What Is Responsibility Centered Management?

9/18/2017Jim FlorianAssociate Vice President, Institutional AnalysisOffice of the ProvostWhat is Responsibility Centered Management? Budget model that links budgets to activity Allocates revenues based on activity metrics Allocates costs to the Responsibility Center Units Provides local authority and responsibility1

9/18/2017Keys to Success Full support of university leadership Inclusive process that includes all areas of campus Communication Availability of reliable and timely data TransparencyLots of Input Steering CommitteeCross section of deans, department heads, faculty,graduate and undergraduate students, administrators,and staff RCM SubcommitteesNine subcommittees with approximately 10 memberseach that crossed most organizations across theinstitution Responsibility Unit Business Officers (RUBO)Over 35 financial leads representing all colleges and VPs42

9/18/2017Guiding Principles Strategic Plan Predictability Incentives Adaptability Minimize Negative Central Funds OutcomesBalance RCUs & UATransparencyMatching Revenues toAssociated CostsSimplicity e5The Fundamentals of RCM Simply a budget allocation tool to be used byacademic and administrative leaders Does not add dollars into the system or create newcosts Flows funds to the Colleges. Funds allocated to thedepartments are at discretion of the dean and should notfollow this model directly.63

9/18/2017The Fundamentals of RCM Values Most importantly, decision making should;incentivize higher quality programs, innovation,flexibility, efficiency, and equitable resourceallocation. As measured through mission‐driven metrics;completion rates, degrees awarded, time todegree, faculty and student productivity,student placements, etc.Success of College Management under RCMis evaluated here7Challenges in building the new model Change Management Complexity of University funding Differences in historical practices/systems/datareporting Ability to identify and report using “New Buckets”4

9/18/2017Old Incremental Budget Process Annual Marginal Changes in Funding:State FundsTuitionAdministrative Service ChargeIndirect Cost Recovery (75%)Central AdministrationMarginal Changes to Base BudgetsColleges Budget BaseSupport Units BudgetBaseFacilities CostBudget9RCM Budget ProcessUA BudgetSupport Unitsand InstitutionalCosts-Subventions-Mandatory Fees-Other Misc. Fees-Auxiliaries-PhilanthropySubventions- State General Funds- Tuition- Differential Tuition- Program Fees- F&A Recovery (100% lessVPR/ORD costs and ResearchInvestments)- Strategic ubventionsStrategicInvestmentsStrategic Fund &Support UnitCost AllocationsColleges-RCM Allocations-Subventions-Sponsored Activity-Course fees-Outreach-Summer Session-Philanthropy-Sales and ServiceFacilitiesCost Assessed based on NetAssignable Square FootageAuxiliaries105

9/18/2017Revenue AllocationUndergraduate Tuition Revenues pooled and allocated based on 75 % SCHand 25% Majors. It is insensitive to the source oftuition (in vs. out of state, scholarship, need‐basedaid, etc.) All financial aid is deducted from the pool. First year allocation of UG SCH was calculated using4‐year weighted average to account for past activityduring implementation11Revenue AllocationGraduate Tuition Allocated student by student based on 75% Majorand 25% SCH GIDP’s allocated 100% SCH Regents Set‐Aside aid and aid directed by the RCUis deducted from the allocation.126

9/18/2017Revenue AllocationDifferential Tuition and Program Fees Distribution of program fee goes 100%, lessRegents Set‐Aside, to college owning the fee ordifferential tuition.13Revenue AllocationSponsored Activity 100% of Facilities and Administrative Recovery(F&A) is returned to the colleges147

9/18/2017Cost AllocationsSupport Center Cost Recovery Costs related to institutional administration,student support, business services is recoveredbased on a percentage assessed to all revenues andsubventions Institutional costs associated with running theinstitution not related to a single entity (insurance,cost of banking , ABOR support etc.) is included inthe Support Center Cost Recovery15Cost AllocationsFacilities and Space A single rate based on net assignable square feetassigned to an RCU –– recovers all institutionalfacilities‐related costsAuxiliaries and Service Centers Continue to assess administrative service charge(on external contracts and external revenue) tooffset support center costs and institutional costs168

9/18/2017Strategic AllocationStrategic Investment Fund An additional percentage is assessed againstrevenues and subvention funds to provide a pool offunds for Institutional Strategic Investments17Important Factor for the Success of RCMGovernance Appropriate and effective governance has beenestablished and integrated into Universitycommittees to ensure the principles of RCM areincluded in decision making processes A committee will be established to review RCM andmake recommendations for changes after 3 years189

9/18/2017Allocation and Forecasting Model19Allocation and Forecasting ModelThe Input Variables SectionEach of the links listed in the Input Variables Section willtake the user to an area of the model where the relevantdata needs to be entered for the listed component.The input area is shaded and updates thenumbers in the section either directly abovethe input area or to the left of the area.10

9/18/2017Allocation and Forecasting ModelOperational Impacts of RCM RCM calculates a lump sum that is allocated to Colleges: TheRCM methodology develops a single amount based on the netof revenue allocations and expenses allocations. This amount isadded to or taken away from a College’s existing budget at thebeginning of the year. RCM does not change how we do accounting at theinstitutional level: RCM is a tool to allocate annual changes inresources. We do not post the RCM revenue and expenseallocations directly to accounts. Only the net lump sum budgetchange is posted to a college account.2211

9/18/2017Operational Impacts of RCMDeans Allocate Resources Within Their College The Provost discussed with the Deans the importance offollowing the principles of RCM and activity based budgeting. Deans determine where funds are allocated within theircolleges. No two colleges are expected to make allocations inthe exact same manner.23Implementation Questions to Colleges What shared governance advisory groups will you utilize in determining how RCM will be set up in your college?How will the changes in instructional activity be recognizedwithin the college when allocating funds?How will the changes in sponsored activity be recognizedwithin the college when allocating funds?How will the changes in the use of space be handled withinyour college?What percentage of the change in allocated revenue will beheld at the college for strategic investments?What percentages of reserves will be held at the college tohandle year‐to‐year changes in activity within RCM?2412

9/18/2017http://rcm.arizona.edu2513

Keys to Success Full support of university leadership Inclusive process that includes all areas of campus Communication Availability of reliable and timely data Transparency Lots of Input Steering Committee Cross section of deans, department heads, faculty,