“There is no mystery pot of gold in Bryan Hall,” said a faculty member while referencing the William Lowe Bryan Administration Building at Indiana University Bloomington during a 1992 IU faculty council meeting in response to a question about whether units would need to self-fund increased expenditures under their responsibility centered management (RCM) framework.
Thomas Ehrlich, then president of Indiana University, led the first implementation of RCM at a public institution of higher education in the United States, with full implementation beginning in 1990. Former longtime IU economics professor Edward Whalen detailed Ehrlich’s RCM practices in his book Responsibility Center Budgeting: An Approach to Decentralized Management for Institutions of Higher Education (Indiana University Press, 1991).
Those practices were: (1) all costs and income attributable to each school and other academic unit should be assigned to that unit; (2) appropriate incentives should exist for each academic unit to increase income and reduce costs to further a clear set of academic priorities; and (3) all costs of other units, such as the library or student counseling, should be allocated to the academic units.
At the time, like many other public institutions, IU was facing uncertainty about enrollment and state support. Now, nearly 30 years after RCM implementation at IU, numerous public universities have implemented similar models for decentralization of responsibility and accountability—with many more in the process of doing so or deciding to do so, in part due to continuing concerns about long-term financial security. While not without its difficulties, RCM implementation at IU showed other public institutions a way forward within the constraints of state funding.
As John R. Curry, Andrew L. Laws, and Jon C. Strauss discuss in the second edition of their seminal work on RCM, Responsibility Center Management: A Guide to Balancing Academic Entrepreneurship With Fiscal Responsibility (NACUBO, 2013), there has been a rapid increase in the rate of adoption of the model in a relatively short time. The authors counted fewer than one dozen RCM programs in 2002, but found that 14.2 percent of public universities self-reported operating under RCM by 2011.
RCM in a Nutshell
While the specific parameters of RCM implementation vary by institution, as a model for delegating financial decision-making authority and responsibility to units within an institution, RCM is intended to improve the efficiency and effectiveness of financial operations—and presumably, the overall performance of the institution—by embracing decentralization as an asset. Essentially, RCM divides institutions into budgetary units, and each unit is more responsible than in a centralized model for financial decision making.
Under RCM, each unit is responsible for its bottom line, using a combination of direct (e.g., tuition and service fees) and indirect (e.g., state appropriations and unrestricted giving) revenues to fund its direct (e.g., personnel and other than personnel services) and indirect (e.g., allocated costs of executive management of the institution, facilities) costs.
In his article “Beware Higher Ed’s Newest Budget Twist” in the journal Thought & Action, Leroy Dubeck, a professor of physics and longtime member of the faculty senate budget committee at Temple University, Philadelphia, listed many of the complex questions that institutions should address prior to RCM implementation and warned of the potential issues associated with its use. Dubeck’s list of concerns included how institutions should distribute state appropriations, allocate indirect costs, set tuition rates, set admission requirements, govern distribution of space, work with unions, and adapt to an ever-changing external environment.
As he noted, these are not easy questions for institutions moving to an RCM model to resolve; these issues may still need to be handled centrally, even within the decentralized environment of RCM.
Gauging RCM Success
While many institutions have attempted to implement RCM, many have struggled and some have even turned back, fully or partially, due to the difficulty of achieving success. Given the complexity of change in higher education organizations, I conducted a study for my dissertation seeking to discover: (1) whether institutions that begin the RCM transition process exhibited the practices of RCM upon full implementation; and (2) whether these institutions felt they successfully implemented the model. My intention was to provide potential or future RCM adopters with more information to consider before making their decisions, as implementation is not an easy road.
My study consisted of a survey sent to employees at seven public, R1 universities around the country that implemented RCM in FY11 to FY17 (see sidebar, “Survey Respondent Details”). Respondents were asked closed- and open-ended questions about their RCM implementations. They were also asked to self-identify their unit type (e.g., central, school/college, or other) and position type as executive (e.g., provost, president, dean, or vice/senior vice provost/president); senior (e.g., associate/assistant dean, provost, or president); middle (e.g., analyst, manager, or director); and faculty (included in the invitation if they had an identifiable role in planning or implementing RCM).
Of the 669 employees who received the survey, 141 returned responses, which revealed sometimes considerable differences in opinions about the practices of RCM at the institutions and the extent to which their implementations were successful. For example, opinions of RCM often corresponded to how well respondents’ units fared in their models, with one senior central leader writing: “There are winners and losers in RCM. Winners generally are more positive about it, and losers think it’s a broken, failed system.” As one dean, whose school has done well under RCM, wrote: “Best thing we have done in 30 years.” While another dean at the same institution noted: “We are currently running a deficit in my college that did not exist under the old accounting system.”
Level of Implementation
For the purpose of this study, the practices of RCM were defined as attribution of direct costs and revenues of each responsibility centered unit; allocation of indirect costs based on predefined metrics; decentralization of responsibility; and incentivization of behaviors that increase revenues, reduce costs, and further institutional priorities. The first question of the survey was: “To what extent did the represented institutions implement the practices of RCM?” While 90 percent of respondents believed direct cost allocations were occurring in their institutions, respondents were much less certain about the allocation of pieces of the budget not typically allocated under incremental models—the revenues and indirect costs.
When asked about decision making under their RCM models, responses differed based on respondents’ roles. For instance, central leaders were more likely to disagree that decision making largely resided with central administration, whereas school leaders were more likely to believe they were not being included or consulted on crucial decisions as much as they thought they would be under RCM. Midlevel leaders were more likely to disagree that decision making occurred at all levels of the institution, most likely because they sit deeper within the organization than other position types and thus are keenly aware if they are not involved in decision-making processes. These findings indicate that the represented institutions did not reach the level of true devolution of responsibility, instead landing (at best) with delegation.
One takeaway from exploring this question is that, for both individuals and activity centers, institution leaders must be prepared to answer the question “What’s in it for me?” The presence of incentives in RCM models is key to ensuring a focus on advancing the mission of the institution. Yet, fewer than 40 percent of respondents at least somewhat agreed that there were clear and worthwhile incentives built into their RCM models. Respondents pointed to the difficulty of incentivizing mission-critical yet nonrevenue-generating activities and disincentivizing behaviors perceived as harmful to institutional mission. This suggests future implementers should spend additional time in their planning processes discerning the mission-critical activities they would like to sustain or grow as well as how to accomplish them under a new financial model.
Success of Implementation
The second question of the survey was: “Did the represented institutions achieve success in their implementations?” This question produced some considerable differences of opinion.
Beyond asking directly whether respondents believed their institutions had achieved success in their RCM implementations, this study focused on five keys to implementation success:
- Leadership, including having clearly delineated roles and responsibilities of central and unit leaders and full commitment from central and unit leaders.
- Planning, including widely shared implementation strategy and timelines (and following them) and collaboration and inclusion in the planning process.
- Communication, consisting of inclusive, timely, and transparent communication that engages the entire university community.
- Attention to resources, including training for employees at all levels and having sufficient financial, technical, and human resources to both implement and maintain the model.
- Continuous improvement, consisting of relevant performance indicators that are regularly monitored and addressed and refining the model to fit the needs of the institution.
Of the 21 questions relating to successful implementation of RCM, responses to seven questions reflected statistically significant differences between central and school leaders. For instance, central leaders were much more likely to agree that their institutions successfully implemented RCM.
Central leaders were also moderately more likely than school leaders to agree that their institutions: implemented RCM in line with their strategies and timelines, operate in accordance with clear operational manuals and procedures, provide ample training for all employees, and have sufficient resources to operate their RCM models effectively.
Central leaders were also moderately more likely to agree that: their university communities were informed about the change to RCM and its implications, their RCM models were adapted to meet institutional needs, and that leaders work to make changes to the RCM model if aspects do not meet the needs of the institution.
Fewer than 75 percent of respondents at least somewhat agreed that central and school leaders worked well together, suggesting a lack of shared understanding. There were frequent responses citing lack of good planning and transparency and lack of agreement that an implementation plan was in place or being followed.
Only 38 percent of respondents at least somewhat agreed that the resourcing of RCM planning, implementation, and maintenance was sufficient for the institutions represented to operate effectively, thus contributing to the negative effects of implementation listed by respondents. These negative effects included unreliable data, mistrust among units, untrained faculty and staff, and strong adverse reactions to the change.
Some aspects of continuous improvement of RCM models were in place at the represented institutions, but the institutions were not making certain that the chosen RCM models were being monitored and updated to meet institutional needs. This was indicated by numerous respondents who hoped their models would be reviewed soon and suggested changes they would put in place, if given the chance.
There were not strong responses saying innovation and entrepreneurialism were present or increasing with their models. More respondents talked about incentives and the effects those had, and usually not in a positive way. However, innovation and entrepreneurialism were also on the minds of the respondents, as many wrote about revenue-generating units changing their behaviors in response to RCM metrics, market (especially student) demands, and availability of extramural funding.
More than 80 percent of respondents believed their institutions had diversified funding sources post-implementation, and many wrote that this change was due, in part, to the increased transparency of university finances resulting from the change to RCM. Respondents were less sure about their institutions’ ability to adapt to expanding and changing demands, as slightly more than half at least somewhat agreed that their institutional leaders worked together effectively to meet external demands.
Responses were mixed when participants were asked about cross-disciplinary and outward-facing activities. Fewer than half of respondents believed their academic departments had embraced the change to RCM, though nearly three-quarters believed the behaviors of the departments had changed in response to RCM implementation. This disconnect was best evidenced by a faculty member who shared that half of the department heads at his or her institution had admitted to lowering the quality of education in response to RCM implementation, and only one-third of department heads expressed satisfaction with the model, which led to a letter from the faculty to the president of the institution asking for RCM to be abandoned.
When asked directly, only 53 percent of respondents at least somewhat agreed their institutions had implemented RCM successfully. Responses to other questions fell in line with this measure, supporting the conclusion that success was not fully achieved at the implementing institutions.
The Good, the Bad, and the Unknown
Respondents in this study listed numerous negative effects of RCM implementation at their institutions, including decreases in collaboration and interdisciplinary work, increased mistrust and competition among units, confusion about the model, lack of enterprise systems to support the increased data needs, lack of clarity about the purpose and administration of unit subsidies, decreases in academic rigor, increased administrative burden, unclear and/or unevenly administered incentives, and uneven devolution of RCM within units. Notably, many respondents felt that the implementation of RCM led to an emphasis on money over mission.
Although respondents frequently listed negative effects of implementation, many were able to see the potential benefits of successful implementation, even if that success was not achieved within their institutions. This sentiment was echoed by others who felt that their institutions had implemented some of the bad aspects of RCM, while leaving out or postponing some features that could have improved their models. For instance, one respondent gave the example of implementing metrics for distributing tuition based on credit hours and enrollment without sufficient governance structures in place to prevent course poaching. Another respondent gave the example of implementing subsidies for units without providing clarity about the long-term outlook, management, and purpose of such subsidies, thereby preventing units from engaging in meaningful multiyear planning.
Participants often listed how their institutions stumbled in their implementations, but they did note many positive effects associated with RCM. These included the ability of the units to control their own destinies, increased transparency, increased discussions and understanding of university finances, attention to the financial implications of decisions at the unit level, and increased efforts by units to engage in entrepreneurial and innovative activities that their previous budget models either did not support or did not incentivize.
As evidenced by the institutions represented in this study, institutions looking to implement RCM should be aware that such a large change requires careful navigation of a difficult path often fraught with potential pitfalls. While participants in this study did not wholly agree that their institutions had fully implemented the practices of RCM or had achieved success in their implementations, that is not to say that institutions cannot successfully do so. One dean, despite vehemently disagreeing with the idea that the institution had successfully implemented RCM, presented an example of an institution the dean believed had implemented the model well, and there are many institutions that have kept RCM and RCM-like models in place for years.
Furthermore, responses from participants at the institutions represented in this study suggest that institutions may successfully implement RCM if they:
- Communicate well.
- Have strong, committed, and inclusive leaders.
- Are mindful of their personnel, financial, and technical resources.
- Engage in implementation planning and proceed in accordance with those plans.
- Continuously improve their models to meet the evolving needs of the institutions and their stakeholders.
Limitations of the Study
Institutions looking to use these findings to guide their thoughts around RCM implementation should keep the limitations of this study in mind. First, I do not know whether responses from the portion of the sample that did not respond would have significantly differed from the portion that did respond.
Second, this study has limited generalizability given the number of variations of RCM, which prevented effective comparisons of the RCM models. As such, this study only focused on whether respondents believed their institutions were able to implement the basic practices of RCM and were successful in doing so, not the extent to which the change affected university finances or other long-term impacts.
Finally, this study was limited by the individual respondents’ recollections, potentially tainted by their current experiences within the institution. Limitations aside, conclusions arising from this study could be useful generally to inform leaders of higher education institutions wishing to implement RCM about potential areas of concern or areas to which they should pay extra attention, tailoring the conclusions to the circumstances within their institutions.
KATIE WALKER is associate director, fiscal planning and analysis, office of budget and fiscal planning, University of Colorado Boulder.