As more organizations are embracing Responsibility Center Manager or RCM budgeting, it is challenging department chairs, deans and others with a new way of thinking about budgeting and how they manage their programs. This concept is not exactly new – or radical. It was pioneered by Harvard College in the 1800s, but in a time when themes such as cost cutting and looking for revenue sources is the norm, more colleges and universities are embracing this “new” way of budgeting.
The premise of RCM is that departments, divisions or schools receive an allocation of budget dollars based upon their expected enrollment and their expected graduation rate. The central administration retains a portion of this revenue as a contingency, or what can be akin to a tax. This can be very different from how many institutions have viewed budgeting, which has historically been providing about the same amount of money each year to each budget center.
RCM’s basic premise is encouraging those responsible for the budget to think about how they spend their budgets or ways that they can find additional revenue to support their mission. It provides each budget center an opportunity to spend the dollars in the most efficient manner as they see fit, while holding them accountable to contain their costs based upon their initial allocation. Those budget centers that are able to generate additional demand for their programs, or find additional revenue, are able to retain those dollars to spend on future expansion.
RCM is not without its difficulty or pain. RCM can cause certain programs that are in decline to have their budgets cut further, which can be very unpopular with the faculty. RCM requires a significant amount of transparency to help each budget center determine its true costs. In addition, RCM can also lead to other budget centers trying to poach revenue by setting up the same courses within their control to attract or retain revenue.
RCM can be an effective way for institutions to reevaluate their budget process and to better distribute budget dollars. If you have questions or wish to discuss your institution's budgeting process, please contact a member of our Not-for-Profit Industry Group.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
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