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JANUARY | FEBRUARY 2015 BizEd 41 THE RCM SWITCH What does it take to convert a university's financial system to an RCM model? Len Jessup offers this advice from his time at the University of Arizona: 1. UNDERSTAND THE FINANCIAL SITUATION. Work with campus financial offices to compile ac- curate and comprehensive data on the university's cash flow and expenses. Without hard numbers, it will be difficult to persuade university leadership of the need for change. 2. CALL FOR TRANSPARENCY. When colleges know exact- ly how much revenue they generate, and when tuition revenue clearly follows student enrollments, deans have more incentive to manage and grow their profit centers. 3. UNDERSTAND THE POLITICAL SITUATION. University leaders may be reluctant to overhaul the current system, so deans must manage the politics of their situations. Find the right allies and the right data, and tailor the pitch to each decision maker. 4. GET INFORMED. Jessup advis- es every dean to read Respon- sibility Center Management, a Guide to Balancing Academic Entrepreneurship with Fiscal Re- sponsibility. Available from the National Association of College and University Business Officers (www.nacubo.org), the 110-page book discusses different RCM formulas and best practices at several U.S.-based schools. BETTER MEASURE: MAJORS OR CREDIT HOURS? Responsibility-centered management (RCM) is defined as a decentralized financial manage- ment system that allows academic units to control their own revenues, but schools can deploy RCM in a variety of ways. For instance, schools can emphasize a unit's credit hours, student majors, or a combination of both as they allocate funds and assess fees. Opinions differ on which measure is better. When the University of Arizona implements RCM in July, it will determine the assessment each college pays back to the university according to a formula that gives 70 percent weight to the credit hours a college teaches and 30 percent to the number of student majors it has. However, UA's Len Jessup is concerned that if student credit hours are weighted so heavily, departments will be encouraged to create more courses to generate more credit hours. They might not be motivated to increase the number of student majors, which he believes is the bigger driver of revenue. Indiana University also uses credit hours in its RCM system to determine each college's "market share" of the campus's state funding and expenses. IU's Idie Kesner believes schools would see their income fluctuate more year to year under a majors-based system. "Students change their majors so frequently or do not declare a major until late in their programs," she says. "You can never be sure where students will settle." But both Jessup and Kesner agree that the nature of RCM can be fluid, allowing univer- sities to adjust the model over time. Says Kesner, "I know compromise can have a negative connotation, but under RCM, we all can come together under friendly terms to discuss the pros and cons of any change to the formula and the effects it might have on everyone. We all understand the model we're operating under—there's no mystery." vironment, where we are encouraged to work with other deans" for mutual benefit, says Kesner. The Kelley School recently created its 4+1 program, in which students can earn four-year undergraduate degrees in nonbusiness disciplines followed by a one-year mas- ter's in a business discipline. Kelley has partnered with Rose-Hulman Institute of Technology in Terre Haute, Indiana, which enrolls its engineering students in the program, and with IU's College of Arts and Sciences. Kelley offers scholar- ships to 4+1 students using money from the Provost's Fund. Faculty also are involved in the process in three primary ways, Kesner explains. First, professors participate on IU's Budgetary Affairs Committee, which makes recommendations on Provost Fund allocations. Second, some faculty serve on a team that reviews the RCM process once every five years and recommends tweaks to its implemen- tation. Finally, faculty work with the deans of their individual schools to help determine budgetary allocations. Kesner recognizes that, at schools still using a centralized financial system, administrators could fear losing the abil- ity to control resources or determine the direction of the university under RCM. "But, in fact, I think the opposite is true," says Kesner, "As deans, it's important for us to share the success stories, and how we were able to achieve very good outcomes under the RCM model." To read more about how RCM has been implemented at several U.S. universities, including Indiana University, visit www. indiana.edu/~obap/rcm-iub.php.