Winter Symposium Winter Symposium 20122012January 19, 2012January 19, 2012SMSU BallroomSMSU BallroomRoy Koch, Provost and Vice President for Academic AffairsKevin Reynolds, Vice Provost for Fiscal Strategies and PlanningMonica Rimai, Vice President for Finance and Administration

PSU External Context and HistoryContinuing reduction in state supportMeasure 5Increased 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 FuturesNew budget allocation model

“Take away” messages from last year 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 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 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. . .

IUPUIIndiana University BloomingtonUniversity of Illinois, Urbana ChampaignSouthern Illinois UniversityMarquette University American University University of ToledoClemson University Harvard University Washington University of St. Louis Mercer University CalTech University Vanderbilt University Duke University Auburn University USCUniversity of CincinnatiUniversity of Washington

University of IowaClarkson University University of OregonTemple University University of Toronto West Chester University (PA) Central Michigan University University of Alaska McGill University Florida International University CornellClaremont Graduate UniversityUniversity of IllinoisRensselaer Polytechnic InstituteUniversity of DenverUCLAUniversity of VirginiaUniversity of New Hampshire

RCM/RCB In Use or In Development:

Typical Timeline from Initiation to Implementation Process Concept – Design – Implementation – MonitoringTimeline to ImplementationUniversity of Virginia 2011-2014University 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 committeeChanges 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)

College1

College 2

College3

Revenue Supporters (partial funding)

Revenue Supporters

(“fully” funded)

1. Estimate E&G funds

2. Distribute Funds

3. Academic Cross-subsidization

4. Tax. Based on revenue, expenses or costs (space and headcounts)

Generalized Model for Flow of E&G Resources

State Appropriat

ions

Net Tuition

Allocated based on SCH, enrollment, degrees,

targeted funds..

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.

Decentralized

PSU Self Support

Centralized

New Budget Model

Summer Session

In Load

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 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 salariesSchool or college administrative support

Indirect Costs

The indirect cost of producing revenue: all expenditures directly tied to “revenue supporters”

Examples:President’s OfficeLibrarySpace

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 2012Smith Memorial Student Union BallroomPlanning 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 2012Smith Memorial Student Union BallroomPlanning 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?