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Update on Responsibility Center Management

Budgeting method for USF Tampa will enter its second phase on July 1.

Responsibility Center Management, a budgeting method customized to USF’s needs and created to provide colleges based at USF Tampa with greater financial insight and autonomy, will enter its second phase on July 1.

“President Genshaft and her senior team launched this endeavor with a long-term view to the university’s mission and strategic development, and current plans are in line with USF’s pursuit of preeminence,” said Greg Teague, PhD, chair of the RCM Advisory Committee and an associate professor of Mental Health Law & Policy.

“The transparency of this model will help decision-makers throughout the university understand sources and uses of financial resources and to act more strategically. We are developing our model, but we expect it will improve fiscal predictability and foster greater dialogue within and across colleges and support units, leading to more productive and collaborative activity.”

Like most universities, USF has historically taken a centralized approach to financial management. Deans have managed their personnel and other college-specific expenses, but not revenues generated from tuition or their college’s share of support services, such as those provided by the USF Police Department, library, human resources and facilities maintenance.

“Traditionally, the way of managing resources has been quite top-down,” Dr. Teague said. “An RCM approach will give colleges greater responsibility for managing their own bottom lines. Deans should come to understand better how university resources are both generated and expended and what they might do to operate more efficiently and effectively.”

Under the RCM model, each revenue-generating “responsibility center” within Academic Affairs at USF Tampa—including the colleges of The Arts, Arts and Sciences, Behavioral and Community Sciences, Education, Engineering, Global Sustainability, Marine Science, and the Muma College of Business—will have access to a bigger-picture version of its budget. RCM does not involve USF St. Petersburg or USF Sarasota-Manatee. USF Health colleges already operate with some features of RCM and will be integrated more fully into the overall RCM model over time.

“The RCM model takes USF’s central budget and recasts it to show how each college’s budget would look if it were independently responsible for balancing its own revenues and costs,” explained Mark Gaesser, senior enterprise resource planning analyst in USF’s Division of Resource Management & Analysis. RMA, headed by Nicholas Setteducato, is centrally involved in design and management of the RCM model, under the direction of USF’s CFO, Nick Trivunovich.

“The deans will notice that the college-specific budgets in the RCM view will include more information than they have seen in the past, including a share of USF-wide support costs, determined by a cost-spreading equation, and the college’s share of income it generates,” said Gaesser. Transparent availability of this information will be critical to colleges achieving the gains in autonomy and accountability that RCM models are intended to support.

Phase one of RCM implementation was put in place during fiscal year 2016-17,but has so far been applied only to marginal increases in tuition and performance-based funding, a relatively small part of overall educational and general (E&G) funding, which includes general revenue, lottery dollars, tuition and fees, and performance-based funding. Several working groups of staff and faculty have continued to refine components within the overall RCM model to be used in the next phase.

Phase two of RCM begins at the start of the 2017-18 fiscal year on July 1. At that point, the RCM model will be applied to most E&G funding, but it will run only in parallel with USF’s traditional budgeting system, not affecting how colleges receive funding or operate, while providing deans with more in-depth information than they had previously.

During this second phase, deans will see a hypothetical distribution of E&G revenues to colleges, based primarily on RCM allocation formulas. These formulas will be largely activity-based, drawing on the colleges’ actual activities in research, instruction, and other outcomes, including those captured within the existing Planning Performance Accountability (PPA) framework. Support units will also be encouraged to submit detailed budget request prototype forms, providing the responsibility centers more information about the services they receive and fund.

Phase two will also include live implementation of a different budget component.Starting in July 1, indirect research cost recovery funds, also known as facilities and administration (F&A), will be directly distributed to colleges in a way that differs from the traditional approach and is integrated into the RCM model. Quarterly reports will compare the colleges’ RCM budgets with their actual financial performance.

In addition to providing valuable information about potential impacts of budgetary decisions within an RCM framework, this phase will provide the opportunity to further develop the necessary budget-management tools and procedures and to evaluate and adjust the model itself before full implementation.

The third phase of RCM implementation will apply to fiscal year 2018-19, starting July 1,2018. The RCM model will be fully in effect, not just in parallel, and will continue to include regular monitoring of results.

Dr. Teague emphasized that as RCM is rolled out, colleges will be “held harmless” from adverse effects of shortcomings in model design. The intent is to make a relatively seamless transition, with initial budgets very close to existing ones, and no radical departures in direction. Although USF’s transition to RCM reflects commitment to its fourth strategic goal in having a predictable and sustained financial base, commitment to other strategic priorities in areas of student success, research and innovation, and partnerships endures.

An important element guarding against potential damage will be effective communication about what RCM actually entails. Actions taken on the basis of incorrect assumptions about the purposes and effects of RCM can be counterproductive.

One critically important unintended consequence to guard against is the potential negative impact that actions taken by any one college could have on others. For example, effective caps on tuition and overall enrollment can lead a college to seek growth through tuition revenue that would otherwise be generated in another college, yielding no overall gain for USF. An effective model will have to include incentives for cooperation and collaboration in the context of the university’s overall strategic plan, spurring initiatives that benefit the colleges involved as well as the institution as a whole. In the absence of clear information about pending changes, some undue competitiveness between colleges has already arisen; clarity cannot come too soon.

“This is a work in progress,” Dr. Teague said. “We are building a model that works for USF, not imposing on ourselves something from the outside. The primary reason for having an advisory committee, representing faculty and administrators at various levels across the university, is to have a mechanism to monitor the effects of RCM and recommend changes to correct unintended negative consequences and enhance beneficial effects. We will get feedback and adapt the model it so that it works to generate optimal results for us.”

While USF’s RCM model will be uniquely tailored to this institution, RCM designers here have carefully considered information on best practices from the Business Affairs Forum of the Education Advisory Board and studied the RCM models at several universities, including some members of the prestigious Association of American Universities. Positioning itself for AAU membership is part of USF’s 2013-18 strategic plan.

RMA’s Setteducato noted that some universities found that they had gone to an extreme in developing their RCM models. “They had undermined their capacity for strategic maneuvering and needed to moderate their approach,” he said. CFO Trivunovich agrees that this outside guidance has been helpful. “We have moved slowly but also carefully; watching other universities’ successes and mistakes is allowing us to optimize RCM for USF.”

Dr. Teague said that RCM models already in place at other universities have the potential for positive effects that go well beyond dollars and cents. Transparency seems to be a critical factor. “We heard from one university that the communication and review mechanisms they had applied had generated a tremendous amount of empathy across the academic units and the support units. They had come to understand each other and interact in a more collegial way,” he said.

“RCM models also create more opportunity for entrepreneurial behavior.” This, too, is a core mechanism within RCM – providing incentives for generative engagement by people closest to actions that can enhance USF’s long-term fulfillment of its mission.

For more information on RCM, visitusf.edu/business-finance/resource-management-analysis/rcm

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