Winter Symposium 2012
January 19, 2012
SMSU Ballroom
Roy Koch, Provost and Vice President for Academic Affairs
Kevin Reynolds, Vice Provost for Fiscal Strategies and Planning
Monica Rimai, Vice President for Finance and Administration
PSU External Context and History

Continuing reduction in state support
 Measure 5
 Increased obligations on state budget (e.g.
K-12, prisons)
 Recent protracted economic downturn

Increasing demand for higher education

Concern over cost of higher education
PSU Reactions

Increase tuition to offset loss of state funding

Annual reaction to budget shortfalls

LTIFS
 Long term planning
 Strategic Enrollment Management
 New budget allocation model

Financial Futures

New budget allocation model
“Take away” messages from last year

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The present doesn’t look like the past –
and neither will the future
We are largely “tuition driven”
We have considerable control over our
revenue
We must use our resources wisely
Imperatives for our continued
development



Enhance our revenue
Use the revenue efficiently to achieve
our multiple objectives
Develop an effective budget allocation
model for this new context
How can we grow our revenue?

Strategic enrollment management (SEM)




Enrollment
Tuition rates
Student retention
Student mix – resident vs. non-resident

Funded Research

Philanthropy
Budget Allocation Model



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Directly connects budget allocation and the
activities that generate revenue
Clarifies unit-level budget allocation and the
potential for generating additional revenue
Promotes efficient use of resources
Based on an understanding that not all
mission-critical activities generate adequate
revenue and must be supported by those
activities that are revenue producing
Plan for the day

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
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Brief presentations
 Context and general motivations for a new budget
allocation model
 Characteristics of RCM-type budget allocation models
• Revenue generating units
• Revenue supporting units
 Experiences and timeline for development
Group Q&A
Table discussion and report out of positive aspects of a
new budget allocation process
Table discussions and report out of concerns regarding a
new budget allocation process
Summary and next steps
The List Continues to Grow. . .
RCM/RCB In Use or In Development:
IUPUI
Indiana University Bloomington
University of Illinois, Urbana Champaign
Southern Illinois University
Marquette University
American University
University of Toledo
Clemson University
Harvard University
Washington University of St. Louis
Mercer University
CalTech University
Vanderbilt University
Duke University
Auburn University
USC
University of Cincinnati
University of Washington
University of Iowa
Clarkson University
University of Oregon
Temple University
University of Toronto
West Chester University (PA)
Central Michigan University
University of Alaska
McGill University
Florida International University
Cornell
Claremont Graduate University
University of Illinois
Rensselaer Polytechnic Institute
University of Denver
UCLA
University of Virginia
University of New Hampshire
Typical Timeline from Initiation to
Implementation
Process
Concept – Design – Implementation – Monitoring
Timeline to Implementation
University of Virginia 2011-2014
University of Minnesota 1996 (4 year process)
University of Florida 2011 (3 year process)
University of New Hampshire 2000 (3 year review)
Monitoring and adjusting
Oversight committee
Changes have to be made, but only periodically
Principles and Reasons for Change
Support, not determine, university mission
and goals
 Provide incentive for positive behaviors,
innovation, and operational efficiencies
 Transparency
 As simple as possible to understand,
administer, and implement

Principles and Reasons for Change
Assign revenues to the units responsible
for the activity that generates them
 Clearly identify cross subsidization
 Recognize the importance of maintaining
current funding levels or phasing‐in
funding reductions

Source: University of Washington Activity Based
Budgeting (2013 implementation)
Generalized Model for Flow of E&G Resources
Net Tuition
State
Appropriations
Allocated based on SCH, enrollment,
degrees, targeted funds..
College
1
College
2
Revenue Supporters
(“fully” funded)
College
3
1. Estimate
E&G funds
2. Distribute
Funds
3. Academic
Crosssubsidization
4. Tax. Based on
revenue,
expenses or
costs (space and
headcounts)
Revenue Supporters
(partial funding)
Revenue Allocation

Invariably to school/college level (not
departmental)

Student Tuition generated by unit
 Net Tuition (gross tuition less remissions)
 Aggregate tuition rate or more granular
(differential tuition, residency).
Revenue Allocation

State Funding
 Some institutions use this for cross
subsidies or to pay for revenue supporting
units.
 Allocate using resident students enrollment
and cell values (resource allocation model)
of the classes they take.
 Any targeted funding treated separately
Moving PSU to a Single Model for
Revenue Allocation


Principle: model should be simple, transparent and
predictable
Single system to allocate tuition and state funds to
academic units.
Summer
Session
Centralized
In Load
PSU Self Support
New
Budget
Model
Decentralized
Revenue Distribution Factors –
Simple and Predictable


Generally a ratio of SCH and Majors (ratios
vary dramatically- no magic formula)
Degrees granted (student success)
 OUS productivity measure and current basis for
incentive funding
 Used by UO and planned by U of W
 In addition to, or instead of majors

Sponsored Research (in addition to F&A costs)
 Not a net revenue generator, incentive
 Component of state funds and OUS expectation
Cross Subsidies

Between Colleges – almost invariably
necessary
 Institutional decision
 Transparent
 Examined, revisited, and could be a fixed dollar
rather than %

Within a college
 Dean-level decision – input from the departments
Allocation Model and Strategic Priorities


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ONLY a budget allocation methodology
How funds are spent should be aligned with
institutional priorities (student success,
educational opportunity, civic leadership,
global excellence, effective resource
utilization)
Funds follow students
Allocation Model and Strategic Priorities


Performance-based budget models lead
to a greater focus on students
(recruitment, retention, and graduation)
More effective utilization of resources
(local and direct impact from changes)
Next Steps

Working group to develop and share
current status of resource allocation, i.e.
revenue net of all costs to produce
revenue
Two categories of costs
Direct Costs
The direct cost of producing revenue: all
expenditures directly tied to “revenue
generators”
Examples:
Faculty salaries
School or college administrative support
Indirect Costs
The indirect cost of producing revenue:
all expenditures directly tied to “revenue
supporters”
Examples:
President’s Office
Library
Space
Relationship to IPEDS Data


Academic Support, Institutional Support,
Instruction, Public Service, Research,
Student Services, Unassigned
IPEDS format is objective, validated and
known
Lessons Learned



Keep it simple
 How many outcomes can we incentivize in a
budget model?
 Let the model evolve
Be data driven
 Good to push and pull on the Working Group
regarding data validity, but in the end, let’s be
transformed by the facts
Be transparent
 Commitment to iterative process
 Getting comfortable with sharing data broadly
General Timeline

2011-2012: Model Development
 Cost accounting, methodology
 Cross subsidy analysis
 Merge various models (Extended Studies, Summer
Session)
 Establish Revenue and SCH targets
 Development of revenue sharing plan
(i.e. what we incentivize)


2012-2013: Run Parallel/Shadow model
 Refine model based on results
2013-2014: Implementation
Relationship Between Steering
Committee and Working Group

Working Group

Steering Committee
Winter Symposium 2012
Smith Memorial Student Union Ballroom
Planning for a New Budget Model
First Break Out Session
What positive outcomes of the new budget model are
you anticipating the most? (List 1-3) Why?
Anticipated Outcome
Why?
Winter Symposium 2012
Smith Memorial Student Union Ballroom
Planning for a New Budget Model
Second Break Out Session
What concerns do you have regarding the new budget
model? (List 1-3) How can your concerns be allayed?
Concern?
How can your concern be
allayed?