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
A phased approach
After a “shadow year” in fiscal year 2018 — which modeled the use of an RCM-based budget, while using the traditional budgeting process for the actual university budget — UAB began a phased rollout of RCM-based budgeting in FY2019 (which began Oct. 1, 2018).
For FY2019 (Oct. 1, 2018 – Sept. 30, 2019), 95 percent of the university budget was based on the historic (current) model, with 5 percent of the historic budget funds flowing through the new RCM model. Those percentages shifted 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 was allocated based on the RCM budget model. A formal evaluation conducted in FY 2020 will be used to determine a new, post-FY2021 three-year plan.