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Posted March 15, 2013

Temple launches new university-wide budget model

<p>Decentralized budgeting moves funding from central offices to schools and colleges</p>

Over the next two and a half years, Temple will transition to a new budget model that shifts responsibility from central administration to the schools and colleges; a model that will promote revenue growth through entrepreneurial creativity, align resources with academic priorities and address the challenges of a radically different higher ed marketplace.

Decentralized Budget Management, also called Responsibility Centered Management, aligns authority with responsibility by transferring revenue authority to the schools and colleges. As a result, schools and colleges will cover the direct and indirect costs of operations with their revenue. This in turn has been shown to promote efficiency and a focus on quality service and ultimately shifts the focus from annual spending to annual revenue growth.

“We need to ensure that program quality remains at the highest levels and focus our resources where they will do our students the most good,” said President Neil Theobald. “This new model shifts budgeting decisions into the hands of deans and faculty, while rewarding decisions that are efficient, entrepreneurial and creative.”

The move to a decentralized budget model has been years in the making, inspired, in part, by the changes in state support. In the 1970s, the majority of Temple’s budget, more than 60 percent, came from the commonwealth.  Today, due to significant financial pressures, the state appropriation comprises about twelve percent of Temple’s budget.

The decline in public dollars has put increasing pressure on tuition while families struggle with economic uncertainty and increasing student loan debt.  To meet these challenges, Temple has taken major steps, including budget reductions totaling $113 million, a freeze on base tuition and increased funding for scholarships. But all of this is not enough to sustain Temple’s mission and long term economic prosperity.

Finance officers began to discuss alternatives several years ago. There are a number of different budget models used in higher education. All are customized according to an institution’s strategic priorities. Decentralized budgeting is used by a number of top schools, including Indiana University, University of Michigan and University of Virginia.

A steering committee appointed by then-President Richard Englert and comprised of staff and faculty began working together last August. Through extensive interviews with well over 100 deans, faculty and staff the top objectives for the new budget model emerged:

  1. Improved financial planning
  2. A transparent, easy to understand and well-communicated budget system
  3. Financial resources should support academic priorities; revenue generation should not be the lead or sole factor in the decision making process
  4. Units, or revenue centers, responsible for generating the revenue keep the revenue generated
  5. Access to reliable data and standard reports
  6. Periodic review to ensure the budget model is continuing to meet the needs of the university and is responsive to the broader environment
  7. Shared governance to ensure broad understanding of fiscal matters among faculty and staff.

The Steering Committee has also outlined guiding principles that will drive Temple’s Budget Model: it will be mission-driven; align authority with responsibility and accountability; embody fairness; encourage innovation, entrepreneurship and efficiency and be easy to understand.

How it works

Right now, the schools and colleges have budgets that cover direct expenses, primarily salaries and operations. Decentralized budgeting will allocate the university’s central budgets — which are currently funding institutional overhead and service units like finance and facilities — to the revenue units, the schools and colleges and business related auxiliaries. As a result, the revenue units will not only cover direct costs but also indirect costs, such as campus safety, the library and student life.

“This will promote efficiency and focus service units on providing high quality services,” said Anthony Wagner, executive vice president, CFO and treasurer. “A very important part of decentralized budgeting is shifting the focus from what we spend to what revenue we create.”

The schools and colleges will collect and keep 100 percent of their revenue, which is made up of tuition, indirect cost recovery, some portion of the state appropriation, gifts and any other revenue they generate.

Units and departments that do not generate revenue, such as finance and campus safety, will be considered support centers. Such units will support the generation of revenue, and in doing so need to be more accountable to the schools’ and colleges’ needs. 

Entrepreneurial

By focusing on growing revenue and operating within that revenue, other institutions have found that decentralized budgeting fosters a more entrepreneurial and creative approach.

"Decentralized budgeting will reward schools that have strong leadership and think a little more outside the box than we’ve traditionally done,” said Ken Kaiser, senior associate vice president. “It’s going to drive a strong market focus because we will need to respond to student needs."

For example, many students today plan to graduate in eight semesters or less which requires programs to make their courses available when students need them. Indiana University found after their implementation of a similar model in the late 1980s that while there was still a “strong emphasis on sponsored research grants and contracts, teaching now received more recognition…with greater attention given to student recruitment, retention and course availability.*

Timeline

The timeline will give the university two and half years to plan and prepare to operate under decentralized budgeting. This ramp-up period is intended to help everyone feel comfortable with the new model so that they can be successful.

“This means getting our financial houses in order,” said Kaiser. “It’s starting to think about the new markets or ideas that can generate additional revenue.”

For the first year, fiscal year 2013-14, Temple will continue to operate under the traditional budget model but at some point next fiscal year everyone will also have their budget as it will be under a decentralized model. Deans, faculty and business managers will be able to see the differences between the two models, and get a good sense of how various actions will impact the budget in a decentralized environment.

In fiscal year 2014-15, the university will operate under the decentralized model with a hold-harmless provision so that no one is penalized during the transition. In 2015-16, the new model will be fully operational.

The Steering Committee and the many faculty and staff who have been part of the process so far agree that communication at all levels of the university will be critical to a successful transition and implementation. To that end, finance officers and steering committee members have been holding meetings with groups across the university, including the College of Liberal Arts, the Fox School of Business, the Beasley School of Law, the Council of Deans, Collegial Assemblies, the Faculty Senate Budget Review Committee and the Administrative Council, a process that will continue through the next two years.

If you are interested in hosting a meeting for your group or department, please contact the CFO’s Office at 215-204-6545, or visit the website for information and updates on decentralized budgeting.



* Priest, Becker, Hossler and St. John, 2002, p.23

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