Responsibility Centered Management
(RCM)
Case Study: Engineering and Technology
By
H. Öner Yurtseven
Indiana University Purdue University Indianapolis
March 1, 2006
Asian Institute of Technology, Thailand
Indiana University
• Largest state funded university in Indiana
• Eight campuses with 92,619 students
• Two core and six regional campuses
– Indiana University, Bloomington (36,200 students)
– Indiana University Purdue University Indianapolis
(28,193 students)
– Each campus has a chancellor reporting to Indiana
University President
– IUPUI Chancellor is also Indiana University
Executive Vice President
Indiana University -2
• Centralized budgeting and administration
– Vice President and Chief Financial Officer for
all eight campuses
– Vice Chancellor for Administration and Finance
at IUPUI reports to the Chief Financial Officer
and also to the Chancellor of IUPUI
– Similar arrangements are in place for
Bloomington campus and for all regional
campuses
Indiana University Purdue University
Indianapolis (IUPUI)
• Urban and research campus
• Comprehensive (liberal arts, business, medicine,
science, engineering and technology, etc.)
• 16 Indiana University Schools
• 2 Purdue University Schools
• Merger of IU and Purdue: 1969
• Over 180 degree programs are offered
• The second largest School of Medicine in US
• The largest School of Nursing in US
IUPUI -2
• Each of the academic units has budget
director and/or assistant/associate dean for
finances who reports to dean of the school
directly
• They are liaisons to IUPUI Budget Office
and to University Budget Office
• They meet monthly with Vice Chancellor
for Finance and Administration
Purdue School of Engineering and
Technology
• Degree programs
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2 year AS programs in technology
4 year BS programs in engineering and technology
MS programs in engineering and technology
PhD programs in engineering
• Size
– 2,100 undergraduate and 200 graduate students
– 80 full-time and 75 part-time faculty, 30 staff
– Teach 48,000 credit hours/year with $3.5M annual research
• Organizational structure
– 3 engineering and 5 technology departments
– Centralized support services
Centralized Services in the School
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Research support
Student Services (recruitment, internships)
Academic Programs (admissions, registration, graduation)
Computer Network Center
Development and External Relations (fund raising, alumni)
Finance and Administration (department accounts, grants,
contracts)
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Associate Dean
Budget Director
Grants and Contracts Coordinator
Human Services Coordinator
Support staff
Objectives for RCM
• Integrate and coordinate both academic and fiscal
planning
• Decentralize the decision-making to the responsible units
• Match costs with benefits and responsibility with
authority
• Increase awareness of costs and positive incentives for
income generation
• Make the tradeoffs between choices more explicit
• Foster an “information rich” arena for discourse on the
budget
• Reward multi-year planning with the carry-forward of
surpluses and deficits
RCM does not
• produce more money for an institution; or
• set academic priorities with its budget.
Thomas Ehrlich - Former President of Indiana University
Basic Principles of RCM
• Assign all costs and income attributable to each
academic unit (income from fees and grants;
costs of admission and library services)
• Assign cost of a support unit to all academic units
(cost of computing services are divided by all
academic units using and sharing the services)
• Create appropriate incentives for each academic
unit to increase income and reduce costs to
further a clear set of academic priorities (allow
the academic unit keep the additional fees
generated by short courses)
Steps to Establish RCM
• Identify RCM centers
• Create new accounts or consolidate existing
accounts
• Attribute income to academic RCM centers
• Assign cost of support RCM centers to all
academic RCM centers
• Build budgets
Identifying RCM Centers
• Academic unit carries the academic mission of the
university by awarding degrees and bringing income
through student fees and research grants and contracts
(school of business, college of arts and sciences, combined
smaller degree programs)
• Support unit is responsible for providing the services in
support of the academic mission and it does not offer
degree programs and it usually does not have core faculty
(physical plant, library, combined offices of registrar,
admissions, and financial aid)
• Executive management coordinates and guides planning
efforts among academic and support units, establish
policies, and allocates resources to the other RCM centers
(chancellor or president’s office, vice presidents,
institutional planning office)
Standards for Defining RCM Centers
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Organizational structure
Clear definition of management responsibility
Number of centers to reflect size and complexity
Approximate parity among units
Intracenter decentralization at the discretion of
each center
• Policy issues
• Inclusion of all fund groups
Indiana University Operating Budget
(2004-05)
• Income
– State appropriation (24%)
– Student fees (27%)
– Other income (49%)
Total
$530,565,000
680,045,000
335,513,000
$1,546,123,000
Total
$1,332,963,000
86,195,000
629,306,000
$2,048,464,000
• Expenditures
– Compensation (64%)
– Financial Aid (4%)
– Other expenditures (32%)
IUPUI Operating Budget* (2005-06)
• Income
– State appropriation (45%)
– Student fees (41%)
– Other income (14%)
Total
$208,249,464
187,545,188
62,915,893
$458,710,545
Total
$289,562,944
11,853,328
157,294,273
$458,710,545
• Expenditures
– Compensation (63%)
– Financial Aid (3%)
– Other expenditures (34%)
* General (instructional) Funds only
IUPUI Budget Summary
• General Funds ($458M)
– Academic Units: $305M (67%)
– Support Units: $153M (33%)
• Auxiliary Funds ($502M)
– Grants and contracts
– Utilities
– Designated funds
Academic Responsibility Centers
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Business ($21M)
Columbus (satellite campus of IUPUI-$6.4M)
Dentistry ($29M)
Education ($5.8M)
Engineering and Technology ($13.3M)
Health and Rehabilitation Sciences ($3.1M)
Herron Art and Design ($5.7M)
Informatics ($6M)
Journalism ($0.7M)
Law ($16.4M)
Academic Responsibility Centers - 2
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Liberal Arts ($24.2M)
Medicine ($120M)
Nursing ($12.6M)
Other Academic ($4.4M)
– Labor Studies
– Library and Information Sciences
– Music
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Physical Education ($3.8M)
Public and Environmental Affairs ($5.2M)
Science ($23M)
Social Work ($4.5M)
University College ($7.9M)
Support Responsibility Centers
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Academic Support ($27.5M)
Administration and Finance ($13.2M)
Executive Management ($26.6M)
External Affairs ($2.8M)
Facilities Debt ($18.4M)
Library ($8.6M)
Physical Plant ($41.3M)
University Tax ($14M)
University Information Technology Services ($10.5M)
School of Engineering and
Technology 2005-06 Income
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Student Fees (53.2%)
Indirect Cost Recovery (1.8%)
State Appropriation (45%)
Assessment Revenue (29.1%)
Total
• Research Contracts and Grants
Grand Total
$9,817,507
350,000
8,276,130
- 5,368,836
$13,074,801
3,438,458
$16,513,259
School of Engineering and
Technology 2005-06 Expenditures
• Compensation (64.4%)
• General S&E (3.1%)
• Other* (3.4%)
$11,894,956
556,239
623,606
Total
*travel, capital, reserves, and transfers
$13,074,801
Income Types assigned to RCM
Centers
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State support
Student credit hour fees
Course related fees
Other fee income
Indirect cost recovery income
Rent income
Interest income
Gifts and grants
Sales and service income
Methods of Income Attribution
• State support: Combination of a portion based on central
administration decision and a portion based on specified
performance indicators. In practice, however, IUPUI
started with 1987-88 levels funding levels and adjusted
the increase and decrease based on the original
proportions
• Credit hour fees: Income goes to centers according to
courses taught
• Course-related fees: Income goes to centers according to
courses taught
Methods of Income Attribution -2
• Other fees: Continuing education course income
go to centers teaching them. Applications,
transcript, late charge income go to registrar and
bursar
• Indirect cost recovery: Income goes to RCM
center
• Rental: Income goes to center managing the space
• Interest income: Goes to executive management
• Gifts and grants: Income goes to centers receiving
them
Methods of Income Attribution -3
• Auxiliary service charge: Income goes to center
managing the services
• Sales and service: Income and other general
income go to centers generating the income or to
executive management if not determinable
Examples of Income Attribution
• State appropriation
– Initial attribution was done in 1987-88 using the
existing distributions
– Any change in State funding is carried on to
RCM centers using the same formula
• Indirect cost recovery from research contracts
– Campus retains 20%
– Schools receive 80%
Assigning Costs to RCM Centers
• Academic Support: academic affairs, research
and graduate programs, learning resources,
academic personnel
• Administration and Finance: admissions and
registrar, student financial aid, bursar, non
academic personnel
• Executive Management: Vice president at
IUPUI, chancellor, and vice chancellors
• External Affairs: Community relations, alumni
Assigning Costs to RCM Centers -2
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Facilities Debt: Bonding for new buildings
Library
Physical Plant: Buildings, utilities, maintenance
University Tax: Trustees, President and
university wide offices (research, international
programs)
• University Information Technology Services:
computer networks, computing infrastructure,
telecommunication
Examples of Early Cost Allocation
• Library: Weighted total for a center =
1.00 x faculty FTE + 0.05 x undergraduate FTE + 0.25 x graduate student FTE
• Academic computing:
past unfunded usage for a center
Weighted total for a center =
total part unfunded usage
for a center
(1.00 x faculty FTE + 1.50 x student FTE) x 0.75 x
• Physical Plant: Assigned cost for a center =
cost x assignable square feet
unit
Examples of Early Cost Allocation -2
• Academic Support: Distribute in proportion to
credit hour enrollment
• Administration and Finance: Distribute to centers
in proportion to total direct expense of general,
designated, and restricted funds
• Executive Management: Distribute in proportion
to total direct expenses of general, designated, and
other restricted funds as well as some auxiliary
and service costs
Current Cost Allocation
• Assign the total cost of each support RCM
center to academic RCM center using the
equal weights of
– Student credit hours generated by the unit
– Total full-time equivalent of faculty and staff
members
– Space in sq ft occupied by the unit
Budget Process
• Academic RCM centers report projected student
credit hours for the coming fiscal year to campus
budget office (all types of fees)
• Academic RCM centers also report projected
indirect cost recovery funds and other income
• Campus budget office determines projected State
appropriations and expenditures for each RCM
center
• Each RCM center is given a proforma budget based
on these projections and based on the assumptions of
tuition increases, salary increases, and assessments
• Each RCM center then plans for its budget using the
information on proforma
Budget Process -2
• At the school level, department/program
budgets are built by using either a similar
RCM methodology or traditional budgeting
• Total salary increase budget for faculty and
staff are given to chairs/directors to decide
• Indirect cost recovery income is distributed
– 20% to PI and 20% to department
– 40% stays in the school
• Salary savings are distributed
– PI, department, and school share equally
School of Engineering and Technology
Assessment Revenues
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Academic Support (22%)
Administrative Affairs (9.6%)
Exe Management-IUPUI (5.3%)
External Affairs (2.8%)
Library (8.2%)
Physical Plant (22%)
University Tax (10%)
UITS (9.5%)
»
Total
$ 1,131,253
493,971
275,736
142,489
423,594
1,657,285
528,994
488,136
$5,141,458
Resources
• Responsibility Center Budgeting, Edward
L. Whalen, Indiana University Press, 1991
• RCM Review Reports, 1993, 1998, and
2003
• Conversations with Vice Chancellor for
Administration and Finance, and with
Associate Dean for Finance and
Administration in the School