Tailoring the RCM Model to What Works For You

In an era of public scrutiny and requests for increased financial accountability, higher-ed leaders are looking for ways to show the public that they are addressing the issue of rising college costs. Many have turned to responsibility-centered management (RCM) as a way to reduce costs and encourage financial responsibility within individual academic departments.

While many institutional leaders see RCM as a way of decentralizing financial decision-making, allowing vice presidents and deans to take responsibility for their own budgets, they may not realize that certain principles of this financial structure can be tailored to fit the distinct culture of their campus, even without wholesale adoption of an RCM model.

The University of Notre Dame recognized how they could adopt some principles from RCM to meet their institutional needs and goals. Here is what they did, and what you can learn from it.

Adopting Elements of RCM – Not the Whole Model

Linda Kroll, associate vice president for finance at the University of Notre Dame, states that when their institution looked at some of the fundamental elements of the RCM model, university leaders liked that the model allowed for:

Distribution of responsibility to unit leaders
Creation of a culture that rewards lowering costs, streamlining processes, and entrepreneurship

However, Notre Dame’s history is rooted in centralized decision making, and the RCM model, in its entirety, conflicted with the centralized nature of the institution’s culture. The challenge was to tailor some aspects of this model to their institution while discarding the aspects that were not a good fit.

To move forward in an informed way, they considered the following questions:

How could RCM principles boost financial accountability without decentralizing mission? What outcomes do we expect from implementing these changes?

When determining which aspects of RCM to adopt, Notre Dame was mindful of maintaining the culture of its institutional community in the process. The desire was to create greater accountability for unit leaders and reward them for their efforts. Prior to implementing changes, it was anticipated that many unit leaders would feel there was little direct benefit to their specific area for reducing costs or increasing revenues. The objective was to identify elements of RCM that would benefit the unit leaders and the university as a whole.

Notre Dame was also mindful to protect efficiencies from having some services centralized (for example, one common human resource function rather than each leader having their own human resource team).

Overall, the goal was to implement RCM elements within a centralized culture to:

Ensure adherence to the institution’s mission and culture.
Notre Dame has a longstanding tradition of making decisions as a community. Notre Dame’s leaders felt that decentralizing certain decisions might lead to adverse outcomes, which could work against overall institutional goals. Ultimately, this meant retaining centralized decision-making for undergraduate tuition and financial aid; employee benefits; the annual employee salary merit pool; and advancement. The thought was that these efforts and decisions needed to have one, coordinated voice for the institution as a whole.
Create entrepreneurial opportunities for unit leaders.
To create greater incentive for unit leaders to implement cost saving and revenue enhancing ideas, the University explored and implemented strategies to reward these efforts at the individual vice president and dean level.
Provide campus-wide savings.
Savings can often be attained through purchasing in large quantities in order to garner deeper discounts and to gain preferred vendor arrangements. When considering RCM, Notre Dame found that procurement and travel were more cost effective when purchased across the campus instead of by individual units. The university maintained a centralized procurement function for aggregating spend as a whole to negotiate better vendor arrangements and to provide consistent practices for requesting proposals on larger purchases.

How much responsibility do we hand over to individual departments?

While many of Notre Dame’s major decisions, such as undergraduate tuition and financial aid, employee benefits and the annual university salary merit pool, remain in the hands of centralized leadership, it was important to decentralize some operational decisions. When determining what decisions to decentralize, Notre Dame focused on rewarding lowered costs, enhanced revenues, and streamlined processes.

To accomplish this, and to give vice presidents and deans a greater sense of ownership, the following financial accountability relationships were established:

Share in better-than-budget performance.
If a unit performs better than its allocated budget for the year, the vice president or dean keeps 70% of these savings from unspent funds. These funds can be used by that leader for innovation, improvement, and expansion in the form of one-time strategic investments, thus, directly rewarding cost effective thinking and actions. To date, these funds have provided critical resources for bridge funding and start-up costs for new hires, technology investments and facility enhancement projects to name a few.
Partner with deans to share in enhanced graduate tuition from professional masters programs.
Partnering with the deans in this way allowed for the college or school sponsoring the program to directly benefit from growth in the program. These arrangements have allowed the deans to expand and create new professional master opportunities for students.
Share indirect cost recovery on research grants.
To incentivize researchers in their grant activity, the university returns a share of indirect cost recovery on grants to the vice president for research. The vice president then uses these funds to invest in internal grant activities and reward the colleges and researchers conducting the research, as a portion of the funds are returned to the college and researcher to support their current and future activity.

Critical Questions to Ask

Financial accountability is about tailoring the model that best fits your institution. RCM is not for everyone, but as the University of Notre Dame has found, this model definitely has merits that can be adapted to your institution, regardless of your overall resource planning models.

Before deciding whether RCM is a good fit for your institution’s needs, ask your colleagues these “temperature-testing” questions:

Which RCM principles of decentralization, if applied, could positively impact the academic mission of your institution?
Which RCM principles could negatively impact your mission?
Are there aspects of your institution’s budget that could be enhanced by changes in your resource planning models and practices?
What behaviors would you like to see change in the financial management of your institution?
If aspects of RCM were implemented, what outcomes would you like to see?

Learn More About Implementing RCM at Your Institution

Join us for a prerecorded online training that will explore the principles of RCM and considerations for implementing this model on your campus. Larry Goldstein (Campus Strategies, LLC) will cover: