1. Where excellence and opportunity meet.™ Budget Study Group Lori Worm, John Koker, Fred Yeo, M. Ryan Haley 26 May 2015

2. Our Charge  Outline UWO’s current budget model, including strengths and weaknesses.  Outline other budget models used in higher education, including strengths, weaknesses, and specific examples.  Outline attributes of a well-functioning budget model, with a focus on the university-to- college/units budget level.

3. Desiderata: A Budget Model Should…  be transparent, flexible, and include accountability  incentivize cost controls and revenue generation  align with strategic planning, mission, values, and shared governance  be installed efficiently  balance the academic and economic aspects of higher education  encourage innovation

4. Current UWO Challenges  No general tuition setting authority  Four-year tuition freeze at below average levels  Unable to charge market-based tuition rates because of tuition- price regulation  UWO has very low tuition within UWS  Cost-to-continue funding will disappear  Unpredictable budgets inhibit long range planning  Faculty/staff salaries  Time to graduation  Enrollment needs

5. Five Budget Models of Higher Ed  IBM: Incremental Budget Management  RCM: Incentive-Based Budget Management  PBBM: Performance-Based Budget Management  FBBM: Formula-Based Budget Management  ZBBM: Zero-Based Budget Management

6. IBM In Brief  Centralized – allocation determined by university and sent to colleges/units  Prior allocations have heavy influence  Budgets are adjusted via increments

7. IBM: Advantages  Relatively easy to administer  Traditionally popular in higher education  Can work well when GPR funding is abundant  Induces some stability in year-to-year funding

8. IBM: Disadvantages  Little incentive for colleges/units to innovate  Little incentive for colleges/units to control costs  Little incentive to grow enrollment  Can cause imbalanced workloads  Tends to falter when GPR funding is low  Reallocations are difficult  Has a “passive” flavor

9. RCM In Brief  Decentralized – college/unit budget is generated not allocated  Empowers deans and unit leaders

10. RCM: Advantages  College/unit budgets are activity based  Inherently transparent; easy to understand  Clear accountability  Incentivizes enrollment growth and program revenue generation  Incentivizes cost controls  Increasingly popular in higher education

11. RCM: Disadvantages  Can cause curricular redundancies and competition for students  May induce too much focus on revenue generation  Can inhibit interdisciplinary programs  Can be slow to install  Requires budgetary acumen by college/unit leaders

12. PBBM In Brief  Semi-centralized  Links budget allocation to performance in areas such as  Graduation rates  Enrollment  Job placement rates

13. PBBM: Advantages  Generally quite flexible  Allows for reallocations across colleges/units based on performance and need  Incentivizes performance and outputs  Allows administrators to directly steer faculty actions

14. PBBM: Disadvantages  Defining accurate performance metrics is often difficult  Performance targets can be gamed  Monitoring costs can be high  Dynamic benchmark problem

15. FBBM In Brief  Centralized approach that uses extensive formulae to allocate resources  Clinical version of PBBM

16. FBBM: Advantages  Once established, offers an automated approach to resource allocation  Can help ease political complications of reallocating resources across colleges/units  Instills a form of equity, insofar as the formulae are able

17. FBBM: Disadvantages  Formula creation can be contentious  Requires numerous formulae, which can become a labyrinth  Can result in an over-reliance on formulae  Formulae must be well calibrated to avoid biased allocations  Formulae can be gamed

18. ZBBM In Brief  Centralized approach that re-zeros college/unit budgets each year  College/units then re-justify full allocation each year

19. ZBBM: Advantages  Forces colleges/units to fully justify all expenses each year, and not just incremental changes to their budgets  Keeps colleges/units focused on producing outcomes to aid the justification process  Allows for reallocation of funds based on need and performance

20. ZBBM: Disadvantages  Budget requesting process is onerous  “selling ability” vs. actual value  Can devolve into IBM if central planners rubber stamp the ongoing budget core (e.g., faculty salaries) and focus instead only on incremental changes  Can induce unstable year-to-year funding

21. Current UWO Budget Model  Typical IBM for decades  Oddly timed budget request process  Mostly a cost allocation  Differential Tuition  Segregated Fees  Fee For Service  Chargebacks  Cost Recovery Programs (e.g., CAPP)  Indirect Cost Recovery (Grants)

22. A Path Forward?  Do more with less in the low-GPR reality  Selecting a new budget model:  Understand the core tenets of the “big five”  Select the best model for university needs  Create the “right flavor” of the chosen model  Our inquiry suggests RCM to be the best fit  Budget Model Installation Committee

23. Where excellence and opportunity meet.™ Questions? Thoughts? Comments?