As I’m on the subject of finances and budgeting these days, I thought it a good time to bring up the topic of “responsibility-centred budgeting” (RCB). It’s a timely topic, given both this ludicrous article in the Edmonton Journal last week, and the fact that I have one loyal reader who’s been urging me to write about it for months now (Hi, Alan!).
Responsibility-centred budgeting basically says that units (usually faculties, occasionally departments) are responsible for raising their own funds and covering their own costs. If you use less space, you have more money for other things; if you teach more students, you’ll get more money. It’s a simple formula, and is very true to the medieval origins of the university, where professors were all required to set their own fees and collect their own money.
At this point in the discussion, everyone should quickly go and read Nick Rowe’s Confessions of a Central Planner, which is by far the best thing ever written in Canada on university management. There’s lots of good stuff in that piece, but pay particular attention to one specific point Rowe makes: universities, for the most part, get paid based on how many students they teach. Yet within most institutions, there is a Hobbesian war of all-against-all to get other people to teach students. This is because historically, in most institutions, the link between the number of students taught and the funding one receives is loose at best, non-existent at worst.
Some people – mainly those who literally have no clue about how universities are actually financed – abhor the idea of money following students within the institution. Often, they (and “they” are almost always profs in Arts) come up with scare stories about how money will all go to Science, Engineering, and Business. And while it’s certainly true that professional schools tend to be money-spinners, at most institutions the departments that do the most teaching – and hence, do the work to bring in money from tuition and operating grants – are frequently to be found in Arts (typically, English is one of them). Science and Engineering, despite being thought of as “big money” disciplines, tend to net out pretty even because they are also “big cost” disciplines.
The importance of RCB is mainly that it aligns incentives within institutions. When units are responsible for generating their income and covering their own costs, they tend to use fewer resources, and focus more on generating income. That’s good not just for bottom-line reasons, but also because it fundamentally changes an institution’s culture – from one where the (much-derided) central administration is a government to be lobbied for money, to one where everyone is involved in the search for revenue and efficiencies.
RCB is not quite as simple as it sounds – for it to work, each faculty needs some kind of staff able to do sophisticated budgeting and course development, and that won’t work at smaller institutions. There still needs to be central oversight to ensure departments don’t go hogwild hiring tenure-track staff on the basis of short-term profits, or start gaming the system of pre-requisites and required courses in order to screw cognate disciplines. And there’s still a role for central admin to play in redistributing some money to disciplines that could never make it on their own (mostly Fine Arts).
It’s not a panacea, of course, and there are ways it can be misused. But on the whole, RCB is proving to be an important tool for Canadian universities to deal with their shift to being more tuition-reliant.
Tweet this post
While I think this has some appeal, I would be concerned that this continues to incentives growth in a time when that might not be needed. One of the easiest ways to get more money in this system would be to get more students. Additionally in an effort to get a higher margin per student you might see a tendency towards bigger class size, which could impact the quality of education.
I am sure there are ways that this might be prevented by adding some constraints to the system, I would love to hear any ideas.
Andres makes some good points. It’s also, one might add, contrary to rigour: the most rigorous programs are those who admit the fewest students and fail the most, but they’ll soon find their funding drop. Similarly, those producing lucrative doo-hickeys will receive the most funding most industry (and, unfortunately, from government as well). Philosophy (say) is hard and academic, and both these things will work against it.
Secondly, it’s contrary to interdisciplinarity, in that it encourages departments and programs to hoard students rather than sending them elsewhere. This reaches absurd heights on my own campus, where business has an ethics course while philosophy withers, and engineering insists on teaching its own English and math courses. Ultimately, every program will try to do everything in house — indeed, the funding formula demands that they do so.
Finally, it abandons the university to the market forces and social fashions that its members ought to critique, or at least maintain at an ironic distance. If departments are measured by number of students, then they’re encouraged to pervert their disciplines into the job-training which students, their parents and the government so evidently desire.
You seem to be deliberately ignoring the caveats in the final paragraph, but OK.
Merely emphasizing them. It’s worth noting, however, that not only does so-called “responsible” budgeting require more paperwork at the departmental or faculty level, it also implies greater arbitrary power on the part of the upper administration, who would be called upon to intervene when the results become perverse.
1) How does it require more paperwork? 2) Central admin does precisely that kind of intervention now. You just don’t see it because of the opacity of the budget process.
I imagined you’d point out the second objection, but in most existing models central admin could just pay the needed bills and not micromanage. Salaries don’t count against physical plant; salaries are part of a collective agreement and binding, whereas physical plant is repaired insofar as the roof is leaking.
Perhaps “paperwork” is the wrong term. I meant by it all the recruitment, strategizing, marketing, fundraising and just generally acting like a business that can be entrusted to professionals if the members of any given department aren’t worried about their colleagues elsewhere getting more students or sponsors than themselves, and thereby outcompeting them. Instead of doing real work, we’ll be increasingly pounding the pavement trying to recruit, win grants and meet the goals of whatever budget model has been foisted upon us. More subtly, we may pervert our fields towards the needs of the market.
In the current system, there are occasional competitions for (say) new hires, building improvements or scholarships, but it isn’t ubiquitous in everything we do. We can recruit without feeling that our livelihoods depend on it, and not recruit if we can’t honestly tell students that the discipline is really suitable for them, or they for it. We can maintain standards in our classes without feeling the need to keep up enrollments. We can apply for grants if they’re likely to be useful, not because some bean-counter has tied our budget to them.
To measure productivity is to undermine honesty. If the financial crisis taught us nothing else, it would be that measures offer themselves to manipulation, or at least perverse inflation. In Britain, academic fraud seems to have increased along with the research assessment exercise. Just give us our druthers, and let us be conscientious!
In a system where 50% of the money is coming from tuition, what do you think the consequences are of failing to recruit, strategize market and fundraise?
Alex, would this eventually undermine collective bargaining whereby faculties or departments may want to find ways to “incentivize” their individual faculty, either at the hiring point or through yearly performance evaluations, that might be contrary to the university-wide collective agreement with a particular faculty association?
Would depend on how rigid the CBA was, I suppose. U of T’s been using it for a decade with (as far as I know) no problems with collective bargaining.
I’m thinking, here, of the possibility for “bidding” wars for esteemed researchers/faculty where institution X offers potential star faculty a house instead of placement at a certain level on the salary grid, forcing star faculty’s home institution to come up with something to keep them there, such as a bigger house, more research time or resources etc. I’m not discounting other institutions, such s my own, but anyone may be more likely to put up with CBA infringement to keep teaching at the UofT vs. teaching at a not-quite-as-prestigious institution, or more likely to allow some of those more controversial aspects of faculty recruiting and retention to be used and incorporated into the CBA at a place like to the UofT where the addition of star faculty would only further enhance the institution’s reputation. Is that contradictory?
Thanks for the post and the link to Nick Rowe’s article – wow, he demonstrated great restraint and should have told us what he really thought 😉 All of the big issues/problems he raises in his article are the same issues Australian universities have been / are dealing with as well. Whether a university has central or decentralized management, the important thing is that they have a full understanding of their costs and revenues – in particular all the cross-subsidies and who is teaching what, compared to who is bringing in the money. As noted these are two very different things and requires specific linkages between the two. Another very important aspect is ensuring the university mission is properly considered, it’s a careful balancing act between ensuring financial sustainability and meeting the mission of the university, while ensuring tuition doesn’t go through the roof. William Massy, Professor Emeritus and Former Vice President for Business and Finance at Stanford University has written a great article on this topic and I’ve summarized it here: http://www.pilbaragroup.com/blog/2014/07/the-reality-is-that-universities-and-colleges-dont-cost-enough/
This also requires academics and administrators to work more closely together, which is a good thing. To address some of the big issues raised by Nick and how we have approached them here in Australia I’ve written another article on this topic and how universities should better use the vast amount of data locked up inside their corporate systems to help them out http://www.pilbaragroup.com/blog/2014/10/universities-underutilizing-a-vital-asset/
I think budget formula’s linking student numbers to budget are useful, but tricky. E.g. how do you count students?
By sheer number of “bums-in-seats”, i.e. students taking the courses by the department?
Then departments which teach a small number of huge service courses will get a lot more funding than the professional departments teaching the many advanced courses which are by design structured for small class sizes.
Or based on numbers of majors, benefiting more professional departments, ones students actually apply to and are making school choices based on? Think English vs Psychology or Math vs Computer Science. Budgeting is not simple… and clear cut rules rarely work…
Sorry. There’s no “reply to” button appearing beneath your latest response, so I’ll have to post down here. You write:
“In a system where 50% of the money is coming from tuition, what do you think the consequences are of failing to recruit, strategize, market and fundraise?”
This seems to name the problem, rather than offer a solution. If 50% of the money comes from tuition, university becomes more transactional. This undermines education as such. Even given this situation, it seems better to withdraw from ambitions than to pay for them in these ways. Personally, I should rather that we lower our pay and increase our teaching loads than that we be paid more, but only to squander our time being poor imitations of Mad Men.
This raises a second problem: should the professoriate be wasting their (extremely valuable) time fundraising, marketing, recruiting and so on? Not only, as I think I’ve explained above, will we be tempted — nay, encouraged — to do these things by beggaring their colleagues in other departments, but also if it were the professoriate who fundraise, market and recruit, universities as institutions become redundant. It’s precisely to take care of stuff like this that we have the university as an institution. We could all just be free-lance intellectuals, charging individually, as the intellectuals of the middle ages were before they gathered into universities and received corporate charters. The job of the administration is to take care of all this stuff, thereby allowing the professoriate the freedom to profess. If it doesn’t do this, then it’s simply a failure. Perhaps it should be contracted out.
Recruitment, marketing and fundraising are wastes of highly accomplished minds. Making professors recruit, market or fundraise is not dissimilar from asking them to take turns acting as the departmental receptionist, or fixing the photocopier, or performing custodial duties. Maybe each professor can build his or her own fireplace and chop his or her own wood, thereby eliminating the heating plant, and the last common infrastructure that they share.
In an earlier post, you argued for the importance of central administration to foster interdisciplinary research and teaching. It’s real job, though, is to support the professoriate, leaving them free to teach and research according to the lights of their own reason and the calls of their own curiosity. Not only are administrators across the country ignorantly meddling with our work, but sabotaging our efforts by imposing unrelated work upon us.
I know very few profs doing fundraising, marketing and recruiting. That is the function of admin. Indeed, the fact that profs do not want to/are not suited to do these tasks is precisely why admin is growing.
And now they want to press-gang us into these tasks, by making our budget reliant on these things.
They aren’t press-ganging profs into anything. Departments are free to opt-out of the rat race. They simply cannot expect to get a share of any incremental revenues and indeed may lose money if their enrolment goes down. You said earlier: you would rather have lower pay & increased teaching loads than have to go and do such selling. Fine: RCB allows faculties and departments to do precisely that. What’s the problem?
Many of the expenses are fixed, or determined by the collective agreement. Over time, the force of inflation will erode the budgets we have now.
The cost of opting out would not be to do things cheap (and cheap things), but to face marginalization, followed by ruin.
Moreover, within each department, the tendency would be to try to force individual faculty members to carry more of these tasks, to the detriment of their real work.
So in fact you’re not prepared to see lower salaries or higher teaching loads, but you’d prefer not to have to give any thought to actual demand in order to obtain the money to pay for it.
I’ve heard that it’s common for there to be significant turnover among deans following the implementation of activity-based budgeting (I hadn’t heard it as “responsibility-based budgeting” until the article you quoted). I suppose this makes sense – for faculties to perform in this context, they require deans (with staff) who have a certain degree of entrepreneurial sense, in addition to the tools, etc., to do scenario-planning and meaningful budget projections. One unanticipated benefit of an ABB model, at least from the perspective of the faculties, is that it can force central administrations to be more upfront and transparent about their own costs. At some point in the year, each faculty gets a bill – here’s your contribution to a variety of central services (mundane things like heat and electricity, but also really interesting things like IT projects, fundraising and marketing). You could imagine that an ABB model might enable deans – the academics! – to severely rein in central administration activity.
You are absolutely correct that ABB/RCB models, to be implemented well, require deans and other administrators to have a much higher level of financial skill than might be currently required. You are also correct that it means that administrative areas, such as IT, HR, Finance, etc will also need to be very accountable to the academic areas, and that transparency is enhanced if it is done well. Identifying and gaining consensus on the right cost-drivers can be difficult and costly. As an accountant, my observation is that it is terribly difficult to do this well, and it is very important that the institution has a culture which will support this undertaking. When implemented poorly, it makes the budget battles between departments even bloodier. A considerable number of research articles on ABC in the PSE sector are available, but most seem to originate from Europe, UK.
On the contrary, I am. If given the choice of a lower salary which would be tied to inflation rather than enrollment, grantsmanship, or anything else tangential to my work and measured by administrators, I’d seriously consider taking it. I’m just not prepared to see the deaths of unmarketable disciplines through inflationary attrition.
What we’re increasingly seeing, certainly on my campus, is that universities (reluctantly) negotiate for salary increases, and then demand that the departments pay for them. This frankly seems like revenge against the faculty for managing to obtain a salary increase, but it’s certainly irresponsible on the part of the administration. They are failing to take responsibility for the agreements they enter into.
I think Sean Lawrence’s comments deserve more thorough and direct address. He’s talking about a lot of unintended consequences that can and do arise with site-based budgeting. I also look at policy in K-12, and much of what Sean has mentioned can be validated by the literature in that sector as well. Your caveat at the end re: central admin playing some sort of watchdog role is crucial, and, as always “the devil is in the details.” What incentive does central admin have to play this role?