CSU Budget Model Redesign

WHY A NEW MODEL?

More about the redesign:

CSU is among many universities nationwide that have launched initiatives to assess, design, and implement budget model changes in response to limitations with their legacy models, such as a lack of transparency and limited flexibility around external impacts.   

As a state institution, a large portion of our budget is decided year to year by the Colorado governor and legislature. State appropriations for higher education are finalized mere months before the July 1 start of the fiscal year, leaving little time for CSU to plan the upcoming FY budget and fostering the perception of a lack of transparency. Like other institutions, we seek to redesign our budget model to enable CSU to better align financial decision making with our strategic institutional priorities and to promote greater transparency. 

Following best practices in university budget model redesign, the goal is not to replicate a budget model that has been implemented at another institution but to customize a model unique to our values, strategies, needs, culture, and priorities. This process will be further informed by feedback from our faculty, staff, and students, deans, budget officers, Faculty and Employee Council leadership, and other key stakeholder groups. It is important to note that a new budget model by itself does not generate more revenue, but it can stimulate growth with the possibility of increasing revenue such that other strategic priorities can be pursued.

The rationale for a budget model redesign include: 

  • CSU is experiencing success, but we must work to address our future.
  • The higher education landscape is changing.
  • CSU’s existing incremental budget model limits flexibility, adaptability, and innovation.
  • A new budget model can provide new opportunities for renewal of our mission.
  • The primary goal of a change is to enable delivery of continued educational and research excellence.

Guiding Values

The goal of setting forth guiding values for the Budget Model Redesign process is to build trust and set the expectation that fiscal decisions will be made with the University’s best interest in mind. With input from a variety of stakeholders, the Executive Sponsor Committee approved the following guiding values on Oct. 26, 2023.

A new budget model should:

  • Be a tool to support and renew the core mission areas of the University in teaching, research, engagement, and inclusion, ensuring that resources are appropriately deployed to priority areas of demonstrated need.
  • Foster trust in our fiscal decisions through commitments to transparency, clarity, simplicity, consistency, accountability, and shared governance.
  • Enhance our flexibility to empower local innovation, creativity, and responsibility while keeping the common good as our primary objective.
  • Encourage collaboration, efficiency, productivity, performance, and quality, in service to our overall commitment to the success of our students and our ability to recruit, retain, and reward faculty and staff.
  • Retain capacity for making strategic investments to provide CSU clear pathways to excellence and growth.

Incremental vs. Responsibility Centered Management (RCM) vs. Hybrid Models

While changing our budget model will not automatically create more revenue, it can encourage behaviors and decisions that better support growth and innovation within the University — with the intent of leading to budgetary growth such that key strategic priorities can be supported. CSU currently adheres to an Incremental budget model, and with Universitywide input we will explore the creation of a contextualized hybrid Responsibility Center Management (RCM) model. It is important to note that while many universities have shifted to a hybrid budget model, there is a wide array of choices to be made with respect to hybrid models. The decision-making processes regarding these choices is largely what comprises the Budget Model Redesign process.

Incremental Budget Model

An Incremental budget model focuses on the change in revenue from one year to the next, also known as incremental revenue. CSU’s incremental revenue is primarily based on changes in state appropriated funds and tuition revenue.

In our current model (pictured below), the University allocates most funds through a budget process that remains largely the same from year to year. First, we deduct funds “off the top” of our budget (based on the prior year) for mandatory costs, financial aid, and strategic initiatives. We then use the prior year’s budget allocations as a base, increasing or decreasing funding in certain areas based on the incremental revenue we receive.

Though beneficial in some ways, an Incremental budget in a competitive environment limits spending flexibility, our ability to adapt to the rapidly evolving higher education sector, and our innovative excellence in research and teaching.

RCM and Hybrid Models

RCM budget models focus on current and future projections and empower colleges, schools, and other revenue-generating units to determine the best budgetary decisions for their funds. A full RCM model would assign revenue-generating units complete responsibility for obtaining and delegating funds, but with a hybrid model, campus entities will have more autonomy over their budgets than the Incremental model allows while still sharing and receiving support funding from centralized budgets as needed.  

CSU’s budget model will be customized to the University’s needs. The following description is for informational purposes only; it is NOT representative of any decisions made by the Budget Model Redesign committees.

Hybrid RCM models allow more flexibility from the start. Changing the budget model will not change CSU’s revenue sources (tuition and state appropriations), but it will allow the University to determine whether or not all revenue will be automatically subjected to budget flows. For example, supplemental funding for certain pressing matters could be taken directly from the revenue pool, similar to the process for “off the top” mandatory costs, strategic funds, and financial aid.

After “off the top” funds are deducted, the rest of the year’s revenue becomes the budget for the upcoming year. These funds will be allocated using stimulating formulas, designed by the University’s Budget Model Redesign committees to encourage innovation and allow greater autonomy.

A hybrid budget model customized to CSU’s needs will result in greater transparency in budget decisions, more incentives for innovation in the academic enterprise, more budgetary control at the college and unit levels, mission-oriented academic and budgetary planning, and future-focused fiscal planning.

CSU's Incremental Budget Flow

CSU's incremental budget flow: Tuition, state, and miscellaneous funding comprises the prior year budget. Mandatory costs, strategic funds, and financial aid are taken "off the top" from the prior year budget, and base funding is sent to academic units. Through the budget process, funds from the incremental revenue (positive or negative change in revenue from the previous year) are sent to academic units and administrative units. Throughout the fiscal year, fees for service are paid by both the academic and administrative units to the administrative units.

Example Hybrid RCM Budget Flow

An example hybrid RCM budget flow: Tuition, state, and miscellaneous funding comprises revenue. Mandatory costs, strategic funds, and financial aid are taken "off the top" from the revenue. Then, stimulating formulas are used to determine funds sent to academic units, as well as supplemental "subvention" funding. Central funding is sent to administrative units, and service fees are paid by both the academic and administrative units to the administrative units.