At this point, we have considered the structural and
functional features of RCM and some behaviors that must be avoided during its implementation.
In this final installment, I will reveal some weaknesses that we have discovered
and will provide some recommendations and additional comments on RCM.
Weaknesses of RCM
There is no perfect budget system, and RCM has is share of
weaknesses. For example:
1. RCM makes it difficult for new schools with undergraduate
programs to take root. To be financially successful, new schools would have to
launch their own undergraduate degree programs and offer a variety of service
courses (general education, in some cases) that would attract enrollment and
provide a financial base for the unit. It is likely that some of the courses
and even degree programs are already being offered through other schools on
campus. Examples where overlap is common include statistics, environmental
science, and computing.
2. Assessments (taxes) are fixed, which exacerbates the impact
of income shortfalls on schools (RCs). A hypothetical five percent drop in
enrollment for all RCs is harsh enough, but when taxes do not fall in this
environment, it makes the situation worse. It is not often that the tax bill
goes up when income is flat or diminished. A five percent reduction would not
be seen across all units, but any school with a substantial portion of overall
enrollment where the five percent is seen may pay less than the previous amount
(the percentage of campus enrollment used to calculate payment to enrollment
sensitive service RCs would decrease) but another large school where the drop is
one percent might see a substantial increase in taxes based on its increase in
the percentage of campus enrollment. The push and pull nature of assessments
makes individual school assessments difficult to anticipate because what is
charged is dependent on how every RC performs.
3. Budgetary transparency does not always translate over to
non-academic forms of income. This income can be substantial in large
universities and include food, beverage, and similar contracts; TV and radio
income from sports; rental income (bookstores, cafes, etc.); and the sale of
trademark goods.
4.Special “considerations”
(fiscal side deals) that tend to accumulate over time can undermine the RCM
system.
5. RCM presents challenges for administration to control
campus priorities and themes, respond to threats, and seize opportunities due
the autonomy of the RCs and in some cases the lack of central resources. This
can be avoided to a great extent by selecting the right leadership for the RCs
and by engaging the entire campus in processes of goal setting and planning for
the institution.
Recommendations and
Observations
1. I strongly recommended that any plan to employ RCM be
preceded by the development of firm and unambiguous policies on course and
program duplication. While many institutions have these in place, they may not
be enforced to the degree necessary due to lack of concern on the part of the school
whose course is being poached while under a different budgeting system; the
adoption of RCM will change that attitude. Having a policy in place early will block
aggressive deans from getting their versions approved before the affected
schools can respond. This will prevent the proliferation of general education courses
such as Composition in Business (from business), the History of Science (taught
by a school of science), Computing in the the Social Sciences (offered by the
social sciences) and of majors’ courses in undergraduate biology being taught
by a school of medicine. The policy should include a mechanism to deal with claims
of poor course quality as an excuse for duplication. The policy should include
a thorough investigation of the claim, the input of all users of the course,
and specify a period of time for improvements, if and where indicated, for
correction before allowing the new version.
2. A policy is only as strong and effective as the will of
those enforcing it. Upper administration should be upfront about its
expectations about poaching and follow through with rigorous enforcement of the
policy. They must also allocate the monetary resources as dictated by the
model. Without the assurances in place for both, deans and chairs will lose
interest and confidence in RCM and it will fail to deliver on its promise.
3. A re-look at the levels of the RC subventions should take
place every three to five years. At the outset of implementing RCM, those
receiving subsidies should be informed that they are recipients of subventions and
should be encouraged/expected to take steps to improve their balance sheets. Occasionally,
a school will do that, thus making the subvention less needed. Those dollars
can then be returned to those units who originally “donated” them, or they can
then be moved to a new school that requires some initial help. Having a process
to adjust subventions will go a long way to eliminate the grumbling that is
heard when a school becomes cash-rich while being subsidized by others.
4. It is also recommended that the application of assessment
drivers to service RCs be re-examined every five years to make certain they
appropriately assigned.
5. Subventions also occur within the RCs. As stated in Part 1,
RCM stops at the RC (school) level although some elements can and should
devolve to the level of the individual departments. I would predict that all
RCs have departments that earn more than they cost, some that are near
break-even and some that never pay for themselves. The terms ”hold harmless”
and “subvention” are never used here but, in essence, the latter departments
are subsidized, some of them permanently. In some instances they provide
essential instruction for the institution or are valued for what they provide
beyond dollars to the intellectual “wholeness” of our institutions and the
campus environment they create. Common examples (but not at all institutions)
might be physics, philosophy, and theater, respectively. These are examples
where academics trump dollars.
6. One of the most favorable features
of RCM is the carryover privilege. Those new to RCM will soon realize, however,
that left over dollars will continue to present “difficulties” for upper
administration. Not only are they seeking funds to make all units solvent and
to advance the institution, but they may also be preparing a budget request to
the legislature for “much-needed additional funding”; having $XM in unused
funds can be frustrating and lethal to “the ask.” The recommendation here is to
move the carry-over funds to accounts with titles that clearly indicate their
intended functions. For example, the IUPUI School of Science has cash funds for
new faculty start-up, renovations, equipment acquisition and repair, new
building, and income shortfall. One account (start-up) has an annual addition
and constant withdrawals; others have sporadic annual activity (equipment and
renovations); and some are expended when needed (shortfall) or when they reach
a target amount (e.g. $12M for a new building). Having accounts for university
priorities that show appropriate utilization rates will demonstrate good
stewardship of university resources rather than hoarding money with no plan for
its expenditure.
7. RCM can be easily used to determine the income/cost ratios
of programs and departments in addition to schools. Having this information
available may help decide what our universities will do if the fiscal decline
(student demographics, further loss of state support, tuition caps or resistance,
etc.) continues, and cutting costs is a mandate for survival. RCM will provide
the transparency to anticipate when subventions and deficits surpass the
surplus total of the high performing units. This scenario will challenge our
values and resolve and perhaps our entire institutional structure.
So, is RCM the right budget model for your institution? It
favors institutions/RCs that have solid academic programs that are likely to
endure, areas of excellence (successful students and faculty) that can be leveraged
through effective marketing, an energetic, collaborative and innovative
faculty, and a culture that is open to change. I would suggest taking the pulse
of your campus in these areas and have some numbers generated to see where all of
your schools would stand. I can say, at the personal level, that it is
invigorating to work in an incentive-based system where things change rapidly
and where you have some control and responsibility, but I realize that this is
not for everyone. I know this because colleagues express this to me on a
regular basis.
N. Douglas Lees is professor and chair emeritus of biology and former associate dean for planning & finance in the School of Science at IUPUI.
