How Does it Work
Drexel’s historical budget model was incremental in nature. In its simplest form, it rolled units’ prior year operating budgets forward and either added or subtracted some amount of funding to those figures. This approach did not tie activity levels (e.g., enrollments, credit hour production, research activity, etc.) directly to funding and therefore sometimes resulted in non-equitable and/or non-transparent funding allocations. The redesigned budget model is intended to remedy these issues and utilize a data-driven approach to resource allocation. While there are many differences between Drexel’s historical approach and the redesigned model, the most material differences are outlined as follows.
Allocation of Revenues
Following the inclusion of all operational funds, the next biggest difference between the legacy and redesigned budget models relates to University revenues. Whereas Colleges/Schools were traditionally expected to budget only unrestricted direct expenditures, the new model calls for each of these “Primary Units” to budget for revenues and manage to a bottom line (revenues less expenses). In short, Primary Units will be allocated the revenues that they are responsible for generating. The most significant source of revenue at a private institution such as Drexel is undoubtedly undergraduate tuition. The model aims to allocate out these resources equitably, through an algorithm that considers both instruction of courses and college-level enrollments, as well as research activity. Institutional, non-specific student fees are also allocated to the Primary Units based on enrollees. In addition to these activity-based allocations, Primary Units are directly allocated, and expected to budget for, all other revenues that they generate (graduate tuition, grants and contracts, Facilities & Administrative (F&A) recoveries, private gifts, investment income, and other miscellaneous revenues). The allocation of these funds is intended to empower Deans to be entrepreneurial and grow revenues, allowing for both unit level growth and overall improvement of the University’s financial position.
Allocation of Indirect Costs
Although some Colleges/Schools at Drexel have historically monitored both their revenues and expenses in an attempt to understand their bottom-line margins, few have considered the indirect costs associated with the University’s administration, facilities, or other central services. The redesigned budget model seeks to allocate these administrative and support costs equitably to the Primary Units based on several activity-based drivers, such that each unit is truly “fully costed” (pays for all relevant costs, direct and indirect). These central administrative units exist such that the Colleges/Schools and other “consumers” of their services can themselves function effectively, so it logically follows that those revenue-generating units should bear the relevant costs. In being allocated these costs however, it also follows that the consumers will have transparency into the administrative units’ cost structures such that they can determine if service levels are appropriate and representative of those allocated costs.
One University Fund
The final material difference between Drexel’s legacy and redesigned budget models is the use of a participation fee. Whereas the central administration traditionally pooled all of the University’s revenues and allocated them out discretionarily, the redesigned model directs those revenues to the units responsible for their generation (Colleges, Schools, Research Centers, and Auxiliaries). This approach leaves the central administration with few, if any resources, to invest in strategic initiatives, and also leaves some Colleges/Schools with negative operating margins. To remedy these issues, a “participation fee” of 17% is applied to select revenues (all excluding direct sponsored revenues, gifts, and endowments) to create a pool of funding to be controlled by the Executive Budget Committee (EBC) which is comprised of the President, Provost, and EVP for Finance, Treasurer, and COO. This pool can then be used to subsidize Colleges/Schools or other revenue generating units with negative bottom lines, and to invest in institutional and/or program-specific strategic initiatives.
Whereas Drexel’s historical budget model pooled resources centrally and then allocated them based on historical and/or incremental needs, the redesigned budget model directs all revenues to the units that generate them. The graphic below illustrates, at a high level, how resources flow through the institution according to the parameters of the redesigned model.
As illustrated, the overwhelming majority of University revenues flow to the Primary Units, with only limited revenues flowing to the Administrative & Support Units (A&S) (typically unrestricted operational gifts and endowments). Those Primary Units then use their revenues to cover any direct costs incurred, contribute to the One University Fund (subvention), and are allocated indirect costs related to consumption of central services based on a selected activity-based cost driver (e.g., credit hours taken by students within a given college). Dollars accumulated in the One University Fund are controlled by the EBC, and are used to subsidize any Colleges unable to cover total costs (including A&S allocations) with existing revenues, and to fund additional strategic initiatives of the University, which may include injection of additional funds into A&S unit budgets.