RCM budgeting

Alex Usher’s daily blog, entitled “One Thought To Start Your Day”, is always an interesting read, and hence lives up to its title. It arrives on my ‘Berry at 7:00 each morning, and it’s a rare day when I haven’t looked at it by 7:10. Sometimes I agree, and sometimes I don’t.  But it always makes me think.

Last Wednesday Alex addressed the issue of the negative reaction that has greeted PPPs (Program Prioritization Processes), noting that the faculty at Wilfrid Laurier University have gone public in their opposition. They are not alone, and having spoken to a number of deans and others whose campuses have used this model, pioneered by Robert Dickeson, I have yet to find anyone who thought, in retrospect, that it was on balance a truly useful undertaking. But the challenge presented in the OTTSYD blog is to find some alternative to PPP as a way of identifying priorities, and hence of determining where budget cuts should be made when reductions are necessary … and the unfortunate reality is that most universities in most jurisdictions will be looking at doing precisely that in the coming years, if they are not doing so already, given that increases in costs continue to outstrip increases in revenues. If we don’t use PPP to make those decisions, how do we make them?

I am personally distrustful of any scheme in which important decisions are made by some sort of formula process. With apologies to my economist friends, I simply don’t accept that everything can be determined solely by metrics. Making decisions of this sort is an art, not a science, for the simple reason that there are so many variables involved. Yes, an assessment of revenues versus actual costs is important, and must be taken into consideration. While universities are not businesses per se, in the sense that making money is not their raison d’être, there are certainly “business” aspects to their operations which must be acknowledged and respected if they are to avoid bankruptcy. Personally, I am always happy when my paycheque gets deposited in my bank account twice a month, and I am grateful that someone is managing the university’s finances in such a way that this never fails to happen. And of course all expenditures should be justified in terms of actual operations. I recall being once at a university where the Collections Librarian had amassed the finest collection in North America of books on the arts of Australia. The problem was, however, that none of them were ever used, as there was no curriculum related to this topic … clearly not an effective use of scarce acquisition budget resources!

But universities are many other things as well. For example, they have an important function as repositories of knowledge and understanding in addition to being generators of new knowledge. Who will keep alive the knowledge of how to decipher Mesopotamian cuneiform or Egyptian hieroglyphics if not universities? And how do we place an economic value on preserving that possibility? Frankly, I don’t think we can. In my view such things are truly priceless.

If we do need to make budget reductions at some future point, I believe that the fairest and most transparent way to do so is to adopt an “activity-based” financial model which looks at how much revenue each program generates, and then apportions all institutional costs, from Human Resources to Physical Plant to Health & Counselling, according to some pre-determined formula. This approach is usually known as RCM, standing for “Responsibility-Centered Management”, although I generally find it easier to think of the acronym as standing for “Revenue-Cost Model”. And since some programs will necessarily attract more students than others, it makes sense to do this at the Faculty level, not for each individual academic unit. That way Philosophy can help pay the bills for History, or vice versa, but not for Chemistry (unit names chosen at random). As became apparent at last week’s meeting of the Council of Ontario Deans of Arts and Science, most Ontario universities have either moved to a model of this sort in recent years, or are currently in the process of doing so …. Toronto, Queen’s, McMaster, and Trent come most immediately to mind; and unlike the reports on PPP, here the results seem generally to have been welcomed, albeit with caveats about the need to get the process right. This approval can perhaps be explained by the net effect of decentralizing decisions about budget allocations to the individual Faculties, following the principle of subsidiarity. RCM-based budgets are, in my view, not only more transparent, but also inherently fairer (“You eat what you kill”, as one dean aptly put it); but with the authority for financial decision-making also comes the responsibility to make difficult choices when those are necessary. This in turn means that faculty members tend to become more engaged in thinking about the financial sustainability of their programs and units than is currently the case. At the moment, at least at Carleton, it is simply too easy to dismiss the financial issues as “someone else’s problem”.

I also think we would do better psychologically if we adopted a different approach to our thinking about funding. Instead of units or Faculties continually saying “We need more money”, we should say “$x is available, and our task is to develop the best possible program that we can with that budget.” FASS has an annual base budget in excess of $40M … which is not pocket change. It is not likely to increase anytime soon. Our challenge is to use that considerable resource to best advantage.