Decentralized Budget Model “The motivation for moving to this arrangement to structure decision making and budgeting is to balance the traditional independence of academic endeavor against the pressing need for more effective utilization of academic resources” (Strauss, 1959).

Public Higher Ed in the 21st Century – The situation • • • •

The “social compact” has been compromised Resulting in cost shift and crippling debt Tuition escalation alongside stagnant family income Social mobility at risk!

– The challenge • Increase quality, efficiency and access

– The stakes • Long-term economic prosperity

What is the idea? Decentralized budgeting aligns authority with responsibility:  Transferring revenue ownership to the schools and colleges  you keep the revenue you generate  Covering the direct and indirect costs of operations out of your revenue  Promoting efficiency and a focus on quality service  Shifting the focus from annual expenditure increments to annual revenue growth

Why budget realignment now?  Respond to declining state support by growing and diversifying non-state revenue  Incentivize leaders to be entrepreneurial and responsive to changing market  Continue to “bend the cost curve” and focus on both efficiency and quality

Simple Budget Flow Revenues -

Revenues are owned by the unit in which they are generated.

Tuition Indirect Cost Recovery % State Appropriation Other Direct Revenue (Gift, Sales, Fees, etc.)

Revenue Centers -

Direct Expense From this revenue, units cover their direct expenses and a share of institutional overhead.

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School/Colleges Auxiliary Others

Salaries Benefits Non-Compensation Bad Debt

Institutional Overhead -

Facilities Technology Student Affairs Safety and Security Administration and Finance

Revenue Center “RC” - units of the university that are responsible for both the revenue it earns and the expenses it incurs.

Revenues    

Tuition Gifts Endowment Research & Service Income

Expenses (Direct/Indirect)         

Salaries Benefits Human Resources General Accounting Security Facilities & Utilities Space Libraries Technology

Support Center Generates little or no revenue, but does incur costs:     

Administration and Finance Facilities Campus Safety Information Technology Libraries

The revenue centers (colleges, auxiliaries, etc.) cover these support costs through an assessment or overhead allocation

Managers of these areas are accountable for cost and quality of services provided to the university – Must be customer focused and value driven

Goals • a desire to create an environment of improved financial planning; • a budget system that is transparent, easy to understand and well communicated; • financial resources should support academic priorities, revenue generation should not be the lead or sole factor in the decision making process; • units (“revenue centers”) responsible for generating the revenue should be able to keep the revenue generated; • access to reliable data and standard reports; • the importance of periodic review to ensure the budget model is continuing to meet the needs of the university community and is responsive to the broader macro environment; and • promoting shared governance to ensure broad understanding of participation in and fiscal matters among faculty and staff.

Guiding Principles • Mission-driven:

In order to support the university’s mission of providing an excellent education at an affordable cost, Temple’s budget practices must contain appropriate incentives to support academic quality and efficiency. Certain priorities, initiatives or activities that are central to the overall university mission may require the financial support of the revenue centers. The budget model recognizes that Temple’s primary mission is to support its teaching and research enterprise first, and its goals and success supersede those of the individual units and revenue centers.

• Align Authority with Responsibility and Accountability: The closer the

point of an operating decision is to the point of implementation, the better the decision is likely to be. Realign the authority for making decisions with their financial outcomes. Authority to make decisions should be pushed down to the revenue centers along with the responsibility or accountability for such decisions.

• Fairness: the budget model should be consistent, predictable and transparent. Considers a student-focused approach to the delivery and funding of services to ensure equitable access to services and facilities while allowing for schools/colleges to offer additional services to their students.

• Encourage Innovation, Entrepreneurship and Efficiency: Create and

introduce financial incentives to encourage and recognize appropriate risk taking and efforts to enhance revenue or reduce expenses. Support and reward units for interdisciplinary collaborations and discourage unnecessary internal competition.

• Simplicity: The budget model, including the allocation of revenues and indirect expenses, should be simple to understand, explain and maintain.

What does this accomplish? Realigns academic priorities with resources Focuses on mission both at the university and college level Engages school/college leadership with entrepreneurial spirit Rewards strong strategic management and performance Facilitates long-term planning Drives a market focus Promotes administrative efficiency, reduces service duplication and enhances space utilization • Creates a climate of transparency and public accountability • • • • • • •

Implementation is Critical 

      

Top-level Support – without it, implementation will be unsuccessful. Leaders must have access to financial expertise and timely and comprehensive reporting to be successful Simplification of Assessments - very complex in the beginning, simplified before implementation User Involvement – users must be an integral part of the process Communication – meet with anyone, anytime, anywhere. Credible Governance – assurance that model will be fair and equitable. Unhealthy internal competition is monitored and academic quality issues addressed Automatic Year-end Balance Rollover – without this, incentives do not work Simplicity for Decision Makers – leaders need to be able to understand the model and the financial effects of decisions quickly and easily Avoid Acronyms such as RCM, RCB, DBS – they take on a meaning of their own and impede progress

Timeline • Full implementation of a decentralized budget model typically takes 3 years • Temple’s target to full implementation is 2 years (FY2015) – FY2013: Develop decentralized budget model parameters and infrastructure (development phase) – FY2014: Run/test decentralized budget model (testing phase) – FY2015: Full implementation of decentralized budget model (implementation phase)

Questions? For more information and news about DBM: www.temple.edu/cfo