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Responsibility Centered Management

This guide serves as a collection point for information pertaining to Responsibility Centered Management.

Centralized vs Decentralized Budget Models

Deering, D. & Lang, D. W. (2017). Responsibility center budgeting and management "lite" in university finance. Planning for Higher Education, 45(3), 94-109.
    The article discusses why universities in the U.S. deploy RCB/RCM only partially despite its promise of revenue generation, cost reduction, and a host of other benefits. The University of Toronto and Queen's University reportedly deployed performance-based budgeting prior to the installation of RCB/RCM. The experience of the University of Michigan was similar to the experiences of Toronto and Queen's from performance-based budgeting to RCB/RCM for academic divisions and a few service units.

Engelbrecht, J. (2004). The changing of the guard, or: Moving from print to "E" with a new financial model. IATUL Annual Conference Proceedings, 14, 1-1.
    The Changing of the Guard, or Moving from Print to "E" with a new Financial Model. Johan Engelbrecht, Univ of Stellenbosch During the past decade academic libraries all over the world have been faced with escalating costs which made budgeting for information resources, and especially academic journals, a nightmare. Libraries in South Africa were no exception, and the matter was made worse by the continuous weakening of the South African currency against major overseas currencies such as the Dollar and the Euro. In 2002 alone the South African Rand weakened by as much as 40% against the American Dollar. This paper is presented in the form of a case study of how the problem has been addressed for the 2004/2005 budget at the University of Stellenbosch, South Africa, using a new model for budgeting, together with a rapid move away from printed journals in favour of full text electronic journals. The overall objective was to accomplish a 14% saving on the materials budget for 2004/2005, against the background of an annual increase of more than 20% during the past decade. The process of introducing the model of Responsibility Center Management (RCM) is being described. The model differs from the more traditional model where all the funds of the University went into a central pool from where it was allocated to the different faculties and service departments according to their needs. In the RCM model all the funds go to the faculties initially. Every Responsibility Center is responsible for its own funds, and budgets for service departments such as the library is made available in the form of levies. Whilst the former more traditional model used a very rigid budget allocation formula, the new model is much more flexible and the deans of faculties are more involved in the process. The project with the aim of moving away from printed journals to full text electronic journals and a pay per view document delivery process, which runs concurrently with the RCM project is also described. The involvement of the faculties in this process is described and some of the initial outcomes of the two projects are presented. 

Fethke, G. C. & Policano, A. J. (2012). Two prominent models for resource allocation: Central-administration management and responsibility-centered management. In: Public no more: a new path to excellence for America's public universities. Stanford University Press: 80-105.
     In this chapter, we examine and contrast two budget models to allocate revenues, costs, and subsidies, and we present examples of their implementation at prominent public universities. Whichever system is used, we argue that it is hard to hold units accountable for their decisions unless they have accurate financial information, measurable goals, and a clear understanding of what is expected of them. In both models, we illustrate the misallocation of resources and the misunderstandings that are common when there is a lack of accurate decision-making information.

Fethke, G. C. & Policano, A. J. (2019). Centralized (CAM) versus decentralized budgeting (RCM) approaches in implementing public university strategy. Journal of Education Finance, 45(2), 172-197.
    This paper compares and critiques two budgeting models used at public universities: Central Administrative Management (CAM), and Resource Centered Management (RCM). These approaches represent alternative resource allocation methods: under CAM budgets are assigned centrally based primarily on allocation history, while RCM relies on decentralized rules and pricing mechanisms that react to current conditions. A primary question is: Do administrators possess the needed expertise and information to make informed budgetary decisions, or are decisions better executed in a decentralized manner, relying on "market-like" prices as guides? Effective budgetary frameworks display the following features: (1) transparency; (2) ease of implementation; (3) predictability; (4) responsiveness; (5) alignment of incentives; (6) minimal influence costs; (7) economic efficiency; (8) equity; (9) internalizing private benefits and costs; (10) internalizing public benefits and costs; and (11) increasing revenue/reducing costs. Our assessment is that CAM is preferred for its ease of implementation, predictability, perceived fairness, and conceptual if not actual ability to deal with public benefits and costs. RCM has the advantages of transparency, ability to respond to changes in the environment, incentive alignment, reduction of influence costs, economic efficiency, internalizing private benefits, increasing revenue, and reducing costs. Neither model performs effectively unless there is a carefully developed vision and mission that set priorities.

Hanover Research. (2013). 6 alternative budget models for colleges and universities. Insights Blog https://www.hanoverresearch.com/insights-blog/6-alternative-budget-models-for-colleges-and-universities/2020.
    An overview of six budget models or budget-related practices utilized in higher education: Incremental Budgeting, Zero-Based Budgeting, Activity-Based Budgeting, Responsibility Center Management, Centralized Budgeting, and Performance-Based Budgeting.

Heath, R. (1993). Responsibility center budgeting: A review and commentary on the concept and the process. Journal of the Association for Communication Administration, (1), 1-10.
    This article focuses on the concept and the process of responsibility center budgeting. Academic publications, professional newsletters, convention conversations, E-mail, departmental bulletin boards, and hallway conversations at academic institutions are filled with voiced concerns about the future of higher education--specifically budgets related to academic and research program support. In tough times, innovation is essential. One innovation is responsibility center budgeting (RCB) which may empower faculty to feel confident that if they generate more income and lower costs for their colleges and universities they will be allowed to determine how those extra funds will be spent. Since faculty talent is the only service commodity that is for sale on campuses, RCB is a concept intended to encourage faculty members and academic officers to innovate to increase revenue and reduce costs. The motivation for this innovation is the opportunity to directly benefit from the rewards of their labor and thereby have more finances to strengthen their academic and research programs.

Hensley, P. A., et al. (2001). Responsibility center management: A financial paradigm and alternative to decentralized budgeting. (Report No. HE 034 178). University of the Pacific. (ED455723). ERIC.
    This study examined the implementation of Responsibility Center Management (RCM) systems in two institutions of higher education: the Graduate School of Business at Institution and the Center of Collaborative Education and Professional Studies at Institution B. RCM is a management and budgeting process for universities that decentralizes authority and responsibility to academic and support centers. Twelve interviews were conducted with one provost and one Chief Financial Officer from each institution and one dean and three faculty members from each school. Their interview responses were subjected to content analysis. All the administrators at each institution were strongly in favor of RCM, which they regarded as a method of continuing strong central guidelines while decentralizing operations, increasing understanding and awareness of costs, and enabling deans to manage income and expenditures better at their schools and centers. Faculty members praised the decentralization and rationality of RCM, but five of the six voiced concerns about the dean's accountability and their individual management styles. There was consensus on both campuses that RCM was more flexible and more rational than traditional fiscal management. Two senior faculty and the six administrators thought that RCM increased information flow and expanded the number of participants in the decision making process. Four of six faculty members thought that academic quality might be hurt because of financially motivated decisions. Faculty members were aware of the difficulties in achieving a proper balance in RCM. Overall, respondents did not advocate RSM as a panacea, but they did consider it an effective planning tool. (Contains 19 references.)

Lang, D. W. (1999). A primer on responsibility centre budgeting and responsibility centre management. Professional File Winter, (17), 1-37 (ED445620). ERIC.
    This monograph is a "how-to" manual on responsibility center budgeting (RCB) and responsibility center management (RCM) in the context of Canadian and U.S. institutions. It explains how RCB/RCM works in practice and discusses some of the problems encountered in implementing this strategy at a number of Canadian and U.S. universities. The paper reviews the basic elements of RCB/RCM, which includes the calculation of all revenue generated by an academic unit, recalibrated periodically to ensure the reliability of cost information; the advantages of RCB/RCM in exposing costs that are often known but not recognized; the problems and disadvantages of RCB/RCM, including an institution's assumption that it has more knowledge of costs than it actually does have; how to install and costs of RCB/RCM, noting the need for a long-term commitment to the principles of RCB/RCM and a long-term understanding of markets and program costs; and the relationship of RCB/RCM to institutional plans and mission statements. In concluding the paper some RCB/RCM do's and don'ts are offered, along with a brief discussion of the future of RCB/RCM. A series of charts on central overhead model methodology, as well as financial worksheets are included. (Contains 36 book/journal references and 23 institutional reports on RCB/RCM.)

Linn, M. (2007). Budget systems used in allocating resources to libraries. Bottom Line: Managing Library Finances, 20(1), 20-29.
    Purpose - The purpose of this article is to provide information about many different budgeting systems that are used to allocate resources to libraries. Design/methodology/approach - A number of methods of resource allocation are reviewed. The types of budgeting covered are incremental line-item, formula, mathematical, zero-based, program (including planning, programming, and budgeting systems), performance-based, responsibility center, block-incremental, and initiative-based. Findings - There are numerous types of budgeting systems and each of them functions differently. Research limitations/implications - There are many variations of each of these basic types of budgeting systems. As a result, this article reviews the most prominent ones. Practical implications - This is a very useful source of finding out the fundamentals of each of the basic kinds of budgeting systems. In addition, the article gives many references for finding out more about each of these methods. Originality/value - This paper covers the various types of budgeting systems. This allows librarians to better understand the budgeting system they deal with so that they might better work with it to maximize their library's funding. 

Mayer, L. J. (2011). Assessing the role of RCM in decision-making about discontinuing academic programs and restructuring academic units. [Doctoral dissertation, University of Pennsylvania]. ProQuest LLC.
    The path of growth and development for many American colleges and universities is to add new programs, majors, minors, departments, institutes, and centers to their academic portfolios in order to meet new demands and pursue new knowledge. Their source of funding is primarily through raising tuition rates and increasing non-tuition financial resources, including fundraising campaigns, endowments, and auxiliary services. The option rarely taken is scaling back or even eliminating old academic programs to make room for new ones. Historically, there has been little incentive to reduce academic programs. Student demand for higher education has been virtually insatiable and institutional capacity for implementing high tuition rate increases has been virtually unlimited. However, as a result of increasing economic pressures in recent years, the American higher education business model has been severely challenged and will likely need to be modified to ensure the stabilization of its financial underpinnings going forward. The specific issue that is examined in this study is the decision-making process that colleges and universities use in determining which academic programs to eliminate, consolidate, or reorganize. A particular focus of the research is the role that Responsibility Center Management (RCM) plays in the program closure and reorganization decision-making process and how institutions that use RCM differ from those that do not. RCM is a financial management model which allocates all direct and indirect revenues as well as direct and indirect expenses to individual academic units. The model identifies which programs are generating surpluses, deficits, or break-even results, and how they all look in combination with one another in forming the overall cross-subsidy profile of the institution. The research for this study includes a qualitative comparison case study analysis using three cases, all of which are private universities that have decided to discontinue or reorganize academic programs--one that uses RCM, one that does not use RCM, and one that uses a hybrid combination of RCM and non-RCM. The study evaluates the advantages and disadvantages of each approach. 

Myers, G. M. (2019). Responsibility center budgeting as a mechanism to deal with academic moral hazard. Canadian Journal of Higher Education, 49(3), 13-23.
    Universities face inherent informational asymmetries. These make university budgeting prone to various challenges including moral hazard. The last forty years has seen some large research- intensive universities move from centralized incremental budgeting to decentralized Responsibility Center Budgeting (RCB). It is assumed that a faculty chooses a level of costly effort in generating revenue for the university. The level of faculty effort is not observable by the central administration. When there is no revenue uncertainty or when the faculty is not risk averse, pure RCB is best from the perspective of the administration. The intuition is that pure RCB fully aligns financial responsibility with academic authority, that is, it makes the faculty the residual claimant. Once the faculty is risk averse, partial RCB is optimal. Partial RCB provides a balance between providing the right incentives to the faculty and the university reducing the revenue risk faced by the faculty.

Ozan, J., Kramer, D. A. & Curs, B .R. (2018). Growing the pie? The effect of responsibility center management on tuition revenue. Journal of Higher Education, 89(5), 637-676.
    Responsibility center management (RCM) budgeting systems devolve budget responsibility while creating funding formulas that provide incentives for academic units to generate revenues and decrease costs. A growing number of public universities have adopted RCM. The desire to grow tuition revenue has often been cited as a rationale for adoption. Previous research has not assessed the effect of RCM on institution-level tuition revenue. Traditional regression methods that calculate “average treatment effects” are inappropriate because RCM policies differ across universities. This study employed a synthetic control method (SCM) approach. The SCM approximates the counterfactual for an RCM adopter by creating a synthetic control institution composed of a weighted average of nonadopters. The SCM estimates the effect of RCM separately for each adopter rather than estimating the average effect across multiple adopters. We used SCM to analyze the effect of RCM adoption on tuition revenue at 4 public research universities that adopted RCM during 2008 to 2010. We found a positive relationship between RCM and tuition revenue at Iowa State University, Kent State University, and the University of Cincinnati. The magnitude of this relationship was moderately large relative to placebo adopters. We found no relationship between RCM and tuition revenue at the University of Florida.

Palmer, J. C. (2014). Budgeting approaches in community colleges. New Directions for Community Colleges, 2014(168), 29-40.
    Several budgeting approaches have been initiated as alternatives to the traditional, incremental process. These include formula budgeting; zero-base budgeting; planning, programming, and budgeting systems; and responsibility center budgeting. Each is premised on assumptions about how organizations might best make resource allocation decisions. Though the incremental approach remains dominant, experience with the alternative approaches suggests key questions that can guide the work of community college budget developers. 

Savage, D. & Kahl, C. (2018). Obligations and intentions: An exploratory study of indirect cost recovery monies from research grants as a revenue stream for funding research library budgets. Library Assessment Conference. Houston, TX: 412-422.
    This project seeks to explore what the level of awareness of Indirect Cost Recovery (ICR) as a revenue stream is in academic libraries at Carnegie-designated Highest and Higher Research Activity institutions, whether they have specific policies about either ICR designations or expenditures, and how ICR fits in with their other revenue streams. In addition to seeking and reviewing both library and information science and higher education research literature, the authors deployed a survey to deans and directors of academic libraries in the United States, specifically those at Carnegie Classification Highest Research Activity institutions and Higher Research Activity institutions. An invitation for follow-up conversations on the topic was included.

Varlotta, L. E. (2010). Becoming a leader in university budgeting. New Directions for Student Services, (129), 5-20.
    This chapter explains what senior student affairs officers (SSAOs) and those aspiring to the position should know and do in terms of budgeting to make the transition from division to university leadership. Before SSAOs can help lead any university-wide budget process, particularly ones that unfold amid fiscal decline, they must master divisional practices as a foundation. Toward that end, this chapter first reviews the steps that managing and aspiring SSAOs should consider when preparing divisional budgets: initiating and maintaining a meaningful strategic planning process, knowing intimately each of the budgets that constitute their overall portfolio, and meticulously responding to and involving others in the budget call or exercise. Once they have their own shop in shape, successful SSAOs move beyond division-level budgeting to hone their macrolevel strategic and operational planning skills. These skills, reviewed next, include developing a refined understanding of the various roles of the university budget and both designing and marshaling data-driven supporting materials to actualize those roles. In addition to examining the potential functions of the budget, budget-savvy SSAOs must study viable budget models. Hence, this chapter ends by reviewing and then delineating the advantages and challenges associated with four budget models--incremental and decremental, zero based, responsibility centered, and initiative based--commonly used in institutions of higher learning.

Volpatti, M. C. (2013). Privatization of public universities: How the budget system affects the decision-making strategy of deans. [Doctoral dissertation, Indiana University]. ProQuest LLC.
    In response to lower funding commitments, many public colleges and universities have elected to incorporate decentralized budgeting systems, one of which is Responsibility Center Management (RCM). As public institutions are becoming more dependent on tuition dollars because state appropriations are declining, deans have an increased responsibility as financial managers. With RCM, the leaders of the academic units have the freedom to make decisions which affect the process of generating funds to increase the sustainability of the programs. The purpose of this qualitative case study was to better understand the management strategy of deans when making financial decisions and how the financial budgeting system, centralized or decentralized, of the institution influences the decision-making process for deans, the agents acting as the financial managers of the schools and colleges. Deans at two Midwestern universities, one using RCM and one using a centralized budgeting system, were interviewed asking each participant questions regarding demographics, prioritization of initiatives when seeking additional funding not associated with state appropriations, and linking the mission of her or his school or college to decision-making processes. Two major findings emerged. First, the financial decisions made by deans operating in both budget systems were strikingly similar. Second, deans in a centralized budget system identified that there were more complexity and less autonomy when working with central administration in executing financial decisions because the dean must align the school's mission with the mission of the university while deans operating under an RCM system did not feel the pressure to directly align the mission of the school and the university. In addition, the study discovered that deans used a constructive model as a management strategy as outlined by Chafee (1983).