As a result, tuition revenues attributed to the various schools and degree programs, state appropriations, indirect costs (see below), and a variety of ancillary revenues are brought together in a central pool. Some models are centralized in pooling all revenues together centrally to the greatest extent possible. ![]() Smith has provided a useful overview and categorization of this array of budget models, from which the below section draws. In order from more centralized to more decentralized they are as follows: (1) incremental budgeting, (2) zero-based budgeting, (3) performance-based budgeting, (4) activity-based budgeting (ABB), and (5) responsibility center management (RCM) budgeting. Even centralized budget models often treat one or two units as “tubs on their own bottom”-for example, the health sciences. The second is a decentralized budget model in which each of the schools within a university controls their own expenditures and pays to fund university central operations. ![]() One is a centralized budgeting process, generally controlled by the provost but sometimes by the CFO. Though there are a number of different budget models across US universities, they fall into two basic categories. ![]() This mix of budgeting allows the University’s leadership to see clearly the fiscal implications of the activities at the school/college/research unit level, while allowing considerable flexibility to set priorities and adjust to fiscal circumstances in light of the University’s mission.” While most institutions run on a hybrid model they tend to have one budget model that makes up the majority share and dictates how revenues and expenses are allocated. For example, the University of Michigan’s website describes how “the U-M budget model functions within a hybrid system of responsibility center budgeting, incremental budgeting, and centralized/initiative budgeting. It should be noted however that few, if any, institutions have a “pure” budget model, rather most universities use a hybrid model where they implement a range of allocation methods for different kinds of revenues and costs. Terms such as responsibility center management (RCM), activity based budgeting (ABB), and incremental budgeting all refer to an array of methods for allocating revenues and costs within a university system. University budget models can fall within a broad spectrum of options. This issue brief provides a summary of two important elements of academic budgeting at large research universities and for externally funded research: budget models and indirect costs. In the higher education sector in the US, there are many common budgeting elements but also several important areas of differentiation. The opportunities presented in a budget are also bounded by the structural elements used by that institution: how costs and revenues are organized, how overhead is calculated and apportioned, and how assets and investments are calculated and utilized, among others. ![]() They also reveal the ambitions and limitations of an organization. “A budget model alone does not and should not determine budgets rather, the budget model is employed by leadership in alignment with the mission of the university.” –Paul Courant and Amy Dittmar īudgets do not only pay the costs of activities. Through the budgeting process, an institution aligns its resources with its priorities, bringing together income and expenses.” –Dean O. “The significance of a budget to the university cannot be overstated.
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