RCM at the Department Level
RCM at the Department Level
Responsibility Center Management (RCM) works most effectively at the RC unit level. Each RC unit
is comprised of multiple departments/programs that vary in mission, size and complexity. Some
departments/programs generate net cost to the RC unit while others generate net revenue.
Many expensive, quality departments/programs and activities must be subsidized in order to uphold
its mission. This has always been the case in higher education.
To maximize the benefits of RCM, RC units may want to develop a plan where the incentives provided
by RCM are transferred in some manner to individual departments/programs. There are a variety of
methods to do this that will be discussed later in the paper. Full implementation of RCM at the
department/program level is not one of them. While some of general aspects of RCM may work well at
the department/program level, the full version RCM would not work at the department or program level.
The reasons that RCM would not work at the department/program level are:
1. Departments/programs are too small to absorb the financial effects of shifts in activity or
cost structure. A small decline in enrollment or grant activity for a department could be
potentially devastating. In addition, departments/programs typically have few revenue streams
and high fixed costs which limits their ability to move resources to cover deficits.
2. RCM is a general incentive model based on averages. It is not a detailed cost accounting
model and therefore is only a rough approximation of cost and revenues. While it works well at
the unit level, it would not work at the department level because individual departments/programs
have wide variation in cost structures and many shared costs within the unit. No single set of
formulas could be developed to distribute resources in an equitable manner at that level.
3. Full implementation at the department level is a significant administrative task.
Credit hours, graduate enrollments, indirect cost recovery, space, revenues, expenditures and
fund balances would have to be calculated and periodically monitored at the department level.
Many manual calculations would need to be performed and many manual reports would need to be
developed. Simply put, the cost of administering such a system would greatly outweigh the
benefits.
As mentioned previously, there are a variety of methods that RC units can use to transfer the
incentives and flexibility that RCM provides to create a set of incentives at the department/program
level. The most effective method of accomplishing this is by developing a written "compact" or
agreement with the department/program at the beginning of each fiscal year. The written compact
agreement would explain how the department/program and the unit will work together to accomplish
their goals. Department/ program performance would be measured against the stated goals outlined
in the document and resource allocation would be made explicit.
Some performance based methods to allocate resources are:
1. Grants/awards made in specific amounts based on the department/program's accomplishments
measured against their stated goals. An annual review would be done and awards would be made based
on results. A very good tool available to assist the schools and colleges in this effort is the
department profile reports that are generated by Institutional Research (see attached report).
2. Formulaic allocation of specific types of revenue. For example, a revenue sharing agreement
could be developed where specific goals are outlined for enrollment in summer session courses.
The department/program may receive a percentage of the revenues generated and the rest to the RC
unit.
3. Provide use of reserves or other funds for departments/programs that have a specific need
of strategic importance to the unit/University.
There are many other methods that could be used effectively.
There are no prescribed methods
for internal unit management but units should develop a methodology that maximizes the financial
benefits of RCM balanced with their ability to advance the University's mission. It is important
that the unit develop a strategy with their departments through open communication, information
sharing and commitment among the key stakeholders.
