Following several months of work and conversations across the UAB enterprise, the university Budget Advisory Committee has determined that an extended implementation plan for UAB’s new responsibility center management (RCM) budget model is in the best interests of the institution.

A phased approach through FY 2021

A “shadow year” in fiscal year (FY) 2018 — which has modeled the use of an RCM-based budget, while using the traditional budgeting process for the actual university budget — will be followed by a phased rollout of RCM-based budgeting starting with FY2019 (which begins Oct. 1, 2018).

For FY2019 (Oct. 1, 2018 – Sept. 30, 2019), 95 percent of the university budget will be based on the historic (current) model, with 5 percent of the historic budget funds flowing through the new RCM model. Those percentages will shift to 85 percent historic and 15 percent RCM in FY2020, and 70 percent historic and 30 percent RCM in FY2021. Incremental funding in each of these three fiscal years will be allocated based on the RCM budget model. A formal evaluation in the last quarter of FY 2020 will determine a new, post-FY2021 three-year plan. (See a graphic depiction of this timeline here.)

100 percent committed to new budgeting process

“We are 100 percent committed to the principles and benefits of the new budget model,” says Allen Bolton, UAB Senior Vice President for Finance and Administration and co-chair of the Budget Advisory Committee, “and our modeling and ongoing communications with the campus community has led us to a rollout plan that will provide more stability and predictability throughout implementation. Any new budget model challenges the status quo and such disruption, when managed appropriately, can lead to better performance and alignment. That’s our goal.”

The new timeline substantially smooths the financial transition into a new budget model, both for UAB schools and central administration, notes Pam Benoit, Ph.D., Provost and Senior Vice President for Academic Affairs and co-chair of the Budget Advisory Committee. The approach also “creates the multi-year planning horizon that has been requested by our deans,” she says.

“It’s a very positive move — it demonstrates that the senior administration has listened to feedback,” notes Eric Jack, Ph.D., Dean of the Collat School of Business. “Our business model is pretty simple: hire the best and brightest and challenge them to help our students succeed in the classroom. To do that, you need to be able to forecast what is coming. This new ‘glide path’ allows the schools to combine what we’ve been doing with the RCM approach to make the decisions we need to run our schools.”

“With an organizational change as significant as RCM, the success of your implementation is more important than the speed in the long run,” adds Dawn Bulgarella, Chief Financial Officer for the UAB Health System and Senior Associate Dean for Administration and Finance in the UAB School of Medicine, who is a member of the Budget Advisory Committee. “The three-year phased-in approach gives all of us added time for data analytics, strategic planning and exploring every idea for cost effectiveness.  We need to use the time to continuously evaluate our approach and ensure we are working together.”

Assessing impact

 “This phased approach allows us the necessary time to work collaboratively and thoroughly toward agreement on key elements of the model, including service-level standards, reserve balances and support of interdisciplinary work,” Benoit points out.

Robert Palazzo, Ph.D., Dean of the College of Arts and Sciences and a member of the Budget Advisory Committee, says the extended timeline “will allow for careful, strategic, implementation of the new RCM budgeting model while minimizing risks and unintended consequences of implementation.” The proposal was “very well received” at a joint meeting of UAB deans and financial officers, he adds. “Careful year-by-year impact assessments will inform the university community of whether or not implementation is having the positive impact intended or if there are minor adjustments needed as we move forward. The phased implementation approach will allow deans and portfolio owners the ability to make immediate decisions while providing the flexibility needed to gauge the impact of the dynamics of RCM implementation over the next few years.”

“We want to be sure the deans and fiscal officers understand the impact of RCM, and it is hard to take all that in during a single-year shadowing period,” says LaKisha Mack, Associate Dean for Administration and Finance in the School of Medicine, and co-chair of the Budget Allocation Committee. “The advantage of this phased approach is that it allows us to better model the impact of RCM on the schools and units. By giving the fiscal officers an opportunity to do a deeper dive, we can really understand all the implications and explain them to our deans and other leadership.” The Budget Allocation Committee is charged with assuring that support centers provide value to the university community, aligning service activities with the institution’s vision and mission, and promoting administrative efficiencies. “We’re really able to have an open dialogue,” Mack says. “It’s a collective group from across campus making these decisions, and it will result in a much more transparent allocation process.”

Shared governance in action

Benoit explains that the decision is an example of the respect for shared governance — a point also made by Jennifer Pollock, Ph.D., a professor in the Division of Nephrology and Faculty Representative on the Budget Advisory Committee. “Several groups on campus requested a more deliberate approach to rolling out the new budget model, and the committee looked at that and decided we could make it work,” Pollock says. “It would also be the ‘UAB way,’ as opposed to trying to fit a model that has worked at other schools into our unique circumstances here. We want to listen to people and adopt the new model in a way that is fair and transparent.”

“I think it’s great that we’ve had a listening period for the university staff, faculty, students and even alumni to participate in the new budgeting process,” says Michael Reddy, D.M.D., DMSc., Dean of the School of Dentistry and a member of the Budget Advisory Committee. “Slowing down the timeline is important because we want to encourage excellence in education, research, patient care and engagement throughout the university, and our primary goal is to have a budget model that reinforces doing those things particularly well. A lot of RCM models predicate themselves on numbers above all. At UAB, it’s more than that — it’s encouraging people to strive for excellence and innovation.”

Important differences from full implementation plan: Limited “extra” subvention

Because the three-year “glide path” toward the RCM transition is itself the main subvention strategy, there will be limited “extra” subvention dollars during these three years. The portion of budgets that are based on historic base support levels (95 percent in FY2019, 85 percent in FY2020 and 70 percent in FY2021) will continue to operate under historic budget guidelines related to assessments and obligations.

Important differences from full implementation plan: Merit pools

Because incremental funds are being fully allocated based on new budget principles, discrete merit pools are not being allocated to schools; however, it is expected that schools will use incremental (or redeployed) funding to prioritize and honor institutional merit program targets.

Tracking implementation progress

In order to make sure that the university is on the correct “glide path” to full implementation, the Budget Advisory Committee has established key milestones to track progress. These include:

Last quarter of FY2019 (summer/fall 2019)

  • How many service-level standards (SLSs) are approved and in place?
  • Is there a logical, uniform reserves management approach across the university?
  • Have appropriate recommendations from the Interdisciplinary Task Force been incorporated into the FY2020 RCM component of budgeting?
  • Is any disruption from the phased implementation being managed productively, or are there any unintended negative consequences?
  • Are the enhanced financial reporting capabilities being used effectively?
  • Have we initiated a three-year budget forecasting process?

Last quarter of FY2020 (summer/fall 2020)

  • Has operating revenue growth rate continued or increased?
  • Has operating expense growth rate slowed?
  • Are important interdisciplinary initiatives stable or growing?
  • Is any disruption from the phased implementation being managed productively, or are there any unintended negative consequences?
  • Are there any legitimate RCM-attributable impacts on teaching, research or collaboration?

Learn more about the proposed multi-year transition timeline.


 

Healthy universities require stable funding during periods of turbulence and growth.

Yet, budgets are regularly battered and busted by enrollment growth, decreases in external funding, rising expenses and the need to fund strategic priorities and protect the core mission.

A budget model that better enables academic and administrative units to plan, prepare and support university activities is needed, and evidence demonstrates the institutions that have adopted responsibility center management (RCM) have been more successful doing that by giving each unit control over the income it generates and the expenses it incurs.

The advantages of RCM are that it encourages revenue generation and cost-effectiveness, promotes entrepreneurial thinking, aligns authority with accountability, improves responsiveness to change, enhances the ability to plan and increases revenue transparency.

It does that by providing structure that our existing budget model does not:

  • A conceptual model for funding institutional support needs
  • A clear incentive program to reward visionary planning and production
  • A systematic approach for handling interdisciplinary studies
  • Consistency in funding construction, maintenance and operations

Between now and the beginning of fiscal year 2019, UAB will implement a more comprehensive approach to budgeting that will align activity, responsibility and accountability with the goal of supporting decision-making that moves the mission of the entire institution forward.

Follow our progress here.