PCM Budget Model
The Quest for a Better Way to Budget
In our efforts to develop a new budget model, a working group met regularly to review options, consult with campus leaders and develop a process and formula to allocate funds. The historical model that was in place was built on outdated goals and rationale that could be difficult at this time to understand and justify, and thus often was not transparent to most at the university. Moreover, the lack of responsiveness in the model left it inefficient and it did little to encourage units to be innovative and to support university wide goals. Furthermore, KU’s method of distributing revenue often left campus-wide interests — such as deferred maintenance and regular merit raises — at the end of the line. The new budget model, a revenue allocation system built on our priorities, could help administrators and unit leaders plan more effectively to support the institution’s strategic short- and long-term goals.
To summarize, In addition to increasing transparency around the process, a new budget model could:
- Align resources with strategic priorities.
- Encourage units to grow in ways that promote KU’s mission.
- Ensure sufficient central reserves are available to invest in strategic priorities.
About Model Styles
A Responsibility Centered Management (RCM) model, or a hybrid of it, has been adopted in increasing numbers among higher education institutions around the country. RCMs are a decentralized approach to budgeting where units manage their own revenue and expenditures.
Choosing to chart a new path, the budgeting approach KU has developed creates the Priority Centered Management model, which is rooted in an RCM that offers decentralized budget authority but that incentivizes desirable outcomes such as research productivity and student retention. When revenue is allocated to an academic unit or an academic support unit, the unit then controls those funds and can align the distributions to support its daily and strategic endeavors. As a Priority Centered Management (PCM) model, KU’s annual budget allocations to academic units and the campus wide support units will foster efforts to advance university wide strategic priorities.
KU’s PCM model:
- Incentivizes planning, cost effectiveness and, in some cases, revenue generation.
- Increases local responsibility and authority.
- Increases flexibility to match revenue streams with changing program demands.
- Increases attentiveness to all categories of money.
- Promotes accountability at all levels of management.
- Promotes attention to and participation in institutional goals.
- Increases transparency in all aspects of the budget process including revenue allocation.
- Limit “negotiated agreements” outside of the budget model.
- Increase trust surrounding university finances.
- Decrease nonstrategic spending and year-end spend down.
KU’s PCM model uses data and formulas tied to performance and strategic priorities, such as research activity and student success, to determine annual allocations. This PCM model includes elements of centralized and decentralized resource allocation.
What’s at stake?
The University of Kansas Lawrence campus operates on more than $700 million in a fiscal year. Much funding, known as restricted use, comes from established sources and are designated for a specific purpose or generated through the activities of a specific unit to support its activities and services. Examples of restricted use funds include endowment funds that support a school’s activities, student union activity fees, course fees collected by a professional school, or revenue gather through services such as student housing or parking.
About $450 million of the more than $700 budget is general use funds, commonly called the base budget, made up of state appropriations and tuition revenue. These are funds that each year are fungible and can be directed to support programs across campus that are part of KU’s identity as well as new initiatives.
View the FY 2020 budget for the KU Lawrence campus.
But those funds can also do something more. They can be allocated in a manner that encourages support of strategic endeavors and of KU’s mission. They can incentivize desirable activities, encourage planning and discourage inefficiencies.
Recent years of financial challenge have demonstrated the need to review and revise the process for allocating funding and set priorities for segments of our operations that are often set aside.
At all times, your feedback and questions are welcome. Please feel free to share your concerns, ideas and questions anonymously through the online feedback form or by email to firstname.lastname@example.org or call 785-864-4905.