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Responsibility Center Management: A New Vision for Drexel’s Budget

Oct. 15, 2014

Dear Faculty and Professional Staff Members:

If you are involved in creating and managing a budget at Drexel, you are likely aware that we are changing how we allocate revenues and costs University-wide. Even if you don’t participate directly in the budgeting process, you should make yourself familiar with this transformation—it reflects not only administrative but also strategic priorities of the University.

Drexel is adopting a Responsibility Center Management (RCM) model of budgeting, under which our revenue-generating units are wholly responsible for managing their own revenues and expenditures. RCM creates stronger incentives for revenue growth and cost management at the level where leaders can best respond to such incentives. It also makes it easier to translate strategic goals into management and operating plans.

Under RCM, the University’s revenue is assigned to the units that generate it. Known as “Primary Units,” these include colleges and schools, centers and institutes, athletics and auxiliary enterprises such as campus dining. Primary Units pay their own direct expenses and manage their own strategic investments. They also pay a share of expenses for non-revenue-generating units that provide services. Those “Administrative and Support Units,” in turn, operate with full transparency under RCM and are expected to annually justify their funding levels. Primary Units also pay a percentage of their revenue to a “One University Fund” to enable investment in strategic priorities managed at the University level.

RCM offers a number of advantages over Drexel’s traditional incremental model of budgeting: full transparency into budget decisions, enhanced stewardship of funds, incentives for academic innovation and a data-based approach to resource allocation decisions. We expect RCM to lead to a sharper focus on revenue growth in colleges and schools, an expanded research portfolio, stronger cost controls across the University and continuous improvement of administrative operations.

The new model is being implemented over a three-year period. For FY15, the traditional budget remains in place, but administrators will have access to reports that show them what their financial performance would look like if RCM were in place. In FY16, Drexel will operate under RCM but observe a “hold harmless” period in which the financial impact of the new budget will be managed centrally—this gives leaders of Primary Units time to identify and address unintended consequences of the model. All administrators will be fully accountable under the new budget in FY17.

I want to commend the Steering Committee that designed the process with input from all stakeholders; the Implementation Committee that is managing the transformation; and the Faculty Senate, which plays an important role in oversight. Each has done an outstanding job bringing us to this point—now it is up to all of us to understand RCM and maximize the value it can bring to Drexel’s management and operations. The Implementation Committee has created an extremely informative website describing RCM at Drexel. No matter your role, I encourage you to visit the site and read the material posted there.

Sincerely,

John A. Fry
President