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Inside the new internal financial model: University to decentralize budget planning

Strine, Simon to chair steering committee; schools to operate as self-sufficient units

Since the economic downturn of 2007, Americans have grown increasingly familiar with discussions of budgets and financial planning processes. At state universities, similar conversations are aimed at optimizing the school's financial resources. Keeping with this philosophy, a new internal financial model is taking shape at the University.

Banking on a new model\nThe new model is rooted in what management pundits call responsibility center management, or activity-based budgeting. Currently, budgetary decisions for all facets of the University are subject to the approval of President Teresa A. Sullivan, John Simon, executive vice president and provost, and Michael Strine, executive vice president and chief operating officer. Implementation of the new model is planned for the 2013-14 fiscal year. The model will decentralize budget planning to individual schools, or units, within the University, and allocate funding based on the resource generation capabilities of each unit.

The new model will give University schools more autonomy in budgeting decisions, resulting in more efficient resource allocation, said Colette Sheehy, vice president for management and budget. "I wouldn't necessarily say it's a result of the economy, because in the purest sense of the word it doesn't create more resources in and of itself," Sheehy said. "If the University were to switch to this model tomorrow there wouldn't be any more money at the University than there is today."

Sheehy said the new model is instead a result of University President Teresa A. Sullivan's direct efforts to improve the University, facilitated by recently passed state legislation which allows universities more autonomy in budgeting affairs.

"It's initially one of President Sullivan's primary goals for her first term," Sheehy said.

Sullivan's other two initial goals included the appointment of a new executive vice president and chief operating officer, and a new executive vice president and provost. For those positions, Sullivan selected Michael Strine and John Simon, respectively.

Strine and Simon will take the lead on creating the new financial model, chairing a steering committee which includes deans from all the University's schools. The committee will shape the model during the coming months and implement it in the 2013-14 fiscal year, Sheehy said.

While the details of the model are still being worked out, the model will afford each department jurisdiction over its own revenue, but will also require those departments to meet their own financial burden, Sheehy said.

"For instance, all of the tuition that's attributed to the students in the Architecture School would be attributed to the Architecture School and they would get to manage and allocate those resources," Sheehy said. "But they would also have to pay for costs they currently do not, like the utility bills for Campbell Hall."

Strine said the committee will work with each school to implement the model in the most effective way possible for each one.

"These budget and planning guidelines become the broad parameters that we distribute, and we work with deans and associate deans in the fall," he said. "Then they go off and build school-based models in which they involve their faculty and chairs."

Sullivan said the new model will facilitate conversations about where money is most effectively spent.

"We can think more purposefully about ... [if] we want our students to all be able to have a relatively small class in their third and fourth years, and if we do that, what does that mean about how we look at our workload and what we do?" she said. "It brings these things to the table to discuss, whereas in the absence of a model like this you don't even talk about it."

Sheehy said the model would also help improve transparency in the budgeting process, and better "align the resources with the activity."

"What we have now is a budget model that is based on history, and there's really no relationship between activity and the resources a school receives," she said. "With the new model, if you're educating x number of students, you're getting that amount of resources those students generate."

Sparking innovation\nMany of these possibilities have excited deans and administrators around Grounds.

Robert Pianta, dean of the Education School, said he is particularly excited for the new model to re-energize the University in a difficult economic time.

"In the current model, basically we get a declining amount of resources, and we have very little connection between those resources and faculty activities," Pianta said. "I think in the new model, deans will be able to have a more strategic and proactive role in helping foster growth and helping faculty plan in a much more systematic way."

Pianta added that the new model will help encourage faculty members themselves to develop creative programs and an awareness of school's fiscal capabilities.

"I think it will energize the faculty to explore new initiatives," Pianta said. "I think it's going to be very positive and allow us to be much more proactive."

Engineering School Dean James Aylor explained the new model would help create a direct correlation between successful initiatives and funding.

"It will incentivize the schools to do new and exciting activities," Aylor said. "If you create a new course or a new program, maybe then you know that you're able to attract the students for it, you'll be able to get the money for it."

Although most schools recognize there must be a period during which faculty and administrators acquaint themselves with the model, Pianta said many have already begun developing ideas of where they'd like to expand and create change within their schools.

"We need to get used to working in it," he said. "It's not necessarily all about money, it's about the way we work together and plan and engage one another in the school. And those conversations need to take place for a while before we make any big decisions about how we're spending money."

Once schools become familiar with the model, however, Aylor said many will begin moving in new directions.

"[In the Engineering school,] there's a lot of interest in programs in security," Aylor said. "And we're looking at developing a professional master's-degree program, and increasing research activities."

Unforeseen outcomes\nBut not everyone at the University is unreservedly excited for the implementation of the new financial distribution method. At the committee's Oct. 19 meeting, "anxiety was notable" among the 90 faculty members attending, according to the meeting's minutes.

Faculty members share worries about interdisciplinary activities, financial transparency and other areas they fear the new model will affect.

Dave Biedenbach, Iowa State University Director of Budgets, said many faculty members at his school shared similar fears when their own university implemented a similar model in 2008.

"When we were looking at it during the development process, the primary issue was that it was going to split the university, and the whole interdisciplinary collaboration that we have was going to be affected," Biedenbach said.

While other issues presented themselves during the development of Iowa State's model, Biedenbach said the university worked to resolve them.

"There were some worries about 'there's going to be course poaching,'" he said. "For example, right now we have a very good statistics department [which] supports students across all the colleges.

And professors were worried that instead of that department being the only department teaching statistics classes, other schools and departments might try to create their own classes to garner the resources. What we put in place was a curriculum committee through our faculty senate."

Sheehy said although the base model may have some weaknesses, studying other universities' solutions, like Iowa State's curriculum committee, would help the University create a better model.

"I think institutions who have done it already have probably made some mistakes along the way, and they've had to go back and make adjustments," Sheehy said. "Hopefully we can learn from them and make fewer mistakes."

Strine said he and other administrators acknowledge certain programs, including academic activities, will need continued subsidized attention and resource allocation.

"It's not a change in the amount of subsidy, necessarily, it's a change in how thoughtful we are about it and how aware we are," he said.

Ultimately, it is "hard to say" exactly how the new financial model will affect the University, because it has yet to be fully designed, Sheehy said.

Aylor said deans and faculty alike recognize the amount of work left to be done, and remain "cautiously optimistic."

"It's a little early to tell," Aylor said. "I think everybody sees the benefit of a new program, but until everybody sees the actual details it will be hard to know how it will truly impact the University"


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