RESPONSIBILITY CENTRED MANAGEMENT

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1 Page 1 of 7 RESPONSIBILITY CENTRED MANAGEMENT In 2014/15, Trent University will introduce a new approach to budget planning called Responsibility Centred Management (RCM). It aims to improve financial sustainability by emphasizing the University s strengths in teaching, research and services; and by supporting and encouraging selected opportunities and innovations. The following discussion provides an overview of RCM and the way it works, explaining the opportunities and benefits of RCM for the University and its various operational units. The implementation of RCM will be a gradual process which will take a number of years to complete. It will be implemented in a way that is sensitive to our fiscal realities and the complexities that arise as we attempt to achieve a sustainable budget in the long term. 1. OUR CURRENT FISCAL SITUATION The University s budget is a reflection of the revenues and expenditures our activities generate. On the revenue side, the principle determinant of the size of our budget is undergraduate enrolment and the revenue it produces from tuition and government grants. Other revenues are generated from fundraising, ancillary services, research grants, partnerships and commercialization, endowments and graduate student enrolment. While these latter operations are important contributors to our budget each year, their impact is small in comparison with that made by undergraduate enrolment. The University s principal expenses are salaries and benefits that account for 80% of our current expenditures. Other key expenses are tied to the maintenance and enhancement of our physical infrastructure, research activities, information technology, human resources, and administrative functions such as policy development, program approval, quality assurance, and so on. Pressures on the Trent University budget come from a variety of sources. Most obviously, our revenue is tied to government decisions to allocate university budgets in particular ways and to enrolment. The government s need to manage its deficit and the current decline in the number of students graduating from high school are key pressures we need to recognize and deal with. Other pressures on our current budget are tied to payments needed to cover pension shortfalls and the University s $6 million accumulated deficit. For more detailed information on Revenue and Expense Assumptions in our budget, please see the 2014/15 budget report:

2 Page 2 of 7 2. RESPONSIBILITY CENTRED MANAGEMENT (RCM) Key among the strategies the University is using to set Trent on the road to financial sustainability is Responsibility Centred Management. This is an approach to budgeting that was first proposed in the Trent Academic Plan 2012 (Radical Recovery: An Academic Plan for Trent University, Recommendation 48). Further to discussions with (and the approval of) the Board of Governors, the University is implementing an RCM approach to budget which has three key components: 1. an attempt to track the University s revenues and expenditures in a way that makes it clear how and where revenue is generated and costs are incurred; 2. budget adjustments made to promote revenue growth and support efficiencies that reduce costs; and 3. change funds for academic program and operational initiatives that support the strategic goals of the University. Budget adjustments due to RCM will ensure that the budget evolves in a way that makes our operations more fiscally sustainable. Any budget adjustments made will respect the University s contractual obligations. Initial adjustments will be marginal and managed in a way that takes into account the demands of our fiscal realities and our academic operations. This means that RCM is unlikely to have immediate large scale impact, though it will change resource distribution over time. In any particular year, RCM adjustments will reflect that year s financial picture. 3. WHY RCM? The University is implementing RCM for three reasons. i. To create a budget system that is transparent, one that tracks the University s ii. iii. revenues and expenditures in a way that is open and available To distribute the University s resources in a way that fairly recognizes the needs of growing programs for increased resources To create a system of incentives that rewards those units of the University whose activities and initiatives make significant contributions to a sustainable budget In a challenging budget climate, RCM will, over time, allow the University to position itself in a way that addresses our budget challenges and fosters a sustainable budget. It will strive to allocate resources in a way that relies on fiscally relevant criteria that can be clearly

3 Page 3 of 7 measured. A fully-implemented RCM will emphasize University operations that can be the basis of our fiscal success. To the extent that RCM promotes the financial sustainability of the institution, it should be able to reduce the size of the large budget reductions that our present fiscal challenges currently require. 4. THE DEVELOPMENT OF RCM The University s ancillary services already operate within an RCM framework. These services are expected to cover their budget allocations and infrastructure costs, and to contribute revenue to the operating budget of the University. As it implements RCM, the university will extend RCM principles in a way that focuses on undergraduate enrolment, which is the University s principle source of revenue. In doing so, the University will apply RCM principles to campuses (Oshawa and Peterborough), and to schools and divisions -- i.e. those units headed by head of Campus or dean (e.g. Humanities, Sciences, Social Sciences, Nursing and Education). The Schools of Nursing and Education, and Trent in Durham will have customized RCM applications because they have unique funding arrangements and are already measured on a contribution basis, and because they have more complex costs and revenues than other academic divisions (this means that they typically involve other sources of revenue and other expenses). In the challenging financial times we find ourselves in currently, the application of RCM principles will strengthen divisions which are high performing from a fiscal point of view. Given our deficit and budget realities, this is likely to mean reduced budget cuts. Over a longer period of time, as the financial picture improves, these divisions will see a flowthrough from the revenues they generate. In the future, RCM principles will be expanded to take into account other sources of revenue and expenditure (e.g., research revenue and revenue from graduate programs), and will be applied to other operating units within the university. In cases where this is difficult to do, the university will judge fiscal performance by RCM benchmarks for particular operating areas (see below). The university welcomes questions and discussion that promote the refinement of the RCM system. Questions and comments can be directed to the Associate Vice President of Finance, or simply by clicking the QUESTION button at the bottom of the RCM web pages. 5. RCM BENCHMARKS The principles of RCM can be most easily applied to operating units of the University that directly generate revenue as well as costs. This is why ancillary services and academic divisions will be the focus as the university implements RCM. In tracking the fiscal

4 Page 4 of 7 performance and needs of operating units which do not generate revenue, the University will use other performance-based metrics. Where there is no clear way to apply RCM, it will judge the performance of such units by using benchmarks that measure the budget expenditures of corresponding units at other Ontario universities. In judging library or IT expenditures, for example, the University will compare the percentage of Trent s budget devoted to the library and IT to the percentage expenditures at similar institutions in Ontario. 6. CHANGE FUNDS RCM budgeting encourages operational units to make changes which will improve the fiscal situation of the university (either by reducing costs or generating extra revenue). These changes may take many forms: by introducing more efficient ways of delivering services, by changing programs in a way that attracts more students, and so on. In many cases, changes should be a normal part of program and curriculum maintenance and development (in the case of academic programs, they are a normal consequence of cyclical program reviews). In other cases, changes to programs or the development of new programs may require some investment. Seed funding of this sort may be available from external sources (e.g., Provincial Funds made available from Online Ontario for the development of Online Courses). Internally, funding may be available from the Provost s Fund managed by the Provost/Vice-President Academic, and the Fund for Online Course Development managed by our Vice-Provost. As much as is possible, administration will try to find ways to support promising projects. Funding from these internal sources will be temporary, in the first instance, and will aim to support the implementation of changes within a unit that lead to revenue generation and/or base savings. This funding may become a part of base funding if the changes are consistently successful. 7. PROFESSIONAL MASTER S PROGRAMS The development of professional (i.e. non-research) masters programs is one way that other universities generate significant revenue for their operations. To support the development of such programs, the university will return 70% of the revenue generated by such programs to the host program after the costs of such programs are covered. Finance will be available to help develop business models for such programs. 8. TRENT UNIVERSITY DURHAM

5 Page 5 of 7 In implementing RCM, the University will treat Trent s Oshawa campus as a distinct budget unit, and will track its revenues and expenditures. This will allow the University to clearly track the revenues and costs generated by our Durham operations. At both our campuses, RCM measurements will be a basis for budget decisions going forward. 9. HUMANITIES, SOCIAL SCIENCES, SCIENCE The prime revenue generated by the Divisions of Humanities, Social Sciences, and Sciences is the tuition and government grant associated with undergraduate enrollment. Individual students are served by a variety of departments which include those who offer their major(s) and those that offer other courses that they take. After much discussion with the Deans and the Provost, the university has decided to attribute the revenue generated on a per course basis. In the case of a student who takes ten half courses and generates $10,000 in revenue from tuition and government grant*, $1,000 of revenue per half course will be attributed to the Divisions that offer these courses. As a student will take more courses in their major than in other areas, this will mean that more of the revenue generated will be attributed to the Division that hosts their major(s), but it means that Divisions that teach other courses the student takes will be credited with equal revenue per course for the courses they teach after costs are deducted. *This is an approximate amount. Revenue will vary depending on a student s program, year of study, etc. 10. NURSING AND EDUCATION The Schools of Nursing and Education provide different challenges for an RCM model. Education students only take Education courses, so the revenue they generate is fully attributable to the School of Education. In addition, Education generates revenue through professional ( AQ ) courses taught to working teachers who wish to upgrade their qualifications. In the case of Nursing, revenue is tied to special grants shared with Fleming and George Brown Colleges. In both cases, RCM will seek to establish the costs and revenues associated with each program. In the case of Nursing this will need to include a recognition of the role that courses in other Divisions play in Nursing Education. FREQUENTLY ASKED QUESTIONS Frequently Asked Questions will be updated as we receive and respond to more inquiries about RCM.

6 Page 6 of 7 How does RCM affect Trent s Durham Campus in Oshawa? Trent s Durham Campus will be treated as a separate operating unit from a budget point of view. Like every budget unit, it will be expected to contribute to central overhead. Beyond that, the university will track expenses and revenue in Oshawa and adjust the Durham budget accordingly. Will the principles of RCM change over time? The basic principles that the University will track revenue and expenditures and support initiatives that improve our fiscal situation are not likely to change, but the University is open to changes that will allow it to track revenue and expenditures in better ways. This may mean that the RCM approach evolves in response to comments and suggestions over time. In the case of academic programs, does RCM imply that every program in the University must generate more revenue than expenditures? No. The University is applying RCM to ancillary operations and to academic operations at the level of divisions and schools, not at the level of individual academic programs. Does RCM imply the every professor in the University will be judged in terms of the revenue they generate? No. The University is not applying RCM at the level of individual professors. At the same time, every professor does have some responsibility to carry a fair share of the work which is needed to generate the funding required to keep the University sustainable. What responsibility does Responsibility Centred Management require of divisions and units to which it is applied? RCM implies that divisions to which it is applied have a responsibility to generate revenue in a way that supports the cost of their operations. This can be accomplished in a variety of ways. How can divisions and units increase their resources through RCM? There are two principle ways to improve one s budget situation in an RCM budget. One is by reducing expenditures by finding more efficient ways to use one s budget. The other is by growing revenue. The latter can be done in a variety ways by growing enrolment in one s programs, by introducing new programs, by teaching more students in other programs. The system Trent adopts will provide some incentives to develop international programs that are both academically strong and can generate revenue for the university and a particular division.

7 Page 7 of 7 What does RCM imply for the development of new programs at Trent University? RCM means that new programs will be judged in two ways. A new program must be academically strong, and in keeping with our strategic academic directions. To gain ongoing funding a program should also be able to attract the students needed to make it fiscally viable. Will RCM disadvantage smaller academic programs? RCM will not be managed in a way that makes majors the prime determinant of budgets. The principles Trent will apply will recognize the essential role that teaching non-majors plays in allowing the University to operate, fiscally and academically. This means that academic programs with small numbers of majors may be advantaged by RCM principles. Will RCM result in the elimination of academic programs? With or without RCM, the University s current budget situation requires that we take seriously the costs and revenues associated with all programs. This may lead to the conclusion that some programs are no longer viable, but a decision to reduce funding to particular programs will have to be made on a case by case basis, in the context of a detailed look at their operations (this may include potential ways in which they can be made viable). Budgets will ultimately be allocated on the basis of fiscal performance as well as academic merit. What does RCM mean for the development of new programs? In an RCM budget, the University will be looking to support the development of programs that (i) are academically strong; and (ii) will support the financial sustainability of Trent University. Both these kinds of considerations will be key in deciding what new programs can be supported. Will this result in changes to the ways in which the University advertises and recruits for specific programs? The University will continue to produce marketing material that represents all programs. It will at times target programs which have a unique potential to attract students. The University s Communications and Marketing Department is open to discussions in this regard.