Who’s Making Money at Your College – and Who Isn’t?

In the current financial climate, colleges and universities in the United States are increasingly focused on the economic sustainability of their academic programs. This has led to the adoption of various models that aim to assess the financial contributions of different academic offerings, going beyond simple enrollment numbers to examine the return on investment (ROI) of programs. Two notable models in this context are the Responsibility-Centered Management (RCM) model used by Oregon State University and the Delaware Cost Study method. Both methodologies offer frameworks for understanding the costs and revenues associated with academic programs, but they differ in approach and application.

Responsibility-Centered Management (RCM) at Oregon State University

Oregon State University employs a variant of RCM known as Shared Responsibility Budget Model (SRBM), which incentivizes revenue generation and cost efficiency at the unit level. Under SRBM, individual colleges and departments are given more autonomy and are held accountable for their financial performance. The basic formula for RCM at OSU considers both direct and indirect costs associated with a program, as well as the revenues it generates.

Net Income = [Revenue from Tuition & Fees + State Appropriations + Indirect Cost Recovery] – [Direct Costs – Allocated Overhead]

Each unit’s revenue is primarily composed of tuition and fees attributed to its courses and programs. State appropriations are distributed based on various factors, including enrollment and performance metrics. Indirect cost recovery includes funds from grants and contracts that support university overhead. Direct costs cover expenses directly associated with academic delivery, such as faculty salaries and program-specific resources. Allocated overhead represents the share of institution-wide costs attributed to each unit, such as administrative services, facilities, and technology infrastructure.

The key advantage of OSU’s RCM approach is the clear connection between financial decision-making and academic outcomes. It promotes entrepreneurial behavior as units benefit directly from the revenue they generate and are responsible for managing their costs. This model fosters a culture of transparency and accountability, as units can see the direct impact of their actions on their budgets.

Delaware Cost Study Method

The Delaware Cost Study, developed by the University of Delaware, is a tool for benchmarking the costs and productivity of academic programs. It is an annual survey that collects data on instructional costs and workload metrics across institutions to enable comparisons by discipline. The formula for the Delaware Cost Study involves calculating costs per credit hour or per student, considering faculty teaching loads, salaries, and other direct instructional expenses.

Cost per Credit Hour = Total Instructional Costs/Total Credit Hours Delivered

The total instructional costs include faculty salaries, benefits, and support services directly tied to program delivery. The total credit hours delivered are the sum of all credit hours taught by the department or program. This method allows institutions to benchmark against peers and national averages, providing an external perspective on program efficiency and productivity.

The Delaware Cost Study’s advantage is its comprehensive data set and the ability to make external comparisons. It provides a detailed view of how resources are being used within specific disciplines, which can inform strategic decisions about resource allocation and program development.

Advantages of OSU’s RCM Approach Over the Delaware Cost Study

While the Delaware Cost Study offers valuable benchmarking capabilities, at both institutions in which our leadership team served, we used OSU’s RCM model due to the following benefits provided:

1. Autonomy and Incentivization: RCM gives units control over their revenues and expenses, encouraging them to innovate and optimize for financial success.

2. Strategic Alignment: The RCM model aligns the financial interests of individual units with the strategic goals of the university, fostering a cohesive approach to financial management.

3. Real-time Decision Making: RCM provides a framework for ongoing financial management, allowing units to make decisions in real-time based on current financial data.

4. Revenue Generation Focus: Unlike the Delaware Cost Study, which focuses on costs, RCM encourages units to explore new revenue sources, not just manage expenses.

5. Internal Benchmarking: RCM allows for internal benchmarking and comparison, which can be more actionable than external comparisons since it reflects the institution’s specific context and mission.

6. Holistic Financial View: RCM considers both direct and indirect costs and revenues, providing a comprehensive view of a program’s financial footprint within the institution.

In conclusion, while both RCM at Oregon State University and the Delaware Cost Study method offer insights into academic program costs and revenues, OSU’s RCM model stands out for its focus on autonomy, alignment with strategic goals, and the incentivization of units to be entrepreneurial and efficient. This approach not only provides a detailed understanding of each program’s financial contribution but also actively engages academic units in the financial stewardship of the institution. In which programs you invest – and in which programs you cast aside – are important questions that need to be answered in these troubled financial times for higher education.

Who’s making money at your college – and who isn’t? (substack.com)

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