By Jim Sirianni
In my work at ACE, I have the unique pleasure of hosting newly appointed institutional leaders for a range of professional development programs and other events. The topical focus of these meetings depends in large part on the roles the individuals play at their institutions. New department chairs have distinct needs from deans, just as the discussions with recently appointed provosts and presidents differ substantially. In addition to the role-based diversity of our programs, the participants come from every type of institution in the patchwork quilt that is the American higher education system.
Yet despite the differences among roles and the local circumstances of our participating institutions, several themes emerge from nearly every leadership development program we host. One is the imperative to communicate effectively with diverse constituencies. Other prevalent themes are the importance of shared governance and being open to new ways of working together with faculty and staff.
But no theme is more common—or as tension-filled—as budgeting. Higher education institutions and their leaders are experiencing unprecedented pressure to do more with less. How have institutions responded? A common approach has been to evaluate the institution’s existing model for budgeting and planning. If it poorly equips an institution for a period of greater financial uncertainty, another model might be in order.
According to a recent EAB report, 66 percent of institutions use an incremental budget model, where last year’s budget is carried forward with an across-the-board increase or decrease based on institutional resources. While incremental models are common, the perceived downsides are especially relevant for institutions focused on controlling costs and growing in strategic directions.
Responsibility-centered management (RCM) is an alternate method of institutional budgeting. While some institutions have utilized an RCM model since the 1970s, the “every tub on its own bottom” approach has gained significant traction in the last 10 years. The fundamental difference between RCM and incremental budgeting rests in RCM dictating that each academic unit carries its own costs and brings in its own revenue. Academic unit leaders share a small portion of the revenue they generate to cover institutional overhead. Revenue that an academic unit generates from teaching, research and extramural activities in excess of its expenses and the relatively small share distributed to the central administration is the unit’s to reinvest in its mission.
Significant authority for managing the academic enterprise is shifted to deans and other academic unit leaders at RCM institutions. As such, academic heads with an entrepreneurial mindset can flourish in these environments. While some higher education traditionalists remain averse to this distributed leadership approach, most campus leaders who have implemented a version of RCM report that it empowers unit leaders to grow revenue and control costs.
Another commonly seen effect of converting from an incremental model to RCM is increased transparency at the local level. While the cross-subsidization of institutional activities is as old as higher education itself, RCM models encourage academic unit leaders to track the cross-subsidizations within their area. For example, it would be expected that a unit leader would learn if a particular program is functioning far differently than its affiliated programs. Individual academic leaders would draw varying conclusions about the outlier program, and what, if any, action to take. All of this hinges on noticing the outlier, and credit for recognizing the uniqueness of the program goes to the underlying incentives of the RCM approach.
As with every decision institutional leaders face, there is not a single correct solution, and the readiness of the campus community to move forward together cannot be overstated for a high-impact change like the institutional budget model. Whether your institution moves to one of the models described here or a complementary framework, such as a return-on-investment model that higher education finance expert Rick Staisloff advocates, it is important to communicate the rationale for the change and work with stakeholders across the institution to ensure that concerns are heard and changes are implemented with deliberative care.