University of New Hampshire Strategic Plan Refresh: Responsibility Centered Management

University of New Hampshire Strategic Plan Refresh: Responsibility Centered Management Review Findings and Recommendations: Final 5/2/15

Introduction

The University's Strategic Plan, "UNH in 2020", was completed in 2010. It made a bold statement about the University's intentions to:

1) change the academic culture through an emphasis on interdisciplinarity; greater integration of teaching, research, and engagement; and viewing space and time through a new lens that would make the university more accessible outside the conventional academic calendar and through on-line programs, and

2) give strategic focus to the development and sustenance of "market smart and mission- centric" programs.

Since the plan was introduced, the USNH Board of Trustees has received three formal progress reports. The last of these occurred in the fall of 2014, while the University was engaged in a process to "refresh" the 2010 plan. All three updates demonstrated progress and evolved planning in areas including strengthening the UNH brand, deepening research and increasing commercialization, strengthening and diversifying enrollment, and completing a successful fundraising campaign. Many of the actions necessary to accomplish these and other goals require new levels of collaboration within the institution, as well as the capacity to make selective, and sometimes substantial, strategic investments.

In addition to setting a strategic direction to which the University has remained true, "UNH in 2020" identified four aspects of the University's Vision and Values. Among these was "A Budget System Aligned with Strategic Priorities". There have been three formal reviews of the University's budget system (RCM) since its inception in 2001, each resulting in some modifications to the model. The current review is an expedited process expressly linked to the process of refreshing the Strategic Plan, and as such it is set in the context of an institution that is striving for greater degrees of collaboration and strategic focus for the use of its limited resources.

As part of the refresh process, a community survey was conducted. It contained three quantitative and three qualitative questions about RCM. The following overview and recommendations regarding the RCM model have been developed with reference to 1) the responses to those survey questions, 2) input from bodies such as the President's Cabinet, Dean's Council, Research Directors, and other RC Unit heads, 3) the above context, and 4) a particular subset of the University's five Updated Strategic Initiatives:

1 . Interdisciplinary Schools and Academies

. A Learning-Centered Environment for the 21st Century

. Leveraging UNH Intellectual Capital

. Research, Scholarship, and Creative Activity

. Partner for Life

These five initiatives point to the need for the budget system to support cross-disciplinary curricular development and research, as well as be creative partnerships with businesses and communities throughout the State. They also call for the model to encourage efficiency, effectiveness, and the constant generation of new resources. In an institution as resource-constrained as UNH, the budget model is often blamed for the overall lack of resources. While the model cannot generate revenue, it must be a rational, flexible tool that when used wisely by academic and other leaders will encourage and reward behaviors that align with the University's priorities and needs, including resource generation.

Overview of Findings

Appendices I, II, and III provide details on the feedback collected through the survey and other means. The following findings summarize the primary messages.

1. By far the most compelling message from the survey is that there is a significant lack of understanding of RCM and of University finances in general in the community. This lack of understanding of the history, motives, and actual mechanisms of the model has at best fueled confusion or indifference and at worst allowed misinformation to circulate as fact. Lack of understanding and a belief in lack of transparency go hand in hand. These findings suggest a community interest in greater communication around financial decisions and greater understanding of the budget model. They also suggest that opportunities to simplify the model should be taken wherever feasible.

2. Those who say they understand RCM feel many aspects are working well; indeed the very aspects that the system was intended to create. Transparency; incentives for efficiency and revenue generation; connection of revenue flows to activity; local autonomy, authority, and accountability; and the ability to build and maintain unit reserves to support planning and strategic investment are among the benefits that were non-existent in UNH's prior budget model.

2 3. In general the view is that strategic funding is lacking at all levels; Central Administration, Colleges and Schools, and individual departments. This speaks to the overall limits of UNH resources, but also suggests that the current budget model allocates inadequate funds for investment in new activities and strategic support for existing high priority ones.

4. Concerns about too much competition, too little collaboration, and decision-process over emphasizes money. It is true that RCM explicitly injects financial considerations into decision- making, but in a resource constrained environment there is little choice. The system is reliant on the wisdom of Academic Administrators, Deans and faculty to balance those financial considerations against the imperatives to offer high quality and appropriate academic programs. Creating and sustaining interdisciplinary programs in an RCM environment can be a special challenge; nevertheless, there is evidence of abundant interdisciplinary activity.

5. There is a perceived lack of accountability/transparency of central service organizations to those they serve. Units feel "nickeled and dimed" by fees, and many see an economic incentive in using external parties for service. Conversely, members of the community who work in central service organizations are frustrated with the need to charge for services and the institutional inefficiency of units seeking their own third party solutions. A number of respondents question the magnitude of the assessment that funds Central Administration and wonder where the incentive for efficiency lies there, although in response to the third survey question half of those who have an opinion think funding to Central Administration is insufficient.

6. The manner in which RCM has been implemented and managed over time has generated some concern. Some respondents feel the rules are changed too often, such as credit hour weightings, sometimes without due process or sufficient communication and sometimes leading to a perception that as soon as a unit shows success its money is taken and given to another unit. Some of the comments reveal a disconnect between Deans and their departments regarding incentives and resource flows.

7. Organizational and State funding changes since the last RCM review, as well as excessive resource constraints in some areas, require reconsideration of certain aspects of the RCM formulae and/or the establishment of strategic subsidies. The organizational changes include the creation of the Carsey and Marine Schools and the integration of the Law School into UNH. The separate PAU's with heavy reliance on State funds suffered disproportionately from the 50% State funding cut in 2012-2013. Central Administration suffered disproportionately as well due to the decision to have that unit carry more than its share of the resulting deficit. COLSA and Athletics have made important strides toward greater efficiency and have balanced their budgets of late, but they are carrying large cumulative shortfalls ($13.3 million for COLSA and $3.4 million for Athletics). Cooperative Extension has made significant organizational changes and still does not have enough funding to sustain its programs. Finally, EOS has paid a

3 disproportionately high level of assessments due to its revenue mix and has been heavily impacted by Federal budget cuts in funding for research.

8. There are concerns about inadequate incentives/support for research (particularly interdisciplinary), outreach, graduate education, J-Term, summer, on-line, and inter-disciplinary Discovery courses in the current model.

Recommendations

I. Educate, Communicate, and Simplify

A plan should be developed and implemented to ensure wide community understanding of the University's finances and its budget model, including the process and rationale for any model changes that may occur, on an annual basis. In addition, the Deans should be charged to ensure that their department heads understand how the model is managed within the unit and to ensure that the incentives of the RCM model flow to some degree to the departmental level. Finally, wherever possible, changes to the model should aim in the direction of simplification.

II. Increase funding to Central Administration and the Strategic Funding Pool to Enable 1) Increased Seed Funding for Strategic Initiatives and Strategic Operating Subsidies , 2) Selective Reduction and/or Elimination of Fees Charged for Central Services, and 3) Elimination of the $13.4 million Central Administration cumulative funding gap.

A number of the findings in this review can and should be addressed through transparent institutional decisions to provide ongoing subventions to important activities unable to be self- sustaining, strategic seed funding to critical new initiatives, and support for interdisciplinary and other activities that advance the Strategic Plan. In order to accomplish this, some funding flexibility will inevitably shift from RC Units to the Central Administration. It is imperative that such a shift occurs at a pace that can be sustained by the RC Units and that there is an ongoing commitment to making the Strategic Funding Pool an "open book", where the decision making processes and the uses of funds are evident to all who wish to know. Specific recommendations are:

a. Increase the annual allocation to the Strategic Funding Pool from 3.5% of salary to 4.0% in FY16.

b. Increase selected Revenue Retention Rates over the next 5 years. Revenue retention rates should be reviewed each year against actual financial results and adjusted as needed in order to meet goal of reducing University funding gap.

4 c. Complete by January 31, 2016 a review of internal fees charged by central service units, with an eye toward eliminating or reducing them where possible. In particular, the focus should be on Information Technology, Communications and Public Affairs, and Facilities fees. The resulting recommendations should be shared for comment with the RC Unit Heads and BSC Directors, and final changes should be implemented as of FY17 in a net neutral way for the service units.

d. Complete by June 30, 2015 a review of Central Administration unit reserves and develop plans to address any under- or over-funding.

e. Consider establishment of a policy that no Central Administration unit should carry a fund balance in their E&G fund no greater than 10% of their operating budget. Any excess would be contributed to Strategic Funding.

III. Undertake Further Study Regarding Real vs. Perceived Barriers to Interdisciplinarity, J-Term, Summer, and On-Line

Prior to making specific recommendations in this area, conversations should be held with the Deans, Directors of Interdisciplinary Schools, Institutes and Centers. To the degree that real barriers exist, the University should address them with a balanced combination of strategic funding, "assessment holidays", or other model adjustments.

IV. Provide Relief from the State Funding Cut to the Separate PAU's

Restoration of a portion of the funds lost in the 2012-2013 cut, would provide essential relief to units such as COLSA, Cooperative Extension, Marine, and UNH-M.

V. Provide Strategic Subsidies to the Carsey and Marine Schools

5 The Schools receive a small portion of F&A associated with research done by their affiliated faculty, because the faculty salaries are covered by the Colleges. However, the Schools are absorbing space costs associated with research. The subsidies should reimburse the Schools for their space and reduce tensions between the Colleges and Schools regarding F&A. The subsidies should be transferred to the Schools annually through FY20 and then subject to renewal or revision in the next RCM review.

VI. Revise the F&A Split for Research Faculty and Eliminate Revenue Retention from Travel-Related Contributions.

Eliminate the 5%/61% split between a research faculty member's affiliated college and the unit through which the grant flows. Flow all 66% to the grant unit.

A few programs, such as the Institute for Disability, experience a disincentive to travel to provide expertise to other organizations that contribute toward the travel costs, because the contribution is recorded as revenue. The dollars are negligible to the institution as a whole but non-trivial to the Institute. A minor accounting change can fix this problem.

VII. Conduct a Full, Transparent Analytic Review of the Credit Hour Weightings No More Frequently than Every Five Years.

According to this cycle, because the last review was in FY13, the next review would be no sooner than in FY18 with implementation in FY19.

IX. Retain Current Law School Interim Formulae with the exception of functions that are moved to central administration (through FY20)

Since the Law School was integrated into UNH, it has operated under an interim set of RCM formulae. These formulae were negotiated with reference to some unique aspects of the Law

6 School, as well as to the School's poor financial condition. We recommend these continue, with one exception: that where law school functions become absorbed by the central administration (for example, HR and Advancement), the law school’s assessments reflect that specific increase. The interim formulae should be reviewed, and a more permanent arrangement put in place, in the context of the next formal RCM review.

X. Address COLSA and Athletics Cumulative Deficits

On the condition that these units continue to balance their budgets going forward, use strategic funds to eliminate the cumulative deficits over time.

XI. Provide Temporary Strategic Relief to EOS

As part of the research strategy of UNH, EOS is deserving of strategic support to enable it to weather the federal pullback in research funding. Set an annual amount that will be transferred to EOS through FY20, subject to renewal or revision in the next RCM review.

7 Appendix I: Quantitative Results

Understanding of RCM

. There were 744 respondents. Of those, one-third had "no understanding" of RCM.

. Of those who feel they understand RCM, 58% believe RCM is not well understood by others.

Adequacy of Strategic Funding in the Model

. Of the respondents who feel they understand RCM, 38% believe the strategic funding level is insufficient, 28% feel it is sufficient, and 34% don't know.

. Of the 294 respondents to this question who had an opinion, 63% believe the strategic funding level is insufficient.

Adequacy of Central Administration Assessment Rates

. Of the respondents who feel they understand RCM, 31% believe the funding to Central Administration is insufficient, 39% feel it is sufficient, and 30% don't know.

. Of the 298 respondents to this question who had an opinion, there was a 50/50 split between those who believe the funding to Central Administration is insufficient or sufficient.

Strength of Incentives to Utilize Central Services vs. Third Party

. Of the 450 respondents who feel they understand RCM, 40% believe the model contains insufficient incentives for the use of central services, 36% feel the incentives are sufficient, and 24% don't know.

. Of the 355 respondents to this question who had an opinion, 55% believe the model does not incentivize the use of central services.

Strength of Encouragement of Innovation and Revenue Growth

. Of the respondents who feel they understand RCM, 51% believe the model does not encourage innovation and revenue growth, 28% feel it does, and 21% don't know.

. Of the 361 respondents to this question who had an opinion, 66% believe the model does not encourage innovation and revenue growth.

Strength of Encouragement of Efficiency and Effectiveness

. Of the respondents who feel they understand RCM, 49% believe the model does not encourage efficiency and effectiveness, 38% feel it does, and 13% don't know.

. Of the 408 respondents to this question who had an opinion, 61% believe the model does not encourage efficiency and effectiveness.

8 9 Appendix II: Qualitative Thematic Results

What is Working Well?: ~130 (17%) respondents offered constructive qualitative responses to this question. The major themes were:

. Transparency and Clarity about Areas of Financial Strength and Weakness

. Incentives for Cost Control, Efficiency, Innovation, and Revenue Generation

. Local Autonomy, Authority, Flexibility, Accountability, and Ownership

. Ability of Maintain Reserves at the Local Level and Utilize for Strategic Investment

What is Not Working Well?: ~190 (26%) respondents offered constructive qualitative responses to this question. The major themes were:

. Concerns about Central Services and Administrative Overhead/Burden

. Concerns about how RCM has been Implemented and Managed

. Too Much Decentralization and Competition/Not Enough Collaboration

. Concerns about Impact on Decision-Making/Focus on Money and Productivity

. Lack of Transparency/Lack of Understanding/Complexity

. Insufficient Funding (primarily for Strategic Initiatives)

Additional Feedback?: ~115 (15%) respondents offered constructive qualitative responses to this question. The major themes were:

. Concerns about how RCM has been Implemented and Managed

. Concerns about University Priorities/Intentions

. Lack of Understanding of RCM

10 Appendix III: Other Feedback/Issues

Funding Streams for Interdisciplinary Schools (Carsey School and Marine School)

. Two interdisciplinary schools were recently established – the Carsey School under the graduate school and the Marine School under EOS.

. The University provided strategic funding for the first few years, and a more permanent arrangement needs to be developed, including clear policies on how F&A will be shared with the colleges.

Funding Stream for Cooperative Extension

. As a result of significant state appropriation cuts, Cooperative Extension recently went through a reorganization and streamlined their operations.

. They do not have sufficient revenue streams to cover faculty and staff salary increases and benefits.

. In order for them to remain solvent, a funding source for these increases must be developed. (The University has provided strategic initiative funding for the past 2-3 years to fill the gap.)

. They need approximately $700k in continuing increase to their base plus an increase to the base equivalent to salary increases and fringe for future years.

Funding Stream for AES

. How have the state cuts impacted AES?

. Is intervention at the level of a change to the RCM model required? If so, what?

Law School

. The Law School was integrated into UNH on January 1, 2014.

. It is currently operating under a temporary arrangement with respect to the RCM model.

. What should the longer-term formula be?

Research

. Center and Institute Directors report difficulty in promoting an interdisciplinary research enterprise in collaboration with the Schools and Colleges.

. The model flows a portion of F&A back to PI's, and all agree additional strategic funding could help if invested in the right places, but beyond that it lacks structural mechanisms for sustainability of institutes. Currently a great deal of ad hoc negotiation is required and the effort needed serves as a barrier

11 . There is an interest in providing additional bridge funding to Research Faculty.

. A review is needed to ensure RCM faculty definitions for F&A rate distribution are in line with current faculty nomenclature.

Outreach

. Assessing travel reimbursement as Program Income (at 15%) is a disincentive to engage in outreach.

. There is interest in more strategic funding for outreach.

Graduate Education

. There is an interest in strengthening incentives for academic units and individual faculty to engage in graduate education. The way the current model flows graduate tuition ( to the unit in which the student is enrolled and not to where the course is taught if those differ) is an issue. Also, there is a perception that faculty don't get recognition for work with PhD students, who generate tuition only in the first year.

Discovery

. The current rules and procedures surrounding the offering of Discovery courses appears to create a disincentive for interdisciplinary offerings.

J-Term, Summer, On-Line

. There is a question as to whether the incentives for offering these courses are strong enough.