialed programs, many of which will be collaborative with other departments. The department could fund the initial groundwork (development of primary courses) for these using the incentivizing features of the budget model.
N. Douglas Lees, PhD, is professor and chair emeritus of biology and former associate dean for planning and finance in the School of Science at Indiana University–Purdue University Indianapolis.