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Better Budgeting Through DMC

March 25, 2002

Nick Marinello
Phone: 865-5714

mr4@tulane.edu

Yvette Jones can make the new Decentralized Management Center seem almost simple. "You take the university's operating budget and break it down into revenues and expenses of each of its 14 operating units," she explains. "Then take everything else--the revenues and expenses that support the services not directly related to one of the 14 units, i.e. allocated costs, and distribute those costs among those 14 units based on some measurement of how they are used."

Even so, the DMC, the new budgeting model that will be launched this coming fiscal year (2003) and implemented over a three-year period, will require a steep learning curve and a change in the way that Tulane operates, says Jones, senior vice president for planning and administration.

"This is not merely an accounting exercise but rather it is a cultural change for the university," she says.

At the heart of the DMC model is the recognition of 14 "closed" operating units. They include the schools of architecture, business, engineering, law, medicine, public health and social work, as well the Faculty of Liberal Arts and Sciences, University College, the Center for Bioenvironmental Research, Payson center, primate center, urban center, and athletics department.

According to Jones, the university will budget the next fiscal year in the context of the DMC model. "All direct revenues, which include tuition, endowments, indirect cost recoveries and gifts, will be distributed to the operating units," she says.

Revenues will be offset by expenses directly related to each unit. At the same time, units will share in the "allocated costs" of the university--administration, computer services, information resources, facilities services, student services, auxiliary services, revenue support services and approved subsidies. These costs will be determined by each unit's enrollment, financial standing, square footage and full-time equivalence of faculty, staff and students.

"This model is intended to be an incentive for the operating units to perform at their maximum levels," says Jones. "This will provide measurable outcomes for the good work that is done at the school level." Beyond that, she says, the DMC model should improve the financial health of the university. "It is a transparent model that allows us to know where the money is. As we move forward, this model will help Tulane set priorities for what it should be doing."

Preliminary budget assumptions for FY2003, which were approved by the Tulane board in February, identifies an increase in tuition from $24,675 to $26,100. Additional projected revenues include a 3.5-percent increase in room and board, and a minimum $500,000 increase in gifts and grants. Indirect cost recovery from grants and contracts is expected to remain at the FY 2002 level of $14.6 million. Projected expenditures include a 3-percent increase in faculty and staff salaries and benefits. According to Jones, it will be up to deans or department heads as to how the salary pool is distributed in each unit.

"We are leaving the accountability and flexibility at the unit level as long as they don't exceed the salary pool," she says.

Other expenses include an increase of not more than $500,000 for graduate school stipends and a 3-percent increase in allocated costs. Jones acknowledges that all units may not initially be able to cover their share of allocated costs, but expects all to be able to do so or make "considerable progress" by the end of the three-year phase-in period, either through generating additional revenue or by cutting expenses.

"We are telling the units, however, to be confident that the alloca-tions will not go up more than 3 percent in one year. We have to continue to work at generating new revenues or making reductions in central administration, as well."

For Jones, who has overseen the university's budget for the last three-and-a-half years, this will be the last round of budgeting under her supervision. As was announced by President Scott Cowen late last month, Jones has agreed to fill the new position of senior vice president for external affairs, beginning July 1. Nick Marinello may be reached at mr4@tulane.edu

Tulane University, New Orleans, LA 70118 504-865-5000 website@tulane.edu