Financial Review Models for
Interdisciplinary Programs
Are they mutually compatible?
--------------------------------------------Isabelle Cherney, Ph.D.
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What is RCM?
• A budget and reporting framework.
• It enables schools and auxiliary units that generate revenues to
share in the results of their net contribution margin after covering a
portion of the costs associated with other functions that serve the
overall good of the institution.
• RCM has also been referred to as:
– RCB (Revenue Center Budgeting )
– Incentive Budgeting
– ETOB (Every tub has its own bottom)
• The RCM concept has been adopted by several universities since
1980.
• A sample of Universities that have implemented a form of RCM:
– Harvard, USC, Loyola- Chicago, University of Pennsylvania, Georgetown,
Columbia, Cornell
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Historical Perspective Centralized Model
Expenses
School A
Expenses
School D
Revenues
&
Expenses
(Central)
Expenses
School B
Expenses
School C
Source: adapted from a USC presentation by Michael A. Diamond and Robert A. Cooper
3
Historical Perspective – Decentralized Model
Revenues &
Expenses
School A
Revenues &
Expenses
School D
Administrative
Revenues and
Expenses
(Central)
Revenues &
Expenses
School B
Revenues &
Expenses
School C
Source: adapted from USC presentation by Michael A. Diamond and Robert A. Cooper
4
RCM Framework & Philosophy
• RCM Units are defined at a rollup level that are made up of
sub units at the program (dept/major) level. The net
contribution for each program will be defined and measured.
• Direct revenues such as tuition, fees and room & board are
placed directly in the RCM units.
• Direct expenses such as instructional costs are placed directly
in the RCM units.
• A share of the indirect revenues (gift income, interest) and
indirect expenses (facilities, HR, finance) are allocated to the
RCM unit.
• A portion of the net contribution earned by each RCM unit is
returned based upon a predetermined formula.
• Negative net contribution RCM units are incented to
reevaluate their individual programs.
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Noteworthy Points
• RCM is a decentralized budget framework.
• Each University defines how to deploy RCM to
work to meet their individual strategic goals.
• Once implemented, RCM processes will evolve
over time to better align with the changing
needs of the University.
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The Opportunities of RCM
• Integrates strategic planning
– Overall University priorities are defined and integrated into the budget
process through the allocation of indirect activities.
• Facilitates responsible management of entrepreneurial
activities.
– Establishes incentives for organizations that perform above expectations and
disincentives for areas that perform below expectations.
•
Aids cost/benefit analyses and trade-off studies of programs.
– RCM forces the University to determine their most valuable programs on both
a qualitative and financial bottom line basis. If programs are low in quality
and high in subsidy, the opportunity costs of protecting a weak academic unit
are clear.
• Encourages efficient, competitive administrative services.
– The resulting cost of administrative services can be compared to alternative
providers.
• Allows for consistent net contribution measurement for
programs (dept/majors) across schools.
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The Risks of RCM
• Cross-unit investments lack incentive and collaboration
between responsibility centers diminishes.
• Overlap of administrative functions increases.
• Responsibility centers may begin to compete with each other
for revenues.
• Pursuit of responsibility center goals that are contrary to the
University’s strategic goals may occur.
• The University may arrive at insufficient funds to promote
institution-wide initiatives.
• Cost allocations for support functions are not widely
understood causing a lack of support for the process.
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Financial Review Model
What strategies should Graduate Deans
take?
How do you create financial incentives for
Interdisciplinary programs?
What types of structures should be in
place?
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