Overview

Executive Summary

The University Financial Model is the initiative transitioning UVA’s legacy, incremental budget model, to a decentralized model that incorporates incentives and activity drivers to create a more accountable, responsive, and transparent process for resource allocation.  In the past, the University pooled all resources centrally and allocated them out in the form of expenditure authority, or ‘targets.’  While this model served UVA well in the past, it limited the ability to view and understand the full picture of financial operations. 

Instead of centrally retaining and allocating University resources, UFM allocates all revenues to the generating units (colleges/schools, auxiliaries, and centers & institutes) known as Activity Centers, as well as the costs incurred by central administration, or Service Centers.  Wherever possible, revenues and costs that are directly assignable to an activity center are recognized by the generating unit.  The major exceptions are undergraduate tuition and net costs generated by Service Centers, which follow formulaic allocations tied to incentives and activity drivers.  These allocated revenues and service center cost allocations are described in more detail in subsequent sections.

While these mechanisms allocate a large portion of resources within the University, the University Financial Model is not intended to make all funding decisions for executive leadership.  Exempt from formulaic, incentive-based allocations, is a pool of resources known as operating support that executive leadership holds centrally to invest in strategic priorities across the University.  Operating support contains unrestricted state appropriations, unrestricted private gifts, and a small number of other flexible revenues that act as a steering wheel for University leadership.

The model should create incentives for colleges/schools/units to control costs.  The model will not directly create new revenues, nor will it eliminate any expenses.  Incentive alignment and accountability are the principal mechanisms by which the UFM can directly result in new revenues or lower costs.  As it relates to service costs, colleges/schools/units should have an incentive to economize on services.  Schools should use services up to the point where the cost of an additional unit of service matches the benefit of an additional unit of service.  Service units should provide their services at a competitive cost.