Proposed budgeting model puts more control with schools


Pitt is currently exploring switching to a new budgeting model that would give schools and other responsibility centers more decision-making power about how money is spent but also would make those units more responsible for raising money.

Huron Consulting, which has advised several other universities on the responsibility center management (RCM) budget model, gave a presentation to the Senate’s Budget Policy committee on Feb. 19.

Huron has been working with Pitt since December. A committee made up of mostly deans, senior leaders and some faculty, including Senate President Chris Bonneau, is trying to decide which parts of this budget model the University should adopt.

In its strictest application — which Huron’s Andrew Laws said only Harvard and Johns Hopkins universities currently use — each school within a university is an independent entity, responsible for its own management and funding, then those units pay a “tax” back to the central administration for shared services. “But these (universities) have no sympathy for colleges that don’t turn a profit,” he said. “You get revenue, you get costs, and if you can’t cover it? Tough. We’re going to find a new dean or we’re going to cut your budgets.”

The ReSTART (Revenue Sharing to Accelerate Responsive Transformation) steering committee, chaired by Provost Ann Cudd and Chief Financial Officer Hari Sastry, is looking “more comprehensively at the University’s budget to ensure that we’re really supporting the decentralized units appropriately,” Laws said.

“In talking to the provost about this, much of this is simply driven by our anticipated strategic plan (Plan for Pitt) and the recognition that executing a successful strategic plan requires that we have a balance of resources and authority at local and distributed units …, as well as resources centrally to kind of place big bets and move forward,” he said.

“What we really want to do is transition the budget to be more strategic,” Laws said. “It should be a plan for new resources. It should illustrate your priorities. It should explain the internal economy. It should provide incentives to budget managers and promote entrepreneurial activities.”

The initial process will take about six months, he said, and include several steps:

1. Figure out what it is Pitt wants or what are the problems with the current model. Laws said several themes emerged when talking to 30 to 40 stakeholders, including that “our current approach didn’t leverage our strengths. That is another way of saying we weren’t appropriately allocating resources to our strategic priorities.” There also was a strong desire to have a model that enhances incentives, promotes collaboration, increases transparency and creates flexibility and multi-year planning.

2. Work with the finance people to put together some potential models, based on the budget numbers from fiscal year 2020-21.

3. Talk with deans and other stakeholders to generate support for the model and take feedback back to the steering committee. This process is set to begin next week.

4. Develop an infrastructure. Laws said there won’t be any new technology needed, but there will be some reformatting of reports “to make sure that whatever the new process is, it is appropriately supported.”

5. Then once a formula is agreed on and the infrastructure is in place, the system would be tested for a year with numbers from the 2021-22 fiscal year, but would not go live until the following fiscal year.

The idea that this new budget model would promote collaboration sparked several questions from the Budget Policies committee.

“I have a lot of colleagues that work at institutions that really adhere to something much closer to an RCM model, and they talked about the constant tension that they face when applying for potentially a multiple PI grant with somebody in a different department,” said committee member Mackey Friedman, an assistant professor in the Graduate School of Public Health.

“There’s clearly the potential for a signatory PI to submit a grant, and then the collaborating unit gets nothing back, they get no indirect costs,” he said. “There’s no real point for them to collaborate, other than they’re interested in the science. That seems to me, something that we really want to avoid here, and I don’t know quite how you do that because there’s an automatic incentive in these RCM models to reward whoever’s initiating the project.”

Laws said that the steering committee hasn’t addressed this yet, but in any collaboration, the participants would have to decide how they would split the indirect costs, and an appropriate central system within the research office would have to track the distribution of work and how costs are allocated.

Variety of models

Laws said each university has to decide how they want an RCM model, or incentive-based budget model, to work for them.

“Most institutions tell us they want the most centralized version of a decentralized model possible,” he said. In this model, the tax rate paid to central administration is increased, and “you want the central leadership team, the provost really, to have a steering wheel that kind of controls the strategic plan.”

Huron is working with the steering committee to see where Pitt wants to be on the spectrum of decentralization. Laws said there are probably 50 to 60 questions they need to answer to work through the process.

Some of the main issues are how do you allocate facility and administrative costs, how does a unit pay for IT and other central costs and how do you allocate tuition. If an engineering student takes a course in liberal arts, does engineering get the money, or does arts and sciences? These are things the steering committee still needs to decide.

“The devil’s in the details, so one of the things that I’m looking forward to over the next couple (steering committee) meetings is seeing how things would have changed under the model that we’re developing versus the current system,” Bonneau said. “And my hunch is that there are going to be winners and losers, and then there’s going to be some friction on the committee from people who want to tweak some of the parameters.”

Laws said Huron wants to help Pitt “create a model that says, ‘OK, if you need $50,000 to start a new program or you need a micro-grant for a researcher, … here are the 20 things that we can do as a department to get more money into our budget so that we can afford to do those things.’ We want to create an opportunity to say yes, we want to create the opportunity to innovate more.”

Steve Wisniewski, vice provost for Budget and Analytics, said that it’s important to remember that “we’re going to give this a shot, but we’re not switching (immediately). We’re going to run it. We’re going to see how it impacts us. Hopefully, everything works out great, but we have the opportunity to tweak it to make sure that we don’t break it and break the institution.”

If Pitt switches to this model, there won’t be an option for schools to opt out, but “I don’t think this is a mandate,” Laws said. “I don’t think (Chancellor Patrick) Gallagher has said we are doing this, period. I think we’re trying to find a model that is better than the one we have today, and if we can’t find one, we’ll keep the one we have, but I’m pretty sure we’ll find something better.”

Simulations and transparency

Laws was asked if Huron does simulations to see how the money will end up being distributed. He said they do conduct simulations, but they don’t share them with the deans or the steering committee.

“Huron’s experience is that has not worked when you share those because everybody begins to advocate and fight for what works better for their college,” he said. Instead, they share data and analysis. In the end, he said, Pitt has to make the budgeting decisions based on its principles and based on what the University wants to do, not based on outcomes.

Bonneau said he has advocated for more transparency on these simulations. “I think that when proposals are being made to shift allocations and funding in ways that can drastically affect quality of life for faculty, students, the direction of the University and everything else, we gain a lot of goodwill, and we gain a lot of trust across different stakeholders when we’re as transparent as we can be,” he said.

“We are sharing data; we’re sharing differences in scenarios,” Laws said. “We’re not going to share bottom line outputs; we’re not going to share profit and loss by college. We share revenue allocations; we share the difference in funding general ed versus research. What we’re not going to do is say here are the winners and here are the losers.”

Friedman voiced the concerns of several on the committee when he said that as data scientists, it’s hard to “hear that we can’t see the outcomes on a unit level when it’s the units that are going to be affected.”

Susan Jones is editor of the University Times. Reach her at or 724-244-4042.


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