Where excellence and opportunity meet.™

Budget Study Group Lori Worm, John Koker, Fred Yeo, M. Ryan Haley

26 May 2015

Our Charge

Outline UWO’s current budget model, including strengths and weaknesses.

Outline other budget models used in higher education, including strengths, weaknesses, and specific examples.

Outline attributes of a well-functioning budget model, with a focus on the university-to-college/units budget level.

Desiderata: A Budget Model Should…

be transparent, flexible, and include accountability incentivize cost controls and revenue generation align with strategic planning, mission, values, and shared

governance be installed efficiently balance the academic and economic aspects of higher

education encourage innovation

Current UWO Challenges

No general tuition setting authority Four-year tuition freeze at below average levels Unable to charge market-based tuition rates because of tuition-

price regulation UWO has very low tuition within UWS Cost-to-continue funding will disappear Unpredictable budgets inhibit long range planning Faculty/staff salaries Time to graduation Enrollment needs

Five Budget Models of Higher Ed

IBM: Incremental Budget Management RCM: Incentive-Based Budget Management PBBM: Performance-Based Budget

Management FBBM: Formula-Based Budget Management ZBBM: Zero-Based Budget Management

IBM In Brief

Centralized – allocation determined by university and sent to colleges/units

Prior allocations have heavy influence Budgets are adjusted via increments

IBM: Advantages

Relatively easy to administer Traditionally popular in higher education Can work well when GPR funding is

abundant Induces some stability in year-to-year

funding

IBM: Disadvantages

Little incentive for colleges/units to innovate Little incentive for colleges/units to control costs Little incentive to grow enrollment Can cause imbalanced workloads Tends to falter when GPR funding is low Reallocations are difficult Has a “passive” flavor

RCM In Brief

Decentralized – college/unit budget is generated not allocated

Empowers deans and unit leaders

RCM: Advantages

College/unit budgets are activity based Inherently transparent; easy to understand Clear accountability Incentivizes enrollment growth and program

revenue generation Incentivizes cost controls Increasingly popular in higher education

RCM: Disadvantages

Can cause curricular redundancies and competition for students

May induce too much focus on revenue generation

Can inhibit interdisciplinary programs Can be slow to install Requires budgetary acumen by college/unit

leaders

PBBM In Brief

Semi-centralized Links budget allocation to performance in

areas such as Graduation rates Enrollment Job placement rates

PBBM: Advantages

Generally quite flexible Allows for reallocations across

colleges/units based on performance and need

Incentivizes performance and outputs Allows administrators to directly steer

faculty actions

PBBM: Disadvantages

Defining accurate performance metrics is often difficult

Performance targets can be gamed Monitoring costs can be high Dynamic benchmark problem

FBBM In Brief

Centralized approach that uses extensive formulae to allocate resources

Clinical version of PBBM

FBBM: Advantages

Once established, offers an automated approach to resource allocation

Can help ease political complications of reallocating resources across colleges/units

Instills a form of equity, insofar as the formulae are able

FBBM: Disadvantages

Formula creation can be contentious Requires numerous formulae, which can

become a labyrinth Can result in an over-reliance on formulae Formulae must be well calibrated to avoid

biased allocations Formulae can be gamed

ZBBM In Brief

Centralized approach that re-zeros college/unit budgets each year

College/units then re-justify full allocation each year

ZBBM: Advantages

Forces colleges/units to fully justify all expenses each year, and not just incremental changes to their budgets

Keeps colleges/units focused on producing outcomes to aid the justification process

Allows for reallocation of funds based on need and performance

ZBBM: Disadvantages

Budget requesting process is onerous “selling ability” vs. actual value Can devolve into IBM if central planners

rubber stamp the ongoing budget core (e.g., faculty salaries) and focus instead only on incremental changes

Can induce unstable year-to-year funding

Current UWO Budget Model

Typical IBM for decades Oddly timed budget request process Mostly a cost allocation

Differential Tuition Segregated Fees Fee For Service Chargebacks Cost Recovery Programs (e.g., CAPP) Indirect Cost Recovery (Grants)

A Path Forward?

Do more with less in the low-GPR reality Selecting a new budget model:

Understand the core tenets of the “big five” Select the best model for university needs Create the “right flavor” of the chosen model

Our inquiry suggests RCM to be the best fit Budget Model Installation Committee

Where excellence and opportunity meet.™

Questions?Thoughts?

Comments?