New budget will reverse cash flow

When Anthony Wagner visited Indiana University last year to learn about its budget model, he noted a common trait that runs through the Bloomington, Ind., campus.

It wasn’t excitement about a basketball team that was ranked in the top 10 in the country at the time: It was an ambitious and enterprising enthusiasm that enveloped the university, in part because of its version of a decentralized budget.

There’s this “entrepreneurial spirit that runs through the entire university,” the former executive vice president, chief financial officer and treasurer said after returning from Indiana.

Starting on July 1, 2014, a version of that model is going live at Temple, something administrators say will spur that same pioneering and resourceful sense throughout the university’s 17 schools and colleges.

Throughout the academic year, officials will be holding training seminars helping academic units learn about a system that reverses the way revenue is distributed in the university.

 

Old vs. New

Under the current budget model, revenue comes into the university and, for the most part, flows into the central administration, which then distributes the money throughout the university.

To improve efficiency, administrators had been considering  a decentralized model for the past several years. Last year, a 12-member steering committee consisting of financial officers, faculty, administrators and deans was put together to explore how a decentralized model would fit at Temple.

In a nutshell, decentralized budgeting reverses the current model. Instead of money going directly to the central administration, revenue goes straight to the schools and colleges.

“In today’s model, the university makes the lion’s share of the money,” said Ken Kaiser, interim chief financial officer and treasurer. “In this model, it flips. The schools and colleges will keep the lion’s share.”

This means that schools will keep the dollars each earns from tuition, gifts and any other source of revenue.

In addition to covering the cost of running the school, colleges will pay some of that money back to the university to cover services and overhead the university provides.

One of the main similarities between the two models is the repercussions associated with colleges going over budget. School and colleges cover the costs of going over budget with money from their reserves, however, Kaiser said if they go over budget and do not have the money in reserves to pay for it, the university places a credit in the college’s reserves, so any money accumulated in it goes to the university to pay off the credit.

 

Effects on Schools and Colleges 

The ability to keep the majority of revenue is what administrators hope spurs a sense of entrepreneurialism through the university and something the new dean of the College of Education is enthusiastic about.

Greg Anderson, who is in his first semester as the college’s dean, worked under a similar budget model at the University of Denver as a dean, but with one key difference. If the college exceeded revenue projections, it would be able to keep some of those funds, but the majority of it would go back to the university.

The ability to keep excess revenue is what Anderson is thrilled about. “For me, that’s really exciting,” Anderson, who worked at the Ford Foundation prior to taking the job at the University of Denver, said.

The goal of the budget model is to give colleges an incentive to collaborate and think outside the box to grow and develop the school, which is something that is not a component of the current budget.

“Right now, there’s not a real incentive to grow enrollment, to offer new programs or to completely outside the box and have other entrepreneurial ideas,” Kaiser said.

The model also allows schools to make sure they are receiving the appropriate services from the university.

“In essence, they’re paying for the infrastructure,” Kaiser said. “The fact that they’re paying for it will really incentivize the schools to hold the support units accountable for good and efficient services.”

“You have an ability to look at the central [administration] and say, ‘Hey, we pay you for the services you give to us, please make sure you do the right job for the right [amount of] money,’ ” said Moshe Porat, dean of the Fox School of Business and the School of Tourism and Hospitality Management.

Porat said that this budget model will force schools that are not very competitive to step up to grow and expand their resources.

For Fox, the budget model does not change a whole lot within the school because it has already been growing and advertising for years, Porat said. However, Porat said he will push more “entrepreneurial sensibilities” at the departmental and faculty level.

“I believe a program is well done if it had a champion at a very local level, meaning a faculty that cares about, not only the program, but the customer, the student,” Porat said.

 

Implementation 

After the university decided to implement a decentralized budget model, it became one of the key factors in the hiring of new deans that occurred this summer, President Neil Theobald said in an interview last month.

Along with the selection of Anderson as the dean of the College of Education, Michael Klein and David Boardman were recently named deans of the College of Science and Technology and the School of Media and Communication, respectively, moves that were made in part because of their compatibility with a decentralized budget model.

Klein is experienced with accumulating money for research and Boardman has an “entrepreneurial background” with his work as executive editor of The Seattle Times, Theobald said.

“You’ve got to be an entrepreneur, you’ve got to be active in a decentralized model,” said Theobald, who worked with a decentralized budget as the chief financial officer at Indiana. “Nothing’s given to you in a school, you’re going to have to earn your revenue. We’re looking at very different kind of dean than what has traditionally been in place here.”

During fiscal year 2014-2015, the university will run with the decentralized model, but will operate under a “hold harmless” policy, which means that “No school or college will be adversely affected on day one” of the budget model, according to a presentation from the steering committee.

Sean Carlin can be reached at sean.carlin@temple.edu or follow on Twitter @SeanCarlin84. 

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