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An unabridged study of perceptions of the General Fund Budget Review at the University of Michigan. The study was conducted from May through October 2005 by a study team consisting of Special Counsel to the Provost Ken Kohrs and Doctorate Student Staney DeGraff from the Center for the Study of Higher and Postsecondary Education at the School of Education. a glossary of frequently used terms and definitions, significant findings summary, eleven core issues, data collection and research methodology, figures, tables, and appendices.
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General Fund Budget Review
General Fund Budget Review
The University of Michigan General Fund Budget Review
Section 1: Foreword
The General Fund Budget Review was sponsored by the Office of the Provost and Executive Vice President for Academic Affairs to assess viewpoints in the University community regarding the effectiveness, strengths and weaknesses of the University Budget (UB) model and system. The present budget model, an evolution of the Responsibility Centered Management (RCM) model, was first implemented in 1999 and has been refined and modified, but still retains the concept of activity-based budgeting.
Accordingly, this report is about perceptions and may or may not reflect verifiable facts. This does not diminish the importance of the responses illustrated in this report since they may represent prevalent viewpoints, regardless of any inaccuracy.
Two different but comparable sets of interview questions were developed to accommodate both activity and non-activity based units. They were created with the assistance of the Provost’s Office and reviewed by the faculty and staff members in the Budget Oversight and Review Group (BROG). Throughout the study period, the study team has been advised by and has had discussions with the BROG members. However, the study team is solely responsible for producing this report and for any mistakes that may have occurred.
During the months of May to August 2005, the study team interviewed 64 groups comprised of 111 people representing various constituencies in the University community. The interviews normally lasted between 1 to 1 ½ hours. Eleven core issues emerged from the interview results and guided the analysis and preparation of this report. In addition, there are five significant findings and eight common themes that surfaced from those core issues, as highlighted in this report.
Appendices in the latter half of this report contain supporting data, research methodology, and the result of statistical analysis, as referenced where applicable.
The University of Michigan General Fund Budget Review
Section 2: Acknowledgements
The General Fund Budget study team would like to express its utmost appreciation to the following individuals and groups for their significant support and contributions:
Paul N. Courant, Provost and Executive Vice President for Academic Affairs Marilyn G. Knepp, Associate Vice President for University Budget, Planning, and Administration Philip J. Hanlon, Associate Provost for Academic and Budgetary Affairs Glenna L. Schweitzer, Assistant Provost and Director, Office of Budget and Planning
for their support and guidance in initiating the study, providing information to the study team, and for organizing and enabling access to individuals and groups across campus and former officials outside the campus.
The Budget Review and Oversight Group (BROG) who guided the study team throughout the study and provided feedback and constructive ideas:
Anthony H. Francis, Chairperson, Associate Dean, College of Literature, Science, and Arts Antony E. Burger, Director, Financial Analysis, Office of Vice President of Finance and Chief Financial Officer Frank J. Cianciola, Senior Associate Vice President for Student Affairs Eric L. Dey, Executive Associate Dean, School of Education William R. Elger, Executive Director Administration and Chief Financial Officer, Medical School Nathan Eriksen, Chief Administrative Officer, School of Information Marvin G. Parnes, Associate Vice President for Research and Executive Director for Division of Research Development and Administration Judith A. Pitney, Executive Director, Resource Planning and Management, College of Engineering
The Office of Budget and Planning staff members
for the individual and group support, including the use of office and facilities, and the time and effort spent in providing critical information with regard to the UB model and system, for enduring endless and sometimes senseless questions, and for creating a very positive environment conducive to this project.
Eric L. Dey, Executive Associate Dean, School of Education
for his invaluable assistance and consultation in the quantitative analysis of the data.
Karen M. Staller, Assistant Professor of Social Work, School of Social Work
for her invaluable assistance and consultation in developing a qualitative analysis approach.
The 111 individuals in 64 groups who willingly gave up their time to talk to the study team, provided invaluable insights and expressed candid emotions and responses.
Budget Type Activity : Units that are able to generate revenue from their operations as a direct function of their teaching, research, and service mission. Their budget model is an activity-based model: developed to recognize changes in activity. All but one school are activity units. Non-Activity : Units that do not generate sufficient revenue to fund a considerable portion of their operations and thus depend heavily on the allocated General Funds. They do not directly conduct teaching or research, but provide valuable and critical resources to support those activities. Their budget is developed without specific formula attributions based on changes in activity. They are funded as deemed appropriate to fulfill their mission.
Discriminating Characteristics
All interviews are categorized based on a number of discriminating characteristics that best describe respondents. These categories are utilized to determine possible relationships between responses and different types of respondents. Discriminating characteristics used are budget type, unit type, General Fund budget, General Fund % of Total Funds, Total Funds budget, respondents’ positions, and budget/model understanding. See these specific terms for more details. General Fund Budget (GF)
The operating funds where attributed revenues and costs directly relate to the University’s academic mission. Its revenues include state appropriation, tuition and fees, indirect cost recovery, interest income, application fee, and General Fund Supplement. Its costs include financial aid, facilities, and taxes. We use 2003- figures in our analysis.
General Funds as percent of Total Funds budget (GF%)
The allocated General Fund budget for the year 2003-2004 divided by the Total Funds budget for the same year.
General Fund Supplement (GFS)
A part of the General Fund budget that represents an additional funding distributed to units outside their attributed costs and revenues, to supplement their operations. GFS for each unit reflects the historical funding level for that unit and additions and subtractions that follow from the Provost’s policies and decisions. It is through General Fund Supplement that the Provost can exert his influence and shape the University’s strategy and priorities.
Hold-harmless Refers to the policy that the Provost will compensate related units for technical or programmatic changes that affect them through no fault of their own. Hold-harmless policy is designed to preserve equity and ensure that any unit is not disadvantaged when changes occur. For example, when tuition attribution was changed to a 25/ split, the Provost’s Office made a budget adjustments to all units affected by this change. Office of Budget and Planning (OBP)
An organization reporting to the Office of the Provost that is responsible for gathering information, conducting institutional research and analyses, developing the University’s budget model, providing support, and communicating the annual budgets to the units.
One-time Requests A funding request submitted by units to the Provost to support certain initiatives or issues. As the name suggests, one-time funding usually refer to a non-continuing funding and often functions as seed funding, where the Provost helps the units to jumpstart certain initiatives and gives time to the units to develop self-funding for those initiatives. One-time funding can reflect a multi-year commitment from the Provost. One-time requests can be submitted at any time in the academic year and used for various purposes, such as PFIP (Provost’s Faculty Initiatives Program), strategic initiatives, or emergency funding. Process Refers to an organized approach to accomplish a stated goal, such as a budget process, decision process, or collaborative process.
Reserves The carry forward balance of funds that is retained by units. Reserves can be built by adding yearly net income (revenues minus expenses) and can diminish with yearly net loss. Reserves are fungible. Some are saved for a specific purpose and some have a more general purpose.
Respondent Generic term used to represent a participant or a group of participants interviewed in this study. Each interview session is considered as one respondent unit, regardless of the number of participants in each interview. Where views differ within the interview, alternate views are recorded.
Respondent’s positions Each interview is categorized into one of five types of employment positions within the University: Deans and/or Staff. All but one Dean participated in this study. This category also includes the deans’ staff such as Associate Deans and budget administrators. The study team interviewed members of all schools and colleges. Executive Officers. Six out of eight Executive Officers participated in this study. Executive Officers’ Senior Staff. Operating personnel directly reporting to the Executive Officers. Directors and/or Staff. This category includes operating personnel responsible for administrative or service units across campus and also for academic units with specialized research or academic functions. Ex-Officials. Ex-official respondents in this study include selected former University’s executives who played a major role in previous administrations with regard to the activity-based budgeting system. They also provide historical perspective regarding prior budget systems and the development of the current system.
Responsibility Centered Management (RCM)
A budgeting and resource allocation system that gives units (schools, colleges, organized research units, etc.) credit for revenues generated and costs incurred. The basic principle is to treat units as “profit/cost centers.” Implementations of RCM vary in the existence or lack of interdependency of funding between units. Some implementations imply self-funding for the units and some do not.
The University of Michigan General Fund Budget Review
Section 4: Significant Findings Summary
Introduction and Approach
This section highlights the five significant findings and the common themes that emerge from them and from the eleven core issues we have identified (please see Section 5 for the 11 core issues). In reading this section, it is important for the readers to examine whether these themes and findings are inherent in the budget model and system or whether they are a result of the implementation of the budget model and system. The following common themes and significant findings need to be addressed as interrelated components, and not as independent parts, of an integral budget model and system.
Please note that the report is intentionally written in the present tense to preserve the immediacy of the issues as highlighted by the respondents.
Common Themes
These recurring themes reveal positive and negative aspects of the key elements in the budget model and system, which emerge from the interview sessions. Accordingly, these themes reflect the perceptions of the respondents, and may not be factual. The study team has attempted to present a balanced view of how each theme impacts the overall report findings. They are not listed in any order of priority.
substantial emphasis on the incremental changes in activities from year to year and does not require a thorough examination of the existing activities.
Common Theme Positive Negative
Unit autonomy Promotes self-management and entrepreneurship
Lack of alignment between the units and the Provost
Financial accountability Promotes better unit management and responsibility
Impedes innovation due to the emphasis on financial returns
Communication and understanding
Good support from the Provost’s Office when needed
Large variation in understanding
Model and system complexity Rational model Deemed too complex by some participants and difficult to master
Strategic Planning Encourages prioritizations and strategic allocation of resources
Emphasizes short-term outlook and incremental changes in activities
continued on the next page
Strengths
Weaknesses
Observations
Threats
Strengths There are six important strengths of the present model and system:
c. Strategic resource allocation
Weaknesses There are eight broad categories of issues frequently cited by the respondents:
Threats The findings that can most easily be construed as threats are common among all organizations, and not unique to the University of Michigan.
II. General Agreement on the Goals of UB Model and System
There is general agreement on the suitability of the goals (Table 2). However, some respondents take offense to the lack of certain elements or the wordings of the goals. Others deem the goals too broad and uninspiring.
Strengths
Weaknesses
Observations
Threats
Strengths
Weaknesses
