Implementing Decentralized Responsibility-Centered Management with Budget Restructuring and Cutting Edge Technologies
Keith R. Nelson1 and Jerry L. Scoby2
Central Michigan University
Mt. Pleasant, Michigan
Central Michigan University is one of the first U.S. universities to adopt SAP financial and human resources software systems. At the same time, CMU has undergone a major academic reorganization and is implementing a more decentralized approach to budget-based decision making. Budget restructuring is a modified approach to what is more commonly referred to as value- or responsibility-centered management (VCM or RCM). The interrelated tasks of implementing new management process and business software have been supported by numerous committees and teams led by academic and business managers and supported to IT. A common goal of budget restructuring and the new SAP system is enhanced reporting for cost and academic center managers as support for more informed decision-making. Successful and some not so successful elements of processes, implementation, and outcomes are discussed.
CMU Budget Restructuring
The budget methodology at Central Michigan University was traditional, incremental, and lacked a sense of dynamism desired by the executive leadership. As the desire for a more dynamic and entrepreneurial methodology continued to grow, the University became aware of a model in use at a number of universities nationally. Generally the model was in use at major private research universities. As we talked with four or five of these universities, we learned that the model referred to as Value Centered Management, Responsibility Centered Management or Responsibility Centered Budgeting was similar at each location, but yet varied according to the local campus needs and culture.
Each of these models could best be characterized as a collection of budget related policies. Given the variety in models and the preferences of our campus, we sought to identify the components that were perceived to add value to our campus budgeting systems. We then did four campus visits to learn the success stories, learn from the best practices of other campuses, and maybe most importantly to avoid the mistakes others made in their designs and implementations. Several advised us to avoid the typical nomenclature and simply call our model some generic label to simply identify it as a collection of budget policies. Therefore, we simply called our model Budget Restructuring. This was not about budget cutting or downsizing, but rather about decentralization, empowerment, behavior change and accountability.
Part of the process side of developing this model was the creation of a Budget Restructuring Team as the oversight and policy making body. The Team was assisted by the creation of eight subgroups, later reduced to six due to the elimination of a couple of components in the design of the model.
The model was built around the concept of centers, which were defined as a collection of accounts under one center manager. There were 33 centers created and the center managers were at the senior management level. There were four types of centers created including academic centers, service centers, auxiliary centers and subsidized auxiliary centers. The center was designed to be the focal point for budget responsibility and accountability.
A significant change from the traditional method of budgeting revenue was to attribute the revenue where it was earned. For example, tuition and fee revenue is attributed to the academic departments that are teaching the credit hours. State appropriations were used to fund service centers, partially fund subsidized auxiliary centers and to contribute to academic centers. In effect, the appropriation was used in the first year as the balancing component to implement Budget Restructuring as resource neutral. This was a significant commitment made to center managers so that the model would not be burdened with the political baggage of redistributing resources on day one. This could still happen as managers function under the model, but the centers were held harmless at the point of implementation.
Part of the initial design was to allocate the costs of central services such as payroll and accounting to centers generating revenue. A subgroup was assigned to the task of creating cost allocation methodologies. As we recognized the complexities of this undertaking and the limited marginal value of allocating these indirect costs, this effort was abandoned. These types of functions were simply funded from state appropriations.
In some cases, center managers are allowed to buy services on or off campus. A common example of this is printing services. In some cases center managers are still required to buy services on campus. In a number of cases this is driven by obligations in collective bargaining agreements. In yet other cases, goods and services are purchased off campus, but they must be done centrally to allow for the greatest cost effectiveness. An example of this is the purchase of insurance. Center managers need insurance coverage for their areas, but are required to have this purchased through the central risk management area to make sure there is appropriate coverage across the whole organization and at the best price due to quantity buying.
The Budget Restructuring process started as a result of the president expressing strong interest in a model of this type. The initial team that began the investigation into similar models included four senior officers, including two from business and finance and two from academic affairs. Within a few months the group was expanded several times until the team reached a level of 13 members. This team was a senior level team including several deans, an associate dean, and several other members of senior management. The team was co-chaired by the Vice President for Business and Finance and the Provost.
It was obvious as we moved into the design phase that we needed much broader participation across campus. As we considered the many issues involved in the development and implementation of a model for Central Michigan University, we decided to create eight subgroups. These subgroups included about 50 individuals, including faculty and staff, that could bring expertise in the area of the subgroup charge.
The eight subgroups were working groups, were advisory to the Budget Restructuring Team, and included the following:
As the subgroups began their work, we could see that two of the groups would include a great volume of detail, for which there would be very little value added in the process. After careful consideration and learning from other universities that had implemented similar models on their campuses, we eliminated the two subgroups dealing with space and cost allocations methodologies. We did this as a result of being convinced that we simply would not see the desired outcomes in these two areas and believed that we would simply be creating more of an administrative bureaucracy and not achieving the intended results.
The revenue attribution subgroup identified every source of revenue to the University ranging from the very significant items of tuition and appropriation to the most insignificant departmental fees. The subgroup then developed recommendations on each of these revenue items, in terms of who should receive the revenue. The strongest guiding principle driving their recommendations was to attribute revenue to the center responsible for generating the revenue. For example, tuition and fee revenue attributable to offering a course is now given to the center with the department teaching the class.
One major driver in the implementation is that it would be implemented resource neutral at the center level. The purpose for this was to reassure center managers that they would not be helped or hurt by the initial implementation. Certainly the campus was told that after the initial implementation, the provisions of the plan would apply and it would have differing impacts across the various centers. The state appropriation was used as the major resource to balance out the centers to make them whole at the start of the model on July 1, 1998.
The communication and training subgroup was responsible for developing recommendations on what needed to be communicated, when, and to what audiences. The training scope was similar in that the subgroup developed a plan to deal with the aspects of the budget restructuring, the university systems, and the personal computer based software needed to manage under the new budgetary model.
One of the concerns that related to budget restructuring among the academic community was the allegation that the system inherently would generate a lot of competition between the various academic departments. This lead to the creation of the subgroup to look at the issues of collaboration and cooperation. This was an effort to be proactive and be sure that there was serious attention given to these issues even before going into budget restructuring. This subgroup included a number of faculty and academic administrators.
The management information and reporting subgroup was responsible for identifying the types of information that center managers would need to manage under the new system and to identify how they could get this information. This scope was broad in that it was not limited to the typical financial data, but rather looked at enrollment, financial, human resource, space, placement, alumni, and advancement data. The group met with center managers to get their insights into what they felt they would need, and met with the managers of the offices responsible for generating these various pieces of data.
The management information and reporting subgroup was important given the commitment to provide center managers with more and better information to help them manage their portion of the university. This particular subgroup was one of the earliest subgroups to finish their work, and therefore a group was convened during the early fall 1998 to update the plan for this area given the significantly greater information about budget restructuring available at that time.
The subgroup looking at service center issues of quality, cost, and competition was put together to insure that academic center needs were appropriately addressed, and to be sure that other service centers would still be served under this new model. Another aspect of this subgroup was looking into issues of empowerment to determine what goods and services center managers could buy on their own and to determine which ones they could purchase externally versus which ones they had to continue to purchase internally.
A second subgroup that was staffed exclusively with faculty and academic administrators was the subgroup dealing with issues of program quality, productivity and incentives. One view early in the development of the budget-restructuring model was that it could lead to a purely economic model driven by financial issues without regard to program quality. This was not the intent, nor was it a likely outcome given the shortsightedness of that approach. The subgroup looked at these issues and also looked at faculty productivity and ways to build in proper incentives for faculty to be motivated under this new model.
The budget restructuring model development began in the late summer or early fall of 1996. Substantial time was invested in the research, design, communication, and implementation of the model on July 1, 1998. It is not perfect, but is an exciting departure from the former stagnant incremental model. It includes a number of components of decentralization, empowerment and design to encourage greater entrepreneurial behavior.
Academic Reorganization
Central Michigan University President Leonard Plachta issued a white paper in 1995 stating a rationale and intent to reorganize the academic colleges. At that time the academic division had five colleges: Arts & Sciences, Business Administration, Education, Health and Human Services, Graduate Studies, and Extended Learning. One goal of the reorganization was to emphasize some academic areas that were somewhat overshadowed in the existing organization. Two program areas, for example, that had especially good student recruitment and external funding possibilities were health professions and science and technology. Another goal, which related to budget restructuring, was to have more similarly sized and manageable colleges.
The university’s Academic Senate then created a reorganization committee to solicit input from the faculty and make a formal recommendation for a new organizational structure that was approved by the Senate executive committee by a close vote of 28 to 27 in December 1996. After the President accepted the approved reorganization, he then presented the plan to the Board of Trustees. As a result of academic reorganization, the College of Arts & Sciences was eliminated and four new colleges; Communication and Fine Arts; Humanities, Social & Behavioral Sciences; Health Professions; and Science and Technology were created.
The success of the reorganization has been viewed differently by different groups. Faculty in some colleges, including Science and Technology, Communication and Fine Arts, and Health Professions, mostly felt that their programs were helped by the reorganization. However, faculty in the College of Humanities, Social, and Behavioral Sciences were less favorable at least in part because of their concern that their programs would lose funding that would be used to improve programs in the other new colleges that were considered more marketable. Faculty in the College of Education, Health, and Human Services were also less favorable since they lost departments to Humanities, Social, and Behavioral Sciences (Psychology) and to Health Professions (Health Education and Health Sciences). The College of Business Administration was more neutral, gaining the Department of Economics but otherwise changing little. Management was pleased with the reorganization.
One argument against the reorganization was it would raise administrative costs. Most of the cost of staffing three new college administrations was covered by reductions in staff from large colleges that became smaller. The moderate increase in cost is considered worthwhile by the majority of the university community who feel that the colleges as units are functioning much better. The new organization also provides closer and more decentralized budget and personnel management, which at least in theory fits the budget restructuring model.
Implementation of Modern Operational Software
In the first quarter of 1997, the university contracted with SAP for new financial and human resource software to meet the information management needs of the institution. The software was installed for several reasons including the following:
The project consisted of 3 different teams: (1) Financial Accounting, (2) Human Resources and (3) Basis. In addition to these three teams there was an oversight committee to keep the teams on track. The Finance Team consisted of staff from Financial Accounting, Accounts Payable, Purchasing, Budget and Planning, one application programmer, and varying numbers of SAP consultants. The Human Resource Team consisted of staff from Payroll, Staff Personnel, Faculty Personnel, Employee Benefits, Budget and Planning (part time), one to two application programmers, and varying numbers of SAP consultants. Supporting both of these teams included a trainer (50% H.R. and 50% Finance), a clerical position (50% H.R. and 50% Finance), and several student interns. The Basis Team consisted of a data base administrator, a Windows NT Expert, one to two SAP consultants, and a network technician (approximately one half time).
Approximately 18 staff and up to 8 SAP consultants were assigned to the project. In addition another 1-2 FTE were involved as needed. An aggressive nine-month implementation resulted in the financial modules going live in November and the human resources modules went live in December 1997. The project was implemented on time and within budget. Given the aggressive time line on this project, there were a good number of post go-live clean-up issues, but the project teams continually addressed issues to improve the system and processing.
The software was developed based on global best business practices in the manufacturing sector. SAP is expanding into new markets including the new focus on the public sector. There were three gap issues, within the human resources component, that had to be addressed to make the software useable in our environment.
Two of these were configurable within the system, while the third required a code modification by the developers in Walldorf, Germany. The gap issues included the processing of deferred pay (faculty working 9 months and getting paid over 12 months), processing multiple assignments, and processing salary encumbrances. The multiple assignment issue is the one that required a system modification.
The implementation required significant training for the project teams, the home departments, and the users across campus. The project teams were largely trained at SAP courses, by working along side SAP consultants, and a through significant effort of learning on their own, working with the system tools and documentation. Part way into the implementation, we hired a temporary professional to help develop and deliver training to our home department staff and users in departments across campus. The training was delivered in a series of classes, most often in four-hour increments.
The logistics of installing client PC software was an additional significant task. A campus network had recently been completed but the ability to manage PC hardware and software through the network had not been achieved at the beginning of the SAP project. Initial installs of SAP client software and other PC software were done manually by support technicians. Given the hundreds of SAP users and thousands of PC users on the campus, an essential step was to begin managing PCs through the network. Since the SAP system ran on a Windows NT platform, the Microsoft Systems Management Server software (SMS) was chosen for the task. SMS provided the ability to inventory PC (and Macintosh) hardware and software on the campus network, install and update applications, and support remote diagnostic help desk services.
Initial hardware inventories showed that a significant number of personal computers needed upgrading in order to run the suite of applications that had been adopted as the campus standard. The new standards included Windows 95 or NT (or Macintosh OS 7 and higher) for PCs, Office 97, Netscape Communicator (for web browser, e-mail, and calendar), an SAP client (for employees), and MacAfee virus software. Office 97 and Netscape were both products that forced upgrading to a new minimum hardware standard for RAM, disk, and processor speed. Once the hardware issues were addressed and SMS was in place, the university was much better prepared to support, not only SAP, but also most PC applications and users.
A critical component in the implementation was the expansion of the Help Desk function located in the Information Technology (IT) unit. IT had itself undergone a consolidation of computer services, telecommunications, and instructional support beginning in 1996 that provided opportunities to reorganize and improve critical services including the Help Desk, network support, and training. During the SAP implementation, the project teams provided the help desk function for SAP. Just prior to going live, IT began to take over this respnsibiity. A couple of weeks after going live, the IT Help Desk officially took over this function similar to the service they provided for supporting other technology uses.
Lessons Learned and Future Issues
End Notes
1. Keith R. Nelson is now the Chief Information Officer at Macomb Community College.
2. Jerry L. Scoby is now the Vice President for Business and Finance at Alma College.