Responsibility Centered Management (RCM) Case Study: Engineering and Technology

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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

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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

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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

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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

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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

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Purdue School of Engineering and Technology

• Degree programs
• 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

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(No Transcript)
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Centralized Services in the School

• 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)
• Associate Dean
• Budget Director
• Grants and Contracts Coordinator
• Human Services Coordinator
• Support staff

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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

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RCM does not

• produce more money for an institution or
• set academic priorities with its budget.
• Thomas Ehrlich - Former President of Indiana
  University

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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)

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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

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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
  presidents office, vice presidents,
  institutional planning office)

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Standards for Defining RCM Centers

• 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

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Indiana University Operating Budget (2004-05)

• Income
• State appropriation (24) 530,565,000
• Student fees (27) 680,045,000
• Other income (49) 335,513,000
• Total 1,546,123,000
• Expenditures
• Compensation (64)
  1,332,963,000
• Financial Aid (4) 86,195,000
• Other expenditures (32) 629,306,000
• Total 2,048,464,000

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IUPUI Operating Budget (2005-06)

• Income
• State appropriation (45) 208,249,464
• Student fees (41) 187,545,188
• Other income (14) 62,915,893
• Total 458,710,545
• Expenditures
• Compensation (63) 289,562,944
• Financial Aid (3) 11,853,328
• Other expenditures (34) 157,294,273
• Total 458,710,545
• General (instructional) Funds only

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IUPUI Budget Summary

• General Funds (458M)
• Academic Units 305M (67)
• Support Units 153M (33)
• Auxiliary Funds (502M)
• Grants and contracts
• Utilities
• Designated funds

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Academic Responsibility Centers

• 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)

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Academic Responsibility Centers - 2

• Liberal Arts (24.2M)
• Medicine (120M)
• Nursing (12.6M)
• Other Academic (4.4M)
• Labor Studies
• Library and Information Sciences
• Music
• Physical Education (3.8M)
• Public and Environmental Affairs (5.2M)
• Science (23M)
• Social Work (4.5M)
• University College (7.9M)

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Support Responsibility Centers

• 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)

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School of Engineering and Technology 2005-06
Income

• 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

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School of Engineering and Technology 2005-06
Expenditures

• Compensation (64.4)
• General SE (3.1)
• Other (3.4)
• 
  Total
• travel, capital, reserves, and transfers

• 11,894,956
• 556,239
• 623,606
• 13,074,801

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Income Types assigned to RCM Centers

• 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

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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

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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

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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

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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

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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

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Assigning Costs to RCM Centers -2

• 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

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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
• Weighted total for a center
• (1.00 x faculty FTE 1.50 x student FTE) x 0.75
  x
• Physical Plant Assigned cost for a center
  unit cost x assignable square feet

past unfunded usage for a center
total part unfunded usage for a center
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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

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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

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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

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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

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School of Engineering and Technology Assessment
Revenues

• 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

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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