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					        Responsibility Center Management




David Proulx, Associate VP for Finance
EMail: david.proulx@unh.edu

Budget Office Website: http://www.unh.edu/vpfa/budget
RCM Website: http://www.unh.edu/vpfa/rcm
         Presentation Outline

1. Overview
2. Allocation Methodologies
3. Results thus far
4. Implementation process
                     Why RCM?                                   Overview


Decentralization of Budget Authority
Increase:
   Incentives for planning, cost effectiveness and revenue generation
   Local responsibility and authority
   Flexibility to match revenue streams with changing program
    demands
   Attentiveness to all categories of money
   Accountability at all levels of management
Decrease:
   Rigid resource allocation process
   Involvement of institutional leaders in budgetary detail
   Mystery and mistrust surrounding UNH finances
   “Use it or lose it” mentality at all levels of management
                            Institutional Rev enue                          Department (Direc t)
                          - Tuition                                              Rev enue
 Old                      - Indirect Cost Recovery
                          - State Appropriation
                          Revenue
                                                                         - Grant/Contracts
                                                                         - Restricted
                                                                         Gifts/Endowment
                                                                         - Sales of goods/services   Overview
Budget                                                                   - Fees




System
                          Univ ersity Budget Panel
                             allocates revenue to
                          departments in form of $142
                              million E&G Budget




         Institutional Ov erhead                      UNH Div isions
             (Serv ice Units)                   - Colleges/Library
     - Facilities                               - Research and Public
     - CIS                                      Service Units
     - Student Affairs                          - Auxiliary Operations
     - VP Research
     - General Admin
     - Academic Affairs




                                  Direct Expens e
                           - Payroll
                           - Support
                           - Debt service
                                  Revenue

 RCM                      - Tuition
                          - Indirect Cost Recovery
                          - State Appropriation
                          Revenue                                     Overview
Budget                    - Direct Revenue (Grant,
                          Gift, Sales, Fees, etc.)


System
                                  RC Units
                             - Academic
                             - Research
                             - Auxiliary




               Direct Expense                Institutional Overhead
         - Salaries, Wages & Benefits      - Facilities
         - Support                         - CIS
         - Debt service                    - Student Affairs
                                           - VP Research
                                           - General Admin
                                           - Academic Affairs
                              RC Units                                 Overview

  Colleges and Related Service Units      Research and Public Service Units
 College of Life Sciences and          Cooperative Extension
  Agriculture                           Research and Public Service
 College of Liberal Arts               Institute for Earth, Oceans and Space
 College of Engineering and Physical
  Sciences
 Whittemore School of Business and
  Economics
 College of Health and Human Services
 UNH – Manchester
 Library
  Student and Community Life Units        Governance, Advancement and
                                                 Infrastructure Units
 Student Affairs                       Facilities Services
 Housing                               UNH IT
 Hospitality Services                  General Administration
 Intercollegiate Athletics             Academic Affairs
 Whittemore Center Arena
                                                   Overview
               RCM Principles

1.   Create incentives for good management
2.   Fairness/Simplicity
3.   Unit plans must align with University’s mission and
     strategic plan
4.   Smooth transition - no redistribution of resources
5.   Credible governance mechanisms required to prevent
     unhealthy internal competition
6.   Same rules for all operations – academic, research,
     auxiliary, administrative
                                                 Overview

         RCM Principles, cont.
7. RCM principles/formulas apply to the RC unit level.
8. RC units receive all revenue and are responsible for all
    expenditures generated by their activities.
9. RC units carry forward excess funds from one year to
    next and manage reserves at the unit level.
10. RCM is not a cost accounting model but rather a
    general incentive/allocation model.
        Shared Governance
                                                          Overview

Central Budget Committee
   The governing group on budget policy and financial planning for
    the campus community.
   Comprised of President, Vice Presidents, 2 Deans, 4 Faculty, 2
    RC Unit Directors, Student Treasurer
Service Unit Advisory Board
   Functions as subcommittee of the Central Budget Committee
         Presentation Outline

1. Overview
2. Allocation Methodologies
3. Results thus far
4. Implementation process
              Unit Financial
                                           Allocation
               Structure                  Methodologies


Units receive direct revenues (fees, grants, gifts,
etc) as well as applicable allocated revenues
(net tuition, state appropriations, indirect cost
recovery, CBC allocations and hold harmless)
Units are responsible for direct expenses
(salaries, wages, fringe benefits, support) as well
as indirect expenses (facilities, general and
academic overhead)
Unspent funds at end of year are allowed to
drop to a unit “reserve”
        RC Unit Revenues                     Allocation
                                            Methodologies


Direct revenues - fees, sales of goods/services,
gifts, grants/contracts, endowment income
Allocated revenues:
  Undergraduate net tuition - based on share of
   weighted credit hours taught over prior two years.
   Weights are based on historical average expense
   per credit hour
  Graduate tuition - based on enrollment

  State Appropriations

  Indirect Cost Revenue - based on actual indirect
   costs earned
            RC Unit Expenses                     Allocation
                                                Methodologies


Direct Expenses - salaries, wages, fringe benefits,
supplies, other direct expenses.
Allocated expenses (overhead):
   Facilities Services (maintenance, utilities,
    housekeeping, R&R) - based on net square feet
   General Administration (President, Research, Finance
    & Administration, Student Affairs, Academic Affairs)
                    Reserves                     Allocation
                                                Methodologies

Under RCM, unspent funds at year end are automatically
added to the School/College fund balance. This required a
change in Board of Trustee policy.
RC units are obligated to meet an agreed upon minimum fund
balance level – 6% to 10% of revenue.
RC units can access reserves above their minimum with RC
unit head approval and below their minimum with VP
approval.
Unit reserves reduce dependence on limited central reserves
         Presentation Outline

1. Overview
2. Allocation Methodologies
3. Results thus far
4. Implementation Process
        Student Access                 Results



Improving access to classes for first year
students
College-based open houses to attract
undeclared students
Reviewing courses and curriculum to improve
the student experience
College based student retention effort
      Space Utilization                  Results




Colleges transferring ”college controlled”
classrooms to Registrar’s Office to be
available for University use
Review of lab utilization and the
reassignment of lab space at COLSA
and CEPS
     Impact on Service Units              Results



Service units have become more
accountable and responsive to customer
needs:
 Facilities – cost reduction efforts and service
 provider agreements
 Library – periodical budget/allocation review
 CIS – Customer focus groups and Strategic Plan
 that focus on service
 Budget increases for the Central Administration
 is lower than Colleges and Research Units.
      Better Management               Results



Managers at all levels discussing financial
impacts of decisions – direct and indirect
Decisions being made with the long term
in mind vs. short term
Decisions aligning with goals in strategic
plan
Use of all funds not just general fund
More communication at all levels of
management
          Recent RCM Review
Goals of review:
   Align RCM incentives with institutional goals
   Identify source of central strategic funds
   Simplify RCM as much as possible
   Develop greater financial accountability for all RC units including central
    service units
   Implement strong incentives for net revenue growth

Changes/enhancements to be implemented in
FY12:
   Central administration funding formula
   Credit hour weights/tuition allocations
   Slight percentage change in F&A recovery
   State funding allocation
         Presentation Outline

1. Overview
2. Allocation Methodologies
3. Results thus far
4. Implementation Process
                      The Process                       RCM Implementation


Three years to implement
Coordinated by a Steering Committee – advisory to the
President.
12 Working Groups – each responsible for separate
component of RCM. Reported to Steering Committee.
Overall Composition of Steering Committee/Working Groups:
70% academic community members – 43% faculty and 28%
Deans. Go to Committee page for more detail.

Communications
   “We will meet with anyone, anywhere at anytime” to discuss RCM.
   Multiple meetings with Trustees, Deans, faculty, staff councils,
    students
   Web site established to facilitate communication
   Campus newspapers used as a communication tool. See articles
    published in campus newspaper by clicking here.
   Open forums held
            The Process, cont.                           RCM Implementation


Site visits to other Universities with decentralized budgeting.
   Brought administrators, Deans and faculty to meet with counterparts.
    Click here to see the summaries of those site visits.
Board of Trustee Policy communications and support
Lots of financial modeling
   Very complex in the beginning, simplified before implementation
   Draft models shared with the community
Operating manual developed – hard copy and on-line
                                                                      RCM Implementation
          Academic Concerns About RCM
Concerns:
• larger class sizes/increased teaching loads
• grade inflation
• addition of courses by colleges solely for the purposes of revenue generation
• additional course fees
• reduced collaboration among colleges for academic and research ventures
• manipulation of credit hour system to “generate” additional revenue
• increased use of graduate students and adjunct faculty for instruction
• elimination of high quality/low revenue producing programs
• incentives for student advisors to act in the interests of the college rather than the
  student for fear of losing tuition revenue
Response:
• Most of these consequences could occur under the old budget system
• Most of these actions taken by colleges would lead to short-term gain but would
  have long-term negative consequences
• Development of policies, oversight mechanisms (UCAPC), institutional academic
  plan, college strategic plans, ongoing reviews and University Fund allocations can
  help to prevent these actions from occurring.
             Reviews of RCM               RCM Implementation




Ongoing monitoring of budgets by the Budget Office.
Central Budget Committee is responsible for monitoring
RCM issues.
FY06 - comprehensive review of all aspects of RCM.
Committee appointed by the President and chaired by the
Provost/VPFA
FY09- second review – simplification and alignment with
mission
         Keys to Successful
          Implementation                      RCM Implementation

Top-level support – without President/Provost and Board of
Trustee support, implementation will be unsuccessful.
Academic/research involvement in developing model – users
must be part of the process.
Communication – meet with anyone, anytime, anywhere. Use
the Web as a communication tool as well as campus
publications. Hold open forums.
Establish credible governance mechanisms – assurance that
RCM will be fair and equitable. Unhealthy internal competition
is monitored and academic quality issues addressed.
Automatic rollover of unspent funds for units – without this,
incentives of RCM do not work.
No budget reallocation – transition does not result in base
budget changes – “hold harmless” principle.
          Keys to Successful
         Implementation, cont.                 RCM Implementation

Simplicity – most managers do not have financial
backgrounds and should not devote significant parts of their
time to their budget. They need to be able to understand the
model and understand the financial effects of decisions
quickly and easily
Full-time staff – dedicate full-time staff member to coordinate
project
Business support structure – each unit must have access to
financial expertise to be successful
Site visits – go see what others are doing and learn from their
experiences
Avoid using acronyms such as RCM, RCB, DBS – they take
on a meaning of their own and impede progress.
Timely and comprehensive management reporting.
             What Would We Do
                Differently?                             RCM Implementation


We would not have named our system RCM. We would have
called it budget redesign or budget decentralization.
Simplification of assessments. Current methodology is too
complex. Lots of time being spent in this area by RC units.
Cost outweighs the benefits.
We would have addressed structural issues before
implementation.
   Urban campus was built into the model using different weighting factors
    creating complexity in financial arrangements between campuses.
   Library funding – treated them as a school/college rather than service
    unit. Issues with rising periodical costs.
   Athletics funding – space cost allocations comprise a significant part of
    their budget (20%). This is a new expenditure for them under RCM.
   Indirect cost return to PI’s. Kept historical allocation.
                  A Final Thought
From our prior Provost, David Hiley in a letter to the
University community:

“We must remember that RCM is merely a tool. Like any tool it can be
used well or badly. It is not a substitute for decision-making, judgement
or leadership. It is merely an aid. The ultimate success of RCM depends
on the people who use it -- on how we at UNH choose to use it, how we
prepare ourselves to use it well, and how we are held accountable for
using RCM to achieve university-wide goals.“
           More Information
The RCM review report and other information
 on RCM can be found at the UNH RCM
 Website at www.unh.edu/rcm

				
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posted:9/19/2011
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