Responsibility Center Management
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 offers a number of advantages over Drexel's traditional incremental model of budgeting: increased transparency into budget decisions, enhanced stewardship of funds, incentives for academic entrepreneurship and a data-based foundation for resource allocation decisions. It will lead to a sharper focus on revenue growth in our colleges and schools, an expanded research portfolio, stronger cost controls across the University and continuous improvement of administrative operations.
The RCM model promotes:
- Encouragement and reward for revenue generation and cost effectiveness
- Alignment of authority and accountability at the local level
- Alignment of revenues and expenses
- Greater transparency regarding sources and uses of institutional resources
- Greater financial flexibility and improved responsiveness to change
- Enhanced ability to plan with a better sense of future resource flows
- Efficient operation of administrative units as they are expected to demonstrate that service levels align with operating costs
- Facilitation of conversations surrounding institutional priorities
- Translation of strategic goals into management and operating plans
In late 2012, Drexel University elected to conduct a broad-based review of its administrative processes, using an outside firm to provide an unbiased assessment. The “Strategic Transformation of Administrative Resources” or STAR Project launched in December 2012 and commenced with a series of interviews with academic and administrative stakeholders from all areas of the University, as well as an objective review of hundreds of financial and process documents provided. This initial assessment quickly produced a list of major opportunities aimed at efficiency and/or strategic improvement at an institutional level. Among other important opportunities, redesign of the University’s budget model emerged as a priority area for further analysis.
Across the higher education industry, redesign of historical, incremental budget models has been a popular undertaking in recent years. Indeed, numerous institutions have reimagined their approach to budgeting in recent years, with many shifting to more strategic and data-driven means of resource allocation. Significant changes in the higher education landscape—including increased student price sensitivity, decreased state funding and flat research budgets—have been major contributing factors to the recent popularity of these redesigns across the country, often leading to implementation of incentive-based models. While no two universities design their budget models in exactly the same way, most that undergo a redesign initiative typically do so with the at least some or all of the following goals in mind:
- Change the nature of decision making at both the College and University levels
- Move to a more methodical approach of resource allocation
- Grow revenue through increased enrollments or entrepreneurial activities
- Promote incentives for revenue growth and exceptional stewardship of resources
- Increase transparency surrounding budget processes and allocations
Following Drexel’s selection of budget redesign as an area for further review, a “deep dive” of the institution’s budget processes was conducted and a business case for change was developed and provided to University leadership. From a financial standpoint, it became clear that a redesigned model could improve stewardship of existing resources, empower the Colleges and Schools to grow revenues, and encourage the administration to operate more efficiently while providing improved services. In addition to these operational opportunities, it is worth noting that in its 2013 budget report, the Faculty Senate’s Committee on the Budget, Planning & Development called for a new budget model as a means of addressing the University’s historical problem of “deferred educational maintenance” and specifically hoped that any new model would “be a form of Responsibility Center Management, or RCM.” This statement speaks strongly to academic leadership’s desire for a more empowering budget model. With these financial and academic opportunities in mind, the University elected to proceed with steps to redesign and implement a new, incentive-based budget model, and quickly undertook analysis efforts to identify an approach to resource allocation that would work most effectively at an institution as culturally and operationally unique as Drexel.
In addition to extensive financial analysis, a great deal of stakeholder engagement was sought out to understand specific institutional desires surrounding a new model. This engagement consisted of:
- Numerous Steering Committee meetings aimed at shaping the model’s structure and incentives
- 45+ interviews with individuals from both the academic and administrative sides of the institution
- Multiple presentations to the Deans Council to solicit feedback and desired model components
- Several meetings and training sessions with the College business officers (Academic Administrator Group)
- Two rounds of “one-on-one” meetings with all Deans regarding model components and revenue/cost drivers
Following Steering Committee and stakeholder meetings, a model structure and framework was developed to build out a unique “Drexel Model,” which focused on the following primary factors:
- An all funds approach
- A balance of decentralized incentives and central control/oversight
- Transparency into administrative costs and service levels
- Enhanced durability through phased roll out
Once the model was developed and its rules/processes were well-defined, a comprehensive budget process document was written and shared with academic and administrative stakeholders. The core implementation team reviewed over 130 questions and comments received regarding specific functions of the model, and is currently considering changes to future state processes based on this feedback.