Below are answers to common questions about RCM and about UAB's new budget model specifically. If you have a question that is not answered here, email This email address is being protected from spambots. You need JavaScript enabled to view it. or submit it here.

 

Overview/Rationale

Budget Governance

Timeline (new)

RCM Details (new)

 

 

Overview/Rationale

What budget model does UAB currently use?

Why does UAB need a new or different budget model?

 

What budget model does UAB currently use?

UAB’s current budget model, a hybrid system, has been in place for many years and contains elements of three separate systems:

  • an incremental system, in which allocations to schools and units increase or decrease proportionally to changes at the institution level;
  • an RCM-type system, in which at least two funding streams — tuition and indirect expense recovery — have primarily tracked to the responsibility centers that “generate” them;
  • and a formula funding system, in which some allocation of state funding is related to historic principles and formulas that are no longer applicable.

The current budget model is considered a very decentralized model and was not designed to promote specific institutional behaviors or priorities. Over time, this budget model developed to include many inconsistencies and unequal treatments of units, including different Provost tax rates among schools and different methods for covering debt service and utility costs. This led to widespread concerns about fairness and equality as well as a perceived lack of transparency about the process.

 

Why does UAB need a new or different budget model?

UAB needs a new budget model because the UAB community asked its leadership for a new budget model.

Soon after Dr. Ray Watts became UAB’s president, he began to hear complaints about UAB’s academic budget model and process. In 2013 and 2014, Huron Consulting was engaged to interview institutional stakeholders and study UAB’s historic budgeting process. Those interviews found that the existing process was perceived as:

  • not transparent
  • “unfair” in its distribution of revenues and allocation of expenses to schools
  • encouraging of behaviors that promoted unit-specific tactical priorities at the expense of institutional strategic initiatives
  • failing to provide adequate resources for strategic investments
  • encouraging of duplication of services, resulting in loss of economies of scale and operating efficiencies

 

 

Budget Governance

Who has been involved in developing UAB's RCM budget model?

Is RCM the only type of budget model that was considered for UAB?

What is responsibility center management (RCM)?

Who is affected by the transition of a new budget model and what funds are included in the model?

What’s going to be different for my unit?

What other universities are using RCM?

 

Who has been involved in developing UAB’s RCM budget model?

In April 2015, a Budget Model Taskforce was formed and charged, with Allen Bolton, then vice president for Finance and Administration, serving as chair. A full list of members is here.

The taskforce was given the following charge:

  • Establish fair, transparent, metric-driven guidelines for the allocation of certain university funds.
  • Discuss necessary aspects of the new allocation process, design modeling scenarios, and make implementation recommendations starting with the 2018 fiscal year.
  • Be messengers to and from their various constituent groups.
  • Represent their school/unit but serve the best interests of the institution overall.

The group concluded its work in June 2017. As UAB moves forward with implementation of the new budget model, three new committees were established for budget governance in August 2017 and began meeting in January 2018: an Executive Budget Committee, a Budget Advisory Committee and a Budget Allocation Committee. A full list of members of these committees is here.

 

Is RCM the only type of budget model that was considered for UAB?

No, but it was the one that emerged early as the best fit because UAB already had RCM-like aspects to its historic budget model. Several other budgeting models were compared to RCM, including Incremental Budgeting, Formula Funding, Performance Funding, and ETOB (Every Tub on its Own Bottom). After a thoughtful discussion among the Taskforce members, it was determined that RCM gave the best blend of Centralized vs. Decentralized Authority and Precedent/Legacy vs. Formula Allocation methods. However, it was widely agreed upon that based on the research of other institutions, few utilized a pure model and that a RCM-hybrid would more than likely develop as the Taskforce continued.

 

What is responsibility center management (RCM)?

Responsibility center management (RCM) is a combination of policies and practices designed to overcome the separation of authority and financial responsibility within an organization. RCM couples decision making directly to the associated financial ramifications. In an RCM model schools or units receive more funding when they generate more revenue, such as by teaching more students or earning more grants. Likewise, increased financial efficiencies within an RCM environment free up resources that can be redeployed to priority areas. RCM also enables UAB to invest resources where they are needed most or could have the biggest impact on our mission.

An RCM model also enables units to be accountable for their own academic and financial planning and encourages entrepreneurship, efficiency and educationally sound choices. It also reduces uncertainty: Units will be able to predict how changes in their programs, enrollment and operations will affect their budgets in the years ahead.

 

Who is affected by the transition of a new budget model and what funds are included in the model?

The new, RCM-based budget model affects academic (i.e., schools and College) and business/administrative units, including the Provost’s Office. It does not involve clinical or directed funds from state appropriations, externally funded grants and contracts or philanthropic giving.

Of the roughly $1.1 billion in non-clinical, academic budgets at UAB, nearly $500 million is unrestricted: unearmarked state appropriations, tuition, and indirect expense recovery from grants and contracts. These are the funds that historically have been allocated to cover operating and maintenance expenses of the institution and its schools and college and fund small strategic investments each year. It is these funds that will be included in the RCM budget process going forward.

 

What's going to be different for my unit?

The RCM model provides clear links between budget allocations and program outcomes or services.  Allocations of revenues to academic units are linked to measures such as student credit hours or degrees.  Allocations of expenses for service and support units are based on measures of people served or outcomes provided. Units may need to reassess their strategic objectives and be prepared to articulate the role of their unit in achieving outcomes for the larger campus community.

 

What other universities are using RCM?

Many major institutions have adopted the RCM model, including but not limited to:

  • American University
  • Auburn University
  • Central Michigan University
  • Clemson University
  • Duke University
  • Emory University
  • Harvard University
  • Indiana University
  • Kent State University
  • Ohio University
  • Ohio State University
  • Purdue University
  • Syracuse University
  • Texas Tech University
  • University of Alaska
  • University of California Los Angeles
  • University of Cincinnati
  • University of New Hampshire
  • University of Oregon
  • University of Pennsylvania
  • University of South Florida (on the same timeline as UAB)
  • University of Southern California
  • Washington University at St. Louis
  • Vanderbilt University
  • Virginia Commonwealth University

 

Timeline

When will RCM take effect?

The three-year phased implementation plan runs through FY2021. What happens next? (new)

If your Taskforce began in April 2015, why is creating a new budget model taking so long?

 

When will RCM take effect? 

A three-year phased approach to implementation of the new RCM budget model began in the FY2019 fiscal year. We initially planned a transition to this new budget model by using FY2016/2017 as a “shadow” year, essentially running the old budget model alongside the proposed new budget model; however, the Taskforce toiled with final modeling recommendations through the first half of the 2017 fiscal year. Therefore, the proposed shadowing period was delayed. A shadow period ran through FY2018.

 

The three-year phased implementation plan runs through FY2021. What happens next? (new)

As part of the implementation milestones set when the three-year “glide path” to RCM was announced in May 2018, a formal evaluation was conducted in the last quarter of FY2020. This evaluation will determine the post-FY2021 plan: either full implementation of RCM in FY2022, or additional implementation phases if necessary.

 

If your Taskforce began in April 2015, why is creating a new budget model taking so long?

A shared governance process around a matter as important and as complex as UAB’s budget model must be deliberative, collaborative and inclusive of constructive input. Further, while the initial model that is implemented will be open to modifications where necessary, we still want the initial model to be as fair, as thoughtful and as thorough as possible. Navigating those processes and considerations and delivering on those expectations takes time.

 

 

RCM Details

How do funds flow in RCM? (updated)

Who determines the weights in the "weighted credit hours" allocation metric? (new)

How will an RCM budget be implemented or used?

How will this change the resources my dean or unit director has?

Can Responsibility Centers opt out of RCM?

What will happen to units that chronically run deficits?

Does RCM simply redistribute money from some schools to others? If so why risk damaging some schools to help others?

What happens to business unit funding when UAB revenue increases or decreases?

Will implementing the new budget model create the need for widespread faculty or staff layoffs?

Why does UAB need a Strategic Investment Fund?

Does this new budget model by definition shift more money to the medical side of campus? Conversely, does this new model justify taking money away from medicine for the other schools on campus?

What is RCM’s impact on interdisciplinary programs? If each academic unit is competing for students, won’t that discourage cooperation? (new)

Will RCM affect the tuition assistance benefit for UAB employees? (new)

I have heard that RCM is generating extra costs for schools. Is that the case? (new)

If I want to learn more about budget models in higher education, especially about RCM, what resources are recommended?

 

How do funds flow in RCM? (updated with details on allocation metrics)

The model takes into account each school’s relative share (via metrics in the model) of all unrestricted revenue as well as each school’s relative share (via metrics in the model) of the overhead expenses associated with academic and university services (such as facilities, libraries, police, human resources, etc.). See details on the allocation metrics used to calculate revenues and expenses here.

Distribution of funding within the school or college will be the responsibility of the Dean’s office; however, schools will be encouraged to allocate funds in a manner consistent with the principles of RCM.

 

Q: Who determines the weights in the "weighted credit hours" allocation metric? (new)

Weighted credit hours make up 30 percent of the formula for allocating state appropriations to responsibility centers (schools) in UAB's new budget model. Credit hours are weighted in order to account for differences in the cost of instruction across programs and departments. These weights (also known as multipliers) are not determined by UAB — they are set by the Alabama Commission on Higher Education (ACHE) and apply to institutions state-wide. To learn more, see these pages in ACHE's 2018-2019 budget guide.

 

How will an RCM budget be implemented or used?

Any budget model, RCM or any other type, is a tool to advance the mission of the institution and is a guide for decision making about financial matters. Therefore, the RCM budget process will be a strong predictor of each unit’s budget from discretionary University resources (i.e., unearmarked state allocation, tuition and indirect expense recovery), but the model will not be implemented robotically. In other words, leaders who are responsible for preparing these budgets (President, Provost, VPs and Deans) will have some discretion, as they do in today’s budget environment, to modify allocations to units based on factors outside of formulas in the budget model.

 

How will this change the resources my dean or unit director has?

UAB’s new budget model will be phased in with a "shadow year" starting in FY 2018. Some changes may not be apparent for several years. If a school adds a new course or increases graduation rates, or a support unit is approved for an adjustment in their per measure allocation, the changes will show up in the next fiscal year.

  

Can Responsibility Centers opt out of RCM?

No. RCM applies to academic and academic support programs throughout the university. No school, college, or unit may opt out of the new budget model.

 

What will happen to units that chronically run deficits?

Deficits are serious matters given our fiduciary requirements as a state entity. All areas will have the same level of accountability and budgetary controls that are currently in place.

 

Does RCM simply redistribute money from some schools to others? If so why risk damaging some schools to help others?

This model has been designed to promote institutional success and growth. There is no intent for RCM to harm any school or program, and there will be a phase-in period (duration to be determined) in which units that have significant negative swings in the model will be buffered. In RCM (or any budget model) we only progress as an institution if we grow, strategically and methodically. RCM provides pretty clear incentives for growth and increased efficiency, whereas our current budget model does not.

 

What happens to business unit funding when UAB revenue increases or decreases?

As it is today, any reductions or increases in either state appropriations or tuition may result in budget changes in all areas of the university.  The RCM model will be used to calculate the shared impact of incremental revenue changes.

  

Will implementing the new budget model create the need for widespread faculty or staff layoffs?

No. Neither this nor any other budget model should be the determinant of workforce decisions. A budget model is only a tool to help match effort and financial resources. Workforce decisions should be based on numerous factors, including the demand for our services and the amount of external funding such as state appropriations. Academic units that participate effectively in the growth of UAB’s academic areas (i.e. teaching and research) should see increases in resources within the first few years of the new budget model.

 

Why does UAB need a Strategic Investment Fund?

UAB has some of the best and brightest employees who bring with them new initiatives and ideas for moving the institution forward. Because of these opportunities for new growth, resources are needed to invest in those ideas that align with the overall strategic plan of the University. Failure to have these funds available when the need arises would be detrimental to the overall success of UAB. For example, campus listening sessions have stimulated lots of conversation about the need to incentivize more and better interdisciplinary teaching and interdisciplinary research; to be more proactive in helping schools retain their field-shaping faculty; to improve our teaching and research facilities; to invest in IT infrastructure that gives our faculty a competitive edge in a secure and stable communications environment; and to create more opportunities for “seed” investments in innovative and big ideas. There will be no shortage of worthy ideas that will align with UAB’s strategic priorities and enhance our current and future environment.

Over the years, central administration and each school/College have managed to set aside some reserve funding for such investments, but it has not been sufficient nor effectively coordinated. There has not been a mechanism or methodology to establish a yearly Strategic Investment Fund that would bring focus and resources to high-priority institutional priorities. Estimates about how much is necessary vary widely. The Education Advisory Board is a leader in summarizing best practices in U.S. higher education, and it recommends that universities set aside 3 percent to 5 percent of all revenue for strategic investments. If that becomes the target range, the Budget Modeling Taskforce acknowledges that it is not feasible to have a fully loaded Strategic Investment Fund in Year 1, but establishing such a fund is a priority. There will need to be a phase-in of this fund over the first several years of model implementation until it can grow to an optimal annual amount while still allowing for adequate operational support of the schools and university overall.

 

Does this new budget model by definition shift more money to the medical side of campus? Conversely, does this new model justify taking money away from medicine for the other schools on campus?

No and no. The new budget model is intended to bring more equity, consistency and clarity across all schools and the College in terms of the work for which funds are provided and the basis for the assessments that cover infrastructure costs (such as space, IT, police, libraries, etc.) that support our academic missions. It also brings a new level of clarity and accountability for the costs of the University’s infrastructure. All schools and the College have the opportunity to be reasonably supported through the RCM budget model.

 

What is RCM’s impact on interdisciplinary programs? If each academic unit is competing for students, won’t that discourage cooperation? (new)

A common concern about non-centralized and RCM-like budget models is that they don’t do enough to incentivize interdisciplinary efforts. In fact, such budget models, if robotically administered, might even impede such efforts. That is why UAB officials have stressed that the new budget model will create flexibility for non-formulaic decisions via subvention funding.

The reality is that interdisciplinary efforts at UAB are not well incentivized in our current budget model. Nevertheless, our institution has found ways to work across disciplinary units and work around the budget model to support interdisciplinary efforts. Going forward, the goal is to avoid the need for such “workarounds.”

In December 2017, a UAB Interdisciplinary Task Force was established to explicitly consider how interdisciplinary teaching and research efforts can be better stimulated and supported through the new budget model. Dr. Lori McMahon, dean of the Graduate School, chaired that task force, which presented its preliminary recommendations in June 2018.

 

Will RCM affect the tuition assistance benefit for UAB employees? (new)

No. UAB’s new budget model affects the way revenues and expenses are allocated to UAB schools. It does not make changes to employee benefits programs such as the Educational Assistance Program.

 

I have heard that RCM is generating extra costs for schools. Is that the case? (new)

The RCM model doesn’t generate any new expenses — it is simply identifying and making transparent costs that already exist in the system. One of the benefits of RCM is that it helps focus institutional attention on revenue sources and expenses. Each year, central units can submit budget requests; however, these requests must be reviewed and approved by the Budget Allocation and Budget Advisory Committees (which include central, school and Faculty Senate representation) prior to being added to the assessments for the upcoming year. These potential increases are not extra costs, but rather, new costs to sustain a growing and thriving institution. As RCM is implemented, each school’s allocated share of operational expenses may go up or down compared with historical allocations based on our traditional budget model. That is because one of the main functions of RCM is to distribute these expenses in a fair, transparent way, based on actual usage data and “market share,” rather than older formulas that don’t reflect today’s realities.

 

If I want to learn more about budget models in higher education, especially about RCM, what resources are recommended?