Academic journal article Planning for Higher Education

Responsibility Center Budgeting and Management "Lite" in University Finance: Why Is RCB/RCM Never Fully Deployed?

Academic journal article Planning for Higher Education

Responsibility Center Budgeting and Management "Lite" in University Finance: Why Is RCB/RCM Never Fully Deployed?

Article excerpt

Despite its promise of revenue generation, cost reduction, and a host of other benefits, what is it about RCB/RCM that leads universities to deploy it only partially?

INTRODUCTION

Starting in the early 1970s, a number of large research-intensive universities in North America began to experiment with an organizational and budgetary concept that came to be generically called responsibility center budgeting/responsibility center management or simply RCB/RCM. The attraction of RCB/RCM is multifaceted: by introducing a market model, it promises to promote generation of revenue, reduction of cost, enhancement of planning and budgeting through decentralization, and relocation of decision making as close as possible to those organizational levels with the most relevant expertise and the highest stake in the outcome (Hearn et al. 2006; Priest et al. 2002; Whalen 1991). The principal objectives of RCB/RCM are to link the total costs of programs with the revenue they generate, relocate responsibility for planning and budgeting, and in turn improve strategic performance in the allocation and generation of resources and the delivery of services (Strauss and Curry 2002).

Three decades later between 60 and 70 major universities in the United States and Canada (Ziskin 2014) and a few in Europe (Cekic 2010; Clark 1998, 2004; Oduoza 2009) follow the practice, albeit using several different but generically similar names, for example, "incentive-based budgeting," "value-centered management," and even "every tub on its own bottom." In general, private universities implemented the system before public universities (Brinkman and Morgan 1997). However, this rapidly changed; currently, more than half of the North American public universities in the top 50 of the Times Higher Education World University Rankings (Reuters-Thomson 2016) league table have adopted some form of RCB/RCM.

A study conducted by the University Leadership Council of universities in the United States and Canada that had installed RCB/RCM indicated that none had implemented it fully (Meshreky 2008). All were using it in hybrid combinations with other traditional budget models. Previous studies (Hearn et al. 2006; Lang 2002; Priest et al. 2002; West et al. 1997) anticipated this might be the case.

RESEARCH DESIGN

Sometimes as little as 10 percent to as much as 50 percent of an institution's budget is allocated on the basis of RCB/RCM. First, why is this occurring? Is there something fundamental in the theory of RCB/RCM that needs further refinement, or are there simply a few practical kinks that need to be worked out? Second, is the effectiveness of RCB/RCM limited in some way by the manner in which income flows to the university? In other words, does "resource dependence" (Birnbaum 1983; Leslie, Oaxaca, and Rhoades 2002) make a difference? Third, as universities step back from the full deployment of RCB/RCM, what complementary methods of planning and budgeting do they use? Fourth, is the partial deployment of RCB/RCM explained as much by limitations on the revenue side as on the cost side, or is the explanation to be found principally on one side or the other? Finally, is there a match (or mismatch) between the sources of revenue and the internal allocation of revenue under RCB/RCM?

Sometimes as little as 10 percent to as much as 50 percent of an institution's budget is allocated on the basis of RCB/RCM.

Data for this study were gathered in two distinct phases. The first involved documentary analysis of RCB/RCM models at 23 universities followed up by interview-based case studies of five public research universities in four different jurisdictions: the University of Lethbridge, the University of Michigan, the University of New Hampshire, Queen's University, and the University of Toronto. These institutions also differ in the extent to which they are "public." Three--the University of Michigan, the University of Toronto, and the University of New Hampshire--fit the definition of "public in name only": each receives less than half of its revenue from the government. …

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