Culture Change:Shifting from Incremental Budgeting to RCM / ABB

BOT Work SessionMarch 30 , 2017

Joel KluckingVice President Business & Financial Affairs

Agenda

• Current-year budget status

• Budget Reform project– Engaging the entire university– Unprecedented transparency

• 2018 budget development cycle

FinancialUpdate:OperatingFundsFullYearBudgetvs.Forecast(Feb)

$0

$20

$40

$60

$80

$100

$120

$140

Rev Exp Rev Exp Rev Exp Rev Exp

State/Tuition LocalGeneral Auxiliary StudentActivities

DollarsinM

illions

FinancialUpdate:Non-OperatingFundsFullYearBudgetvs.Forecast(Feb)

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$10

$20

$30

$40

$50

$60

$70

Rev Exp Rev Exp Rev Exp Rev Exp

Capital InternalService Grants&Contracts TrustandLoan

DollarsinM

illions

CWU Budget Reform 2017

• Incremental vs. RCM / ABB• 9-month, university-wide information campaign

– Three Fall Open Forums: How finances work at CWU – Four Winter Open Forums: Intro to model changes

based on feedback collected – Three Spring Open Forums: Final model and

governance structure– Budget summit (everyone still on incremental budget)

2017 Budget Summit

• 25, half-hour presentations over several days

• Presentations by functional leaders using a 5-slide template:– How does your unit help meet CWU’s mission?– What would CWU look like without your unit?– FY 2018 operating budget (all sources)– FY 2015-2018 historical funding (growth, cuts, etc)– FTE data (total FTE, cost per FTE, etc.)

CWU Funding Sources

117,628

26,276

13,157

47,172 48,800

70,016

State/Tuition Summer/Fees StudentActiv. Auxiliaries Grants Capital InternalService Other

FY17RevenuesinThousands

GovernmentFederal&State

StudentsTuition&Fees

Original RCM Model ElementsIntroduced in 2013

2.FourcollegesshareremainingrevenuesAllocationformula:• 80%StudentCreditHours• 10%Majors• 5%Pre-majors• 5%GraduationRatio

1. PayOverhead• academicsupport+institutionalsupport• expensesfirst– notanoverheadrate

3.CreateExpenseBudgets

Issues with Original ModelØ Three-year rolling average

• Intended to protect in downturn, takes too long in growth

Ø Can encourage silos, rearranging existing students

Ø May not reward investments in new programs

ØTransparency around model development and ongoing governance

KeyModelChanges(1of3)ModelElement FallModel NewModel

ThreeYears One YearSCH 8LookbackPeriod

0%- Share100%70%toCollegeofInstruction30% toAdmin.College(major)

Pre-Major 5% - Share Notused

Major 10%- Share NotusedGraduation Ratio 5% - Share NotusedGraduate vsUndergrad

Notused Grad&Undergradconsideredindependently(70/30split)

Tuition Waivers Notused Waiverfollowsstudent(70/30split)

Allocationprecision

Department College

KeyModelChanges(2of3)ModelElement FallModel NewModelAllocationprecision Department Collegelevel

AcademicSupport&InstitutionalOverhead

Payfixedcostsfirst,remaindertocolleges

Allrevenuesgotocolleges,support& overheadallocated

Facilitiescosts Fixedcost,offthetop Allocatedbasedoncontrolandusage

EquipmentReplacement

Notconsidered Included- InstructionalEquipment- InstructionalTechnology- DesktopReplacement- Institutional Reserve

KeyModelChanges(3of3)ModelElement FallModel NewModelFundsIncluded Included only Fund149

(state/tuition)Includesboth Fund148(summer/fees)andFund149(state/tuition)

EfficiencyTargets Notconsidered(onlyimplied)

Explicit– bothASLandoverheaddepartments

Provost Subvention 90%rule ProvostdiscretionOver/underallocatedrevenues(mid-year)

100%toProvost 100%toProvost

Carryforward(unspentfunds)

Collegesretainupto5%ofbudget.Provost&Presidentshareremainder(62/38)

Same,butCollegecarryforwardplanrequired

FY18ModelIncomeStatement

CollegeofArts&Humanities

CollegeofEducation&Prof

StudiesCollegeofBusiness

CollegeoftheSciences

AcademicUnitTotal

Revenues

GradTuition(Gross) 618,926 2,226,088$ 344,503$ 2,218,109$ 5,407,627$GradTuitionWaivers (514,639) (664,462) (66,653) (1,375,088) (2,620,842)GradTuitionNet 104,287 1,561,626 277,851 843,021 2,786,785

UndergradTuition(Gross) 14,486,636 18,173,651 9,224,058 25,638,366 67,522,712UndergradTuitionWaivers (3,112,813) (3,130,269) (1,779,438) (4,562,719) (12,585,239)UndergradTuitionNet 11,373,823 15,043,382 7,444,620 21,075,648 54,937,473

TuitionBackfill 2,290,118 2,970,848 1,454,837 4,128,837 10,844,640TotalStateAllocation 10,501,087 13,622,501 6,670,994 18,932,332 49,726,914LessEquipmentReserves (527,938) (684,866) (335,381) (951,815) (2,500,000)

TotalNetTuitionRevenue 23,741,377 32,513,493 15,512,920 44,028,022 115,795,812BlendedRevenue% 20.50% 28.08% 13.40% 38.02%

DRAFT– ForDiscussionPurposes

HOW RCM REVENUE ALLOCATION WORKS

RCM Budget ExampleAcademic Support Allocation

AcademicSupportAllocation CollegeofArts&Humanities

CollegeofEducation&Prof

StudiesCollegeofBusiness

CollegeoftheSciences

AcademicUnitTotal

Includes:Provost/Assoc.ProvostGraduateStudiesLibraryInternationalProgramsStudentSuccessUniversityCentersLess:EfficiencyTarget (70,171) (96,098) (45,850) (130,131) (342,250)TotalAcademicSupportAllocation 3,534,771 4,840,821 2,309,665 6,555,179 17,240,436

AcademicUnits

3,604,942 4,936,919 2,355,515 6,685,310 17,582,686

DRAFT– ForDiscussionPurposes

RCM Budget ExampleInstitutional Overhead Allocation

InstitutionalOverheadAllocation

CollegeofArts&Humanities

CollegeofEducation&Prof

StudiesCollegeofBusiness

CollegeoftheSciences

AcademicUnitTotal

Includes:President'sDivisionOperationsDivision(exclFacilities)FacilitiesEnrollmentMgmtDivisionBusiness&FinancialAffairsAdministrativeFeeLess:EfficiencyTarget (187,437) (256,692) (122,474) (347,598) (914,201)TotalInstitutionalOverheadAlloc 8,705,139 11,940,605 5,054,296 15,300,564 41,000,604

41,914,8058,892,576 12,197,297 5,176,769 15,648,163

AcademicUnitsDRAFT– ForDiscussionPurposes

RCM Budget ExampleSummary

Summary-Revenue,AllocationsandExpenses

CollegeofArts&Humanities

CollegeofEducation&Prof

StudiesCollegeofBusiness

CollegeoftheSciences

AcademicUnitTotal

TotalStateandTuitionRevenue 23,741,377 32,513,493 15,512,920 44,028,022 115,795,812Less:AcademicSupportAllocation (3,534,771) (4,840,821) (2,309,665) (6,555,179) (17,240,436)Less:Inst.OverheadAllocation (8,705,139) (11,940,605) (5,054,296) (15,300,564) (41,000,604)State/TuitionRevenuelessAllocations 11,501,467 15,732,067 8,148,959 22,172,279 57,554,772

SelfSupportRevenue(Summer+Fees) 2,006,818 4,285,661 1,609,972 3,030,819 10,933,270TotalAvailableResources-AllSources 13,508,285 20,017,728 9,758,931 25,203,098 68,488,042

Less:EstimatedExpenses(Allsources) (15,242,226) (19,547,024) (9,827,715) (24,059,369) (68,676,334)EfficiencyTarget(reducesexpenses) 384,892 494,514 254,752 601,842 1,736,000AdjustedExpenseEstimate (14,857,334) (19,052,510) (9,572,963) (23,457,527) (66,940,335)ProvostSubvention 1,349,049 (427,549) (127,060) (794,440) (0)NetOperatingMargin 0 537,669 58,908 951,130 1,547,707

AcademicUnitsDRAFT– ForDiscussionPurposes

Budget Development Cycle

The goal: timely, thoughtful, transparent– Phase 1: Estimate revenue and cost drivers (complete 2/28)– Phase 2: Roll-forward budget system, create department

level targets (3/31)– Phase 3: Campus feedback (4/28)– Phase 4: Reconcile & finalize (5/15)– BoT Approval July 21