What is the new University financial model?
Why is the new financial model being implemented?
What are the advantages of this new model?
When will this take place?
Who is responsible for creating this model?
Will this model work for every school?
Have other universities done this, and what have they learned?
What principles are guiding the process?
How will foundations be affected by the new model?
How will the new model be related to the work at the Hospital and Health System?
How will the new model be related to auxiliary enterprises such as Housing and Athletics?
How will this change the University?
A: The new financial model for the University of Virginia will be a unique version of a model common to many universities known by terms such as responsibility center management (RCM) or activity-based budgeting. The goal of the new financial model is to decentralize authority and accountability for resource planning in the university environment, empowering and increasing the self-reliance of schools and other major units. The model will associate institutional revenues and expenditures with the activities that generate them. In essence, all sources of revenue (e.g., tuition and fees, state appropriations, indirect cost recoveries, charitable giving to the University, interest on endowments held by the University, etc.) will be identified and attributed to the units that generate them. All uses of resources (e.g., salaries and benefits, other than personnel services [OTPS], operations and maintenance of buildings, utilities, central administrative services, etc.) will be identified and, where possible and appropriate, charged directly to units. Where dollar amounts cannot be clearly associated with specific units, the University will establish allocation formulas. In short, each major unit or school is treated as a separate cost center, generating revenues to cover its direct and indirect (share of central administrative operations) costs. This model will support the development and pursuit of academic priorities defined by deans and faculty by matching up authority with responsibility and providing greater transparency and awareness of the implications and costs of our academic and services choices.
A: During the past several years, the University has undergone a number of significant changes: Virginia's higher education restructuring, changes in senior leadership, ongoing reductions to its state budget, increased pressure to increase enrollments as a way of increasing access to Virginia residents, etc. The opportunities presented through restructuring enable us to transform the existing current University budget model, one that was designed many years ago when the University relied more heavily on state appropriations. The University is now able to look for new, creative and manageable funding solutions that give us the flexibility to offer the highest quality education, patient care and research supported by effective and efficient services. To achieve our goals and earn the trust of those from whom we seek support (donors, the Commonwealth, federal sponsors, parents), our budget needs to be data-driven and transparent to all stakeholders. Units, both academic and administrative, need to be accountable for all resources allocated to them. The new financial model is intended to ensure all of these things.
A: Since most revenues and expenses are associated with academic units, the new model will give schools greater control over their revenue and their expenditures, thus encouraging entrepreneurialism as well as effective and efficient deployment of resources. With this control comes greater accountability. When properly constructed and managed, the benefit of the new model is to allow academic units to respond better to opportunities, manage their risks, and achieve high levels of quality in faculty scholarship, student achievement, public service, and patient care.
A: President Teresa Sullivan set three specific goals within a clear mission for her first term as President of the University: to select a new Executive Vice President and Chief Operating Officer, to select a new Executive Vice President and Provost, and to institute a new financial model for the University. The first two goals have been accomplished. The new financial model is slated to be in place during the 2014-15 fiscal year.
A: The decision to move to a new financial model was made by President Sullivan and is fully supported by the Board of Visitors. President Sullivan appointed Executive Vice President and Chief Operating Officer Pat Hogan and Executive Vice President and Provost John Simon, as the Executive Co-sponsors of the project to develop the new financial model. In the planning stages, the Executive Co-sponsors chaired a Steering Committee including all deans and selected vice presidents who guided development. The Steering Committee was aided by a Core Workgroup that developed modeling tools and presented model scenarios for consideration. The Board of Visitors will be updated regularly as this work progresses.
A: Yes. While it is quite likely that not all academic units across grounds will be able to support themselves with the tuition and fees that they generate, the goal of the new financial model is to enable each school to set its academic priorities and be able to develop a sustainable financial plan to make measurable progress toward aspirational goals for quality. Under the new model, deans and their faculty will be made more aware of subsidies needed to provide appropriate levels of support for units essential to the mission that cannot be self-sustaining. Design principles driven by desired incentives will guide the development of methods of allocating revenues and expenses. Finally, the new model will need to be phased in over a period of time so as to not disrupt operations.
A: Many renowned, progressive universities, both private (e.g., Harvard, Duke, Johns Hopkins, Syracuse) and public (e.g., the University of Michigan, University of Delaware) use some form of the new financial model that the University of Virginia plans to adapt to fit its distinctive qualities, culture, organizational elements and mix of mission-related revenues.
Lessons learned include:
- Making the transition to this kind of financial model can be challenging, but it is deemed the best tool and solution for collaborative and responsible financial management going forward.
- Having schools and units accountable for both academic and financial performance and the administrative centers accountable for competitive (as measured by quality, responsiveness and cost) services results in across-the-board alignment to the mission of the institution.
- Implementing an RCM model requires ongoing conversations between academic and administrative units to manage changes, take advantage of opportunities, and ensure fidelity to institutional mission.
- While the general intent of this type of financial model is to empower academic units, the institutions that have derived the greatest benefits have also learned that they require trust, collaboration and a common sense of purpose among all units in order to be successful.
A: President Sullivan set forth three guiding principles for the new University financial model: transparency, incentives, and stewardship. The new model must allocate resources in a manner that is transparent and in support of the University's mission and goals. The new model must provide incentives for academic excellence, collaboration, reduced consumption, and innovation. Finally, the new model must preserve the core identity and values of the University, and protect core resources such as our libraries, the Grounds, and valuable traditions.
A: University-related foundations are independent organizations, and so will not be directly governed by the model. However, foundations provide important financial capacity to schools in achieving their missions, so the model will need to contemplate the revenues and expenses made by foundations to the University or to one of its academic units. The Executive Co-Sponsors and others are working closely with the Council of Foundations and boards of the foundations to discuss the new financial model and the importance of greater coordination between the University and related foundations.
A: As the Schools of Medicine and Nursing provide the clinical services essential to patient care and engage in research that drives improvements in our capacity to do so, the Schools also receive important revenue from the Hospital and Health System in return. The new model will need to contemplate these fund flows and resource interdependencies. As the Medical Center and Schools proceed with developing a strategic plan, the time is opportune for them to consider the implications of the new financial model in creating greater authority, accountability and transparency in the flow of funds to support the important research, teaching and patient care that goes on within the Health System.
Auxiliary enterprises are responsibility centers that provide services or produce value with revenues generated from their activity. Examples are housing and dining, where fees charged support the cost of residential life and food services, and Athletics, where ticket sales, fund raising, student fees and television revenues support the costs. As these auxiliaries support and are supported by the University or its constituents, the model will contemplate these units and integrate them thoughtfully and transparently within the new model.
A: The purpose of the new University financial model is to empower academic units with the benefit and responsibility of greater financial stewardship. The new model will provide greater transparency in decision making, and will enable the University to be more efficient as it pursues its mission and delivers the highest quality education, research, public service and patient care.