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How it works: A basic guide to IU’s budget model

June 1, 2016

Teaching, research and service have been IU's core missions throughout its history, yet the budget models used to help achieve those goals have evolved over time. How many of us can say we actually understand the basics about the university’s current budget model and how it works?

M.A. "Venkat" Venkataramanan, Jack R. Wentworth Professor and professor of decision sciences in the Kelley School of Business | PHOTO BY JAMES BROSHER, IU COMMUNICATIONS

While it can be a complicated topic, Inside IU has created a general primer:

What is it?

The Responsibility Centered Management model, or RCM, is just a fancy name for a concept that, at its heart, puts oversight of financial decisions in the hands of deans and unit-level administrators.

The model allows academic units to make their own priorities and their own budgets, and gives them the flexibility, power and responsibility to generate revenue within their units. The model allows units to be more nimble and innovative by giving them control over both decision-making and the resources needed to implement new programs or experiment with novel approaches.

The idea is units have the "boots on the ground" knowledge to set their own priorities and design programs to fit their unique missions, while the president and provost are well situated to set university and campus priorities and ensure common goods are funded appropriately.

"It’s one of the better systems for the university setting because the financial freedoms available at the unit level mirror the academic freedoms available at the individual faculty level," said Vice Provost for Strategic Initiatives M.A. "Venkat" Venkataramanan, the Jack R. Wentworth Professor and a professor of decision sciences in the Kelley School of Business. "It empowers individual units to make their own decisions while the campus maintains checks and balances. And because it can help units understand the costs associated with different initiatives, it can become a useful vehicle for facilitating cross-unit collaborations."

Universities and other institutions that use the model often use versions of it that best suit their needs, and IU is no different. In fact, a university committee is convened every few years to analyze how well IU’s particular version of the model is working. Those reviews help the university "course-correct," and ensure the budget model continues to balance the needs of the individual units with campus priorities and common goods.

Last year, for example, a small group of deans worked with the provost to tweak IU’s model to strengthen predictability for academic units. In addition, reviews from 1996, 2000, 2005 and 2011 are available online.

How does it work?

Think of all the university’s various sources of money -- undergraduate and graduate tuition, student fees, state appropriations, grants and philanthropic support -- as a whole pie.

Essentially, under RCM, the size of each unit’s slice of that pie is decided by a unit’s amount of effort in those dimensions.

For example: An academic unit receives funding based on the number of undergraduate credit hours it teaches. Those dollars belong to the academic unit and can be spent as the dean decides.

However, schools, departments and units must give back a sliver of their piece to the university each year. That "assessment" pays for what are known as common goods operations -- things like water, lights and heat, but also things like shared student services and undergraduate scholarships.

An earlier review committee process helped determine how that assessment amount is now figured. Units had complained that a previous formula was too complicated, making it difficult to figure out how much they’d owe and hampering their decision-making ability. So IU simplified its formula, allowing units to more easily predict their annual costs and therefore make more well-informed decisions. Think of it as setting up budget billing through your electricity provider: You know how much your bill will be, which helps you figure out how much extra you’ll be able to put back each month toward the purchase of that new household item.

How long has IU used this model, and who else uses it?

The Bloomington campus was one of the first public research universities in the nation to begin using RCM. It was implemented in 1990 under the leadership of then-president Thomas Erlich, who’d come to IU from the University of Pennsylvania.

Venkataramanan said he doesn’t see the Bloomington campus shifting away from the model anytime soon. "No budget model is perfect, of course," he said. "But this puts every school, every dean in control of their own destiny. Under RCM, a dean feels like, ‘I can make this happen.’"

IU isn't alone; other universities in the Big 10 who use an RCM-like model include the University of Minnesota, The Ohio State University, the University of Michigan, Rutgers University and the University of Illinois.

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