Budget Model Update

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Budget Model Update

• Resources Implementation Team

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Budget Model Principles/Issues
The overarching goal of this process will be to
construct a budget model that is

• simple,
• transparent and
• encourages accountability

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Implementation Team Timeline

• April 2006 Update on progress. Input on basic
  assumptions and principles
• May 2006 Construct scenarios related to the
  decisions and options that will go into the
  building of the budget model.
• End of May 2006 Create detailed list of
  decisions / options related to the construction
  of the budget model along with associated pros
  and cons. Another round of open discussions.
• June 2006 Finalized list of decisions and
  options along with pros and cons submitted in
  final report.

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Budget Implementation Timeline

• Summer 2006 University leadership makes the
  decisions and selects options to create a draft
  budget model.
• Fall 2006 Draft budget model is presented for
  discussion. Activity taking place during the
  quarter is entered into the model and the results
  are reviewed. Necessary adjustments are made.
• Winter and Spring 2007 Activity taking place
  during each quarter is entered and the results
  are reviewed. Any necessary adjustments are made.
• Summer 2007 Planning Units begin operation
  under the new model.

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Areas to be Discussed

• Linking the Budget to the Academic Plan
• The Budget Model is a Tool
• The Budget Model Supports the Academic Plan
• Shared Governance Structure
• Connecting the Budget to Activities
• Linking the Budget Model to Academic Priorities
• Supporting University-Wide Priorities
• As Earned or Weighted Revenue
• Weighted Credit Hours to Reflect Differential
  Costs
• Tuition Attribution Student Credit Hours (SCH),
  Enrollments (majors) or Degrees

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Areas to be Discussed

• Budget Stability
• Multi-Year Averaging
• No-Change Conversion
• Adjusting Over Time
• Supporting Common Services and Needs
• Central Support Vs. Direct Support
• Funding Research Efforts
• Academic Support Unit Issues
• Support Units Associated Directly with Fees
• Process for Obtaining Funds
• Rate and Service Level Review

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1 - Linking the Budget to the Academic Plan

• The Budget Model is a Tool
• It should not make decisions.
• It simply provides information about the
  relationship between resources and needs for
  those resources.
• The goal is to provide decision makers with
  information about the resources available and the
  activities supported by those resources.

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1 - Linking the Budget to the Academic Plan

• The Budget Model Supports the Academic Plan
• The budget model should be aligned with and
  support the priorities identified by the
  implementation teams.
• Shared Governance Structure
• Academic oversight of the budget model.
• central budget committee (like BPC),
• curriculum oversight function (like UCC)
• involvement of faculty and staff Senates
• Deans advisory committees at the college level.

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2 - Connecting the Budget to Activities

• Linking the Budget Model to Academic Priorities
• The budget model cannot be a substitute for
  decision making.
• It should shed light on the relationship between
  resources generated by activities and the
  resources needed to support those activities.
• Decisions will either directly follow from that
  relationship or will diverge from it to support
  academic priorities (e.g. general education) that
  are less connected to resource generation.

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2 - Connecting the Budget to Activities

• Supporting University-Wide Priorities
• There should be a mechanism to collect some
  central resources for strategic needs related to
  the academic plan.
• This is typically generated by having all units
  contribute some percentage of resources or by
  earmarking certain central resources that cannot
  be easily allocated to academic units (interest
  income, out-of-state surcharge, etc).
• This fund can support needs that are less
  directly connected to resource generation such as
  activities related to the public good.

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2 - Connecting the Budget to Activities

• As Earned or Weighted Tuition Revenue
• Tuition revenue can be allocated on the basis of
  how its earned or it can be weighted by some
  factor or metric.
• As Earned puts the incentive to generate funds
  in direct line with how it is earned, which
  provides the most direct incentive for those
  earning revenue to earn more. Need to evaluate
  activities to make sure they are in line with
  academic priorities as opposed to simply being
  related to generating revenue.
• Weighted begins to disconnect incentives to
  create more revenue. It is, however, the only way
  to build in factors that might be valued
  academically (program quality, honors programs,
  interdisciplinary programs, general education,
  type of faculty teaching, etc) but which are not
  directly connected to revenue generation.

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2 - Connecting the Budget to Activities

• Weighting Credit Hours to Reflect Differential
  Costs
• Credit hours can be weighted like subsidy to
  reflect differential costs.
• While subsidy is earned differentially based on
  costs, tuition is the same regardless of program
  cost.
• Allocating tuition based on weighted credit
  hours does not reflect how tuition is earned and
  would thus introduce a disconnection that would
  reduce the incentive for revenue generation.
• It is therefore a tradeoff between building an
  equalizing factor into the model through
  weighting or making a specific allocation to
  units with costs that are higher.

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2 - Connecting the Budget to Activities

• Tuition Attribution Student Credit Hours (SCH),
  Enrollments (majors) or Degrees
• SCH is used because revenue is earned by credit
  hours and the main cost is the offering of
  sections.
• Using Enrollments (majors) reflects the costs
  associated with carrying majors (advising) and
  idea that students are attracted by majors.
• Using enrollments could encourage units to shift
  credits taken by their majors to other units.
  Using SCH could encourage units to turn away
  majors in favor of doing cheaper service
  courses.
• Using degrees granted could provide an incentive
  to retain and graduate students.

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3 - Budget Stability

• Multi-year averaging
• Averaging credit hour production over several
  years can help smooth swings in the budget so
  units can have time to adjust to changes.
• Conversely, when a unit is growing, the benefits
  of that growth will be lagged because of the
  averaging.

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3 - Budget Stability

• No-Change Conversion
• The conversion gives each unit the same budget
  it would have had under the old budget model.
• Units will receive an adjustment that increases
  or decreases their budget from where the
  revenue/cost comparison puts them to get them
  back to their current total budget.

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How a No-Change Conversion Works
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How a No-Change Conversion Works
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3 - Budget Stability

• Adjusting Over Time
• After the No-Change Conversion, the adjustment
  can remain fixed going forward, meaning that it
  never grows or shrinks over time as the unit
  moves forward and the revenue and costs change.
  This creates less incentive for units to try to
  address the difference between revenue and cost.
  
• Alternatively, adjustments could decrease over
  time creating an incentive to increase revenue or
  bring costs down. The potential problem is that
  the ability to influence revenues and costs
  varies by unit. This may require that the
  adjustment become a permanent addition to the
  budget of some units.

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4 - Supporting Common Services and Needs

• Central support vs. Direct support
• Services connected directly to unit activities
  provides an incentive for managing the use of
  those services. If the goal is for units to
  consciously manage a resource (such as space) or
  if there are services that are limited to very
  specific activities in only some units (such as
  research support), support costs would be
  directly allocated to the units.
• Services that are not easily connected to
  activity or are not really under control of the
  units, can be handled with a central support
  approach. For example, to discourage units from
  accepting students based on their financial aid
  status, financial aid services would be allocated
  via a central support approach to spread the cost
  across units.

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4 - Supporting Common Services and Needs

• Funding Research Efforts
• Overhead funds generated by research could be
  allocated to the academic units doing the
  research or to a central research operation for
  strategic investment. Or a mixture of the
  approaches could be used.
• Allocating it all to the units maximizes the
  incentive to generate research funds. In
  addition, overhead funds may need to be allocated
  to areas where overhead costs like space are
  located.
• Keeping some funds centrally provides mechanisms
  for moving in new strategic directions and for
  funding research activity that might be less
  directly related to revenue generation.

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5 Academic Support Unit Issues

• Support Units Associated Directly with Fees
• Some units or services can be directly
  associated with specific fees such as the general
  fee or technology fees.
• Some functions could be covered entirely by fees
  while others might be supported partially by
  fees.
• When a function is tied entirely to a fee, any
  additional resources the function needs over time
  would require increasing the fee.

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5 - Academic Support Unit Issues

• Process for Obtaining Funds
• As is currently the case, support units will not
  have large sources of revenue and will depend on
  funding from a central allocation.
• There needs to be a process to allow a support
  unit budget to change. There will always be
  pressure from academic units to keep support
  costs down while maximizing services provided.
• In general, the linking of support unit budgets
  to a central tax creates a relationship in which
  support units get more budget as academic units
  succeed and grow. It also limits administrative
  growth in the same way since support unit growth
  is linked to academic growth.

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5 - Academic Support Unit Issues

• Rate and Service Level Review
• A process for reviewing the level and quality of
  service provided by support units will be needed.
  
• Service agreements can assist with setting
  expectations.
• Units requiring more service can provide
  additional funding to obtain those services.
• When support units want to increase rates, there
  is a review or negotiation with the academic
  units or a central committee.

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Comparison Schools

• Three comparison schools were selected because
  they had very different approaches to this
  conversion to an activity-based budget. They were
  not selected because they were considered to be
  peer schools or similar to Ohio University but
  rather to provide a spectrum of approaches with
  corresponding philosophical underpinnings so we
  could look at a wide range of possibilities when
  selecting the right approach for OU.

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Comparison Schools

• Ohio State University (OSU) because it has the
  same subsidy system as we do and because it
  represents a school that did rebasing as well as
  a conversion to a new budget model. OSU also
  allocated tuition on the basis of student credit
  hours (SCH).
• University of Michigan (UM) because it began by
  using the Indiana model of allocating revenue and
  costs under an extremely complex accounting model
  (Indiana Model) and then shifted to the simpler
  tax system. UM also allocated tuition on the
  basis of a mixture of head count and SCH and has
  experimented with different proportions including
  100 on SCH It also utilizes a differential
  tuition structure.
• University of New Hampshire (UNH) because it
  allocates tuition based on a weighted SCH system.
  UNH has also just completed a five-year review
  of its entire system.