The University's announcement Tuesday that it will implement a new financing model in fiscal year 2013-14 has not generated much discussion among students. Yet shifting to a budget process known as responsibility center management (RCM) could herald major changes in the University's academic offerings and their attendant costs. Although many of the plan's finer details remain unclear, its general framework will place more control in the hands of those directly administering the University's academic programs. This will allow them to take advantage of new technologies and academic breakthroughs to meet the twin challenges of increased demand for higher education and decreased financial support from the state government.
The purpose of RCM is to decentralize the budget process so that those in control of the individual budget units - i.e., academic entities such as the College and the Engineering School - can exert more influence upon their revenues and expenses. In the University's case, this means many budget decisions now will be made by academic deans rather than the president, the executive vice president and provost, and the executive vice president and chief operating officer. As a result, the budget process should become more efficient since those three top administrators no longer will be burdened with making all financial decisions themselves.
Moreover, it should lead to better-targeted budgets since deans have a much stronger understanding of their schools' specific needs than do high-level administrators. By giving deans the freedom to develop their own budgets, the new model should make individual schools and departments more dynamic and responsive to student needs. For example, if a school determines that additional expenditures on faculty salaries are necessary for it to remain competitive with programs at other universities, then it can propose a budget that will feature corresponding revenue increases.
This may result in new course fees, a tuition differential similar to what the Commerce School imposed earlier this year or enhanced fundraising initiatives. Regardless, it will allow schools and departments to make much more fluid adjustments to rapidly changing circumstances in higher education than does the outgoing model, which allocates money simply according to historical revenues.
The new model also creates incentives for cost-effectiveness that will help the University meet growing demand for its services despite its highly constrained budget. Within the outgoing model, departments and schools have little motivation to minimize their expenses since they receive money from the University based solely upon how much revenue they generate. Thus, they are not rewarded for efficiency measures that could enable them to serve larger numbers of students at little to no cost.
The new model, however, will hold individual budget units directly accountable for both their revenues and expenses. This means if schools or departments can identify ways to serve more students - and thereby increase their revenues - without incurring further costs, they will have more money available to devote to other endeavors. This might spur some programs to experiment with online courses or interdepartmental collaborations as cost-effective ways to expand access to their academic offerings. If a department were to give students the opportunity to enroll in an online class rather than a large lecture course, for example, it could bring more students into one of its degree programs without having to bear expenses related to faculty hiring or classroom usage. Furthermore, since the deans managing these decisions would be more attuned to student feedback about specific departments it would be easier to tailor efficiency measures so they do not conflict with academic quality.
These changes come at a crucial time for the University and higher education as a whole. Politicians and ordinary citizens are asking that more degrees be conferred to meet the needs of the 21st century economy, yet public financial support for this expansion has been lacking. Therefore, the University was wise to adopt a new budget model that will seek to accommodate the first fact while acknowledging the constraints imposed by the second.
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