For many years at the University of Oregon, Brad Foley got a lump of money dropped in his lap to run the School of Music and Dance. It didn’t matter how many courses he offered, how big or how small they were, says Mr. Foley, who has been the school’s dean since 2002. “You seemed to get the same budget year in and year out.”
Then, about six years ago, the university’s budgeting system changed radically. Mr. Foley started getting a sum commensurate with the number of students in his school and how many made it to graduation. If he thought carefully about the demand for courses, adjusted offerings so enrollments grew, and trimmed costs, the school got to keep some of the money at the end of the year.
That spurred him to design more general-education courses that appealed to undergraduates, which helped pay for a couple of new faculty positions and a new program in music technology. At the same time, he had to track his costs for facilities and maintenance, services like the library and student recruitment, and salaries for faculty members, keeping all of those in check.
Sink or swim, it was on him—and he happened to thrive. “We found that we could control our own destiny,” he says.
The decentralized budget model adopted by Oregon has a long history at some elite institutions and often goes by a jargony name: Responsibility Center Management, or RCM. But it’s likely to be increasingly familiar. In recent years, as institutions have struggled with financial pressures amid declining sources of revenue, many more administrators have pushed RCM to “unleash the deans,” as the budget model’s advocates like to put it: to give deans and the professors under them a financial incentive to cut costs, find new sources of revenue, and think more strategically about where the college is headed.
Since 2000, the responsibility-center approach has spread across sectors. Iowa State, Ohio, Rutgers, and Texas Tech Universities have adopted it; so have the Universities of Florida, New Hampshire, and Virginia. Northeastern and Syracuse Universities are among private institutions to have made the move.
In theory, Responsibility Center Management has an elegant simplicity: A university calculates its revenues and expenses, allocating them to its various colleges and other divisions. Each unit brings in money—through tuition, grants, philanthropy, and other means—and pays “taxes” to the central administration to cover shared services, like the facilities Mr. Foley started tracking at Oregon, plus admissions, student affairs, and so on.
If a college draws in students or otherwise rakes in money, it gets to keep that for expansion or strategic investments. Colleges with few students or high costs remain poor. For almost two centuries, Harvard University has exemplified this approach, which requires “every tub to stand on its own bottom,” as a president put it in the 1800s, adapting a line from The Pilgrim’s Progress.
It’s a budget model that seems to fit the spirit of the times, given the focus on enterprise amid economic decline. “At a time of lean budgets and difficult decisions, people think of RCM as a way to make clear why they get money when they get money,” says David Attis, senior director of academic research at the Education Advisory Board, who studies the model. It has become a popular topic of discussion among institutions, he says, something of a “religion” in higher education, attracting converts.
“People grow up in an RCM model, and they move to a new institution, and they adopt that model there,” says Mr. Attis. But those without personal experience can be wary, he says: “They have heard the stories about the downsides.” Some institutions have considered RCM and balked.
The model does come with baggage. Some find it too corporate for higher education. If improperly managed, it can pit college against college within a university, creating winners and losers, and leave the central administration with little cash. Experts cite the University of Pennsylvania, which adopted RCM in the 1970s, and where deans created their own fiefdoms. A chief budget officer at another institution recently told Mr. Attis that to buy a chiller or another piece of equipment for his campus, he has to go “hat in hand to each of the deans.”
Moreover, Mr. Attis says, the model might just be a way for presidents and provosts to slough off the burdens of running a university in tough times. “Some think that this is a way to push the problem down to the deans and let them make the hard decisions and take the flak.”
Money Talks
One appeal of the model is transparency. Both administrators and professors normally see a traditional budget process as a black box.
“Ultimately, money comes in, and money goes out,” says Maria Pallavicini, provost at the University of the Pacific, which plans to adopt RCM in about two years. “We need people to have a broader understanding of the fiscal realities,” she says, “how the university is run and what impact a program has on university finances.”
But it’s not like Responsibility Center Management is a formula that simply allows an institution to run itself. It has to be actively managed. That’s partly because on any campus, even prominent schools or colleges are often money losers, in need of subsidies—and that doesn’t necessarily change under RCM.
A strong central administration must help redistribute money within the university. That administration also has to levy high enough taxes to maintain a strategic reserve and uphold rules both to prevent deans from haggling over the taxes and to bar competition, like an engineering school offering composition courses to draw students away from the liberal-arts college.
The model doesn’t do away with negotiations over money between academic units. “Some people would like to think that RCM should be conversation proof,” says John R. Curry, director of strategic initiatives in higher education for Deloitte Consulting and a leading expert on the approach. On some campuses, he says, standing committees continually revisit how much colleges are taxed and how money is distributed within the institution.
Under RCM, the finances of an institution are laid bare, allowing people to see which programs are costly and not strongly tied to the mission, making them candidates for elimination. “Most universities can’t do that right now,” Mr. Curry says, “because they don’t know their costs.”
The prospect of that knowledge can be promising and nerve-wracking. At the University of Vermont, which will adopt RCM this fall, administrators have held more than 200 meetings about the move, posted online all of the documents associated with the transition, and issued an open invitation to meet with “anyone, anytime, anywhere” about the process.
Faculty members there hope for continued transparency. “Everyone will be able to see the figures and know why a decision was made, even if we don’t agree with it,” says Julie Roberts, a professor of linguistics and president of the faculty senate. “Just getting the budgetary decisions out closer to the faculty has the potential to be very beneficial both to the faculty and to the teaching and research mission.”
Vermont calls its new program “incentive-based budgeting” rather than Responsibility Center Management. (“Everyone avoids the term,” says Mr. Curry, as if to dispel doubts.) Tom Sullivan, president of the university, worked with the model as provost at the University of Minnesota-Twin Cities. Vermont’s existing budgeting system, he says, “did not have sufficient incentives built in.”
In a state and region facing significant demographic declines, UVM is one of the costliest public universities. It had to find a budget model, Mr. Sullivan says, that pushed goals of affordability, financial sustainability, and innovation.
Incentives work best with entrepreneurial people on the front lines. And Ms. Roberts and other faculty members at Vermont point to the university’s current lineup of deans as their main concern: Some will be very good at starting programs, boosting revenue, and cutting costs. Others, maybe not.
In fact, experts say that deans end up being the main casualties of a transfer to RCM. Mr. Attis, of the Education Advisory Board, says there is often a turnover of deans after a university adopts the budget model. If they have spent decades simply dividing up money handed down from the top, says Mr. Curry, they can forget how to be entrepreneurial.
But if they take to it, he says, “a good RCM system is a magnificent training ground to be a provost or president.” Under the model, a dean has to understand costs, revenues, enrollment, facilities, human resources, and all of the other elements that presidents deal with. “Once you are in that kind of job and successful at it, you are a wonderful candidate for a big job,” Mr. Curry says, “because you have to see the big picture.”
Cherry-Picking
Of course the decentralized budget model isn’t for every institution. It can be useful at large research universities, while smaller colleges might be able to accomplish similar objectives with a cost-accounting process that sets up rewards for meeting goals. Mr. Attis has seen many instances in which an institution decides to adopt RCM and gets most of the way through the planning process, only to give up and go back to a central budget.
Dominican University of California has a similar story. In 2010, at the urging of a business dean who eventually became provost, Dominican started planning a switch to RCM. Harlan Stelmach, a professor of humanities who became a champion for the new model, says faculty members were wooed by the possibility of a transparent budget (at the time, he says, the departing president was not known to be very open). The university had lined up administrators and deans who relished the entrepreneurial opportunities.
But sometime after Dominican hired a new president, Mary B. Marcy, the whole thing “fizzled,” Mr. Stelmach says. Luís Ma. R. Calingo, the provost who had pushed the idea, left to become president of Woodbury University, where he plans to adopt the model. At Dominican, discussions generated good ideas, Ms. Marcy says, and the budget process is no longer the work of the central administration. A committee representing faculty and administrators now takes part, and the university has set aside money to support entrepreneurial ideas.
As for a shift to RCM, Ms. Marcy was uncomfortable with the way the model decentralized fund raising. She believes it does not fit a small college like hers.
“We cherry-picked,” she says. “There were a lot of good ideas that we implemented. So, I didn’t feel that RCM was bad or good. I felt that we would take what was useful and not the rest.”
The University of Arizona took a run at RCM several years ago but backed away when the recession hit. Experts say that RCM can be difficult to put in place during a downturn. It’s hard to sell something new to faculty members and the rest of the campus when money is drying up.
Now, though, Arizona is once again planning to move to RCM, starting next year. Andrew C. Comrie, the provost there, says the university, like others, wants to fire up innovation and entrepreneurialism. Meanwhile, he has to remind people that the mission is not just about dollars.
“Everyone wants to go to the bottom right-hand corner to see how much we cost or how much we’re getting—a natural tendency, but of course we’re not in the business of producing financial bottom lines,” he says. If you get right down to it, none of the colleges there makes money. Making money is not what higher education is about.
Scott Carlson is a senior writer who covers the cost and value of college. Email him at scott.carlson@chronicle.com.
