Follow-up Budget Questions for New Chairs: Flexibility, Carry Over, and Incentives
To provide some basic budgeting and finance information to new chairs with little or no experience in this area, in my June article I recommended some questions for them to ask their dean prior to or at the outset of their terms as chairs. The questions on the sources of academic income, how department operating budgets are set, and what the department must pay for from its allocated resources were fundamental but lead to more complex questions down the road. In a subsequent article, I discussed the personnel budget along with other oversight responsibilities that chairs must manage, including grant and philanthropic accounts.
With these basics mastered, new chairs are now ready to inquire about more complex issues in the budgeting schemes in place at their home institutions.
In this article, I will explore the degree to which the department allocation is flexible/fungible, the consequences of finishing the fiscal year with a surplus or a deficit, and whether there are any financial incentives to improve. The latter could involve student outcomes or retention, income streams (new or enhanced), external funding (increased overhead, enhanced productivity, greater stature), and other similar positive aspects of the academy. Some new chairs may find that the dean is not open to some of what I will suggest but raising these possibilities should demonstrate that the chair is fully engaged in the work as chair and is seeking the best outcomes for the institution and the department.
Budget allocation flexibility
There was a time when department allocations were provided in rigid categories. (e.g. office supplies, part-time instruction, capital equipment, travel, etc.), and it was difficult to move dollars from one category to another. This type of arrangement has, for the most part, disappeared because it overly restricts departments in dealing with challenges (a full-time faculty member becomes ill requiring the hiring of adjuncts and taking on those additional expenses) and seizing opportunities (e.g. a 50% discount on a teaching instrument that the department has wanted and needed for some time). When the dean is asked about the flexibility to use one part of an allocation for another expenditure, the new chair should be prepared for a “Yes, except for….” response. Travel may be restricted for political/public perception reasons and campus priorities may dictate that extra dollars provided in the budget be spent on a particular initiative or returned. An example would be a campus that has a strategic goal of increasing the number of graduate students and has provided seed funding for that purpose. The new chair should be clear on the latitude she/he has in spending from the operating budget.
End-of-year carry over/carry forward
The answer to the question “What happens if my department ends the fiscal year with a budget surplus or a budget deficit?” is a critical one for both short and long-term planning by the chair. Some readers may recall, or still experience, occasions about one month before the budget year ends, receiving an email from the chair that reads “It looks as though we will have some end-of-year cash remaining in the budget, so rather than returning it to the administration each of you has $2,500 to spend to further your work in teaching or research. Please have your orders placed by a week from Friday.” Many people making quick decisions on how to spend a relatively small amount of cash leads to little impact per dollar. Collectively, and with a little forethought, the chair, faculty, and staff could come up with ideas that could benefit the entire department community in more substantial ways.
Responsibility Centered Management (RCM) is a decentralized form of budgeting that specifically allows carry over (or carry forward). The budgetary characteristics of RCM stop at the level of the responsibility centers (RCs), the schools or colleges on campus, unless the deans decide to devolve them to the department level. Most deans allow departments to adopt many of the features of this system including the carry over privilege. In brief, RCM credits RCs with all the income (student tuition and fees, grant overhead, etc.) they generate and central administration taxes them for services (admissions, bursar, registrar, police, etc.). RCs are empowered/incentivized to maximize their income (offering new sections, scheduling classes according to student demand, innovating and using best practices to increase retention, actively participating in student recruitment, etc.). On the other side of the coin, RCs must balance their budgets because central administration has little discretionary funding to bail out RCs in deficit (deficits also carry over) or help out when they need a large project completed. Thus, being able accumulate surplus money over time becomes essential for RCs to prosper.
Deans who see the entrepreneurial potential of RCM will expect their chairs to be full participants (after all, nothing really happens in the academy without the grassroots participation of the faculty) and realize that they must share the bounty (both resources and expenditure flexibility) with those who generate it. While carry over is acceptable practice under RCM, deans and chairs should place the dollars into accounts with their purpose prominently visible in the title. University systems don’t like to have surplus dollars accumulating for no apparent purpose. Chairs, in consultation with faculty and the dean, could set-up accounts with titles such as Chemistry Instrumentation, Faculty Development, Student Scholarships and Awards. etc. Carry over at the school level could be far greater allowing for accounts with more costly purposes, such as major renovations, matching funds for grants, and even new building construction. Without the ability to accumulate funds over time, many of these projects could not be completed because there would not be sufficient funding in a single year to accomplish them.
RCM is not required to allow carry over; any budget system can choose to do this. Chairs should ask the dean if this is possible for departments. If not, ask if she has carry over privileges. If so, ask her to carry over some dollars in her account for you with the promise, for example, of spending it on a program that benefits students. Following through might lead to autonomy in carrying over funds. What is sometimes put forth as an official policy is nothing more than practice borne of a desire to control.
N. Douglas Lees, PhD, is associate dean for planning and finance, professor, and former chair of biology, in the School of Science at Indiana University-Purdue University Indianapolis (IUPUI).