A message to the McMaster Community from David Wilkinson, Provost and Vice-president Academic regarding McMaster’s new budget model

I am pleased to provide the McMaster community with an important update on the progress we’ve made together towards the development and implementation of a new University budget model. The work we’ve undertaken as a University, beginning with the original Budget Model Task Force in 2007 and continuing today, has resulted in significant advancement and achievement.

Goals and objectives

As we began this work, our overarching goal was significant and ambitious: to develop a sustainable, transparent and strategic new budget model that allows McMaster to nimbly seize emerging opportunities, while furthering the University’s commitment to provide the best teaching, learning and research environments for students and faculty. We challenged ourselves to find solutions to replace a budget model which had become overly complex and opaque and was not directly linked to McMaster’s academic plans and directions.

How did the new model come about?

Budget Model Task Force I identified the key principles that would be the foundation of our new model: transparency, trust, engagement and fairness. It determined the model must advance the efficient use of physical and human resources; must have predictability and stability as core components; while building the student learning experience both inside and outside the classroom. Further, the new model must assign fiscal and academic responsibility to appropriate levels and enable rapid response to meet emerging opportunities.

Budget Model Task Force II developed additional guidelines based on these core principles. It established protocols to support and enhance the academic mission that will avoid the creation or promotion of budget-area silos. It spent considerable time ensuring our new model would be simpler to administer and would assign costs to the most appropriate areas of the University.

The Budget Model Implementation team responded to these issues and principles. Its work centred on creating in-depth models and options for the new budget. It provided focused and precise recommendations so that today we are ready to begin the implementation of the new model based on the work of the two task forces and with your considerable input and guidance.

I would like to thank the community of faculty and staff for its many years of work and collaboration to bring us to this point. Without your contributions and knowledge, this challenging and complex project could not have been successfully completed.

Overview of the McMaster model

Today we introduce a new McMaster budget model confident it will achieve our initial goals of transparency, effectiveness and fairness. It is a customized approach combining the best attributes of other established models, while meeting McMaster’s unique needs and circumstances as a research-intensive university.

Early in this process, considerable time was invested studying and discussing alternative budget models. The McMaster new budget model is a hybrid version of pure activity-based budgeting.  It allows for flexibility in funding core University services, while providing a fairer allocation of revenues to Faculties. The primary principle governing the new budget model is that income flows directly to the activity units (primarily Faculties).  Support units receive their funding through the assessment of levies, charged to each activity unit.  These levies are controlled by drivers (e.g. enrolment, occupied space) that are most relevant to the operation of the support unit. Two of the main functions of the new budget model are to determine how income arriving at the university is allocated amongst the activity units, and how the levies that provide funding to the support units are determined.

Faculties and allocation of revenues

At McMaster, the six Faculties (Business, Engineering, Health Sciences, Humanities, Science and Social Sciences) in addition to the Arts and Science program, are the activity areas that generate significant University revenue. The new model allows for more equitable allocation of all operating revenues. These include tuition revenues, provincial grants, indirect costs of research, application fee revenue and investment income.

A new allocation formula recognizes the costs of cross-Faculty teaching and apportions funds to educate students taught in one Faculty but registered in another. The tuition sharing formula delivers 75% of tuition to the teaching Faculty and the remainder to the Faculty of registration. 100% of the provincial grant is allocated to the Faculty where the student is registered.  Calculations show that, on average, this distributes funds to Faculties consistent with the costs of teaching.  In terms of Graduate tuition and provincial grant income, 100% will be allocated to the Faculty where the graduate student is registered.

Support units

The McMaster model also addresses the funding of shared support units which are essential to the ongoing success of the University. The new model designates the libraries, ROADS, the administrative units, University Technology Services and other areas as support units.

In order to fund these support units, the budgets of activity units will be charged based on a set of cost drivers such as number of students or space usage. The budgets of support units will continue to be based on submissions to the University Budget Committee for review and approval. Oversight of support unit budgets will continue to be performed by envelope managers.

Holding harmless provisions

The budget year 2013/14 is Year 0 in the implementation of the new model. It will be used as the base comparison between the new budget model and the current model. The new model will be implemented beginning with fiscal 2014/15 (Year 1). The 2013/14 year will be a shadow year, during which we can continue to fine-tune and make any required adjustments to the new model.

The University is committing that no Faculty’s budget will be lower than their Year 0 allocation, unless their level of activity decreases (e.g. due to lower student enrolment or implementation of MTCU policy levers).

New Funds Established

As part of the new model, some new Funds are being established to help meet the goal of ensuring McMaster is well-positioned to nimbly and efficiently respond to and seize emerging opportunities. The University Fund will enable us to address strategic needs, including both operating and capital items consistent with the University mission. The Fund will be comprised of 8% of total allocated revenues (excluding indirect cost of research revenue) and will be the responsibility of the Provost.

A new Research Infrastructure Fund (RIF) which will provide additional support and incentive for conducting research. The amount of this fund has been set at 1% of total allocated revenues (excluding indirect cost of research revenue). The RIF is fully allocated to the Faculties using the Indirect Cost of Research revenue as a driver.

Next Steps

There has been widespread activity across campus to ensure there is a broad understanding of the new model. Hundreds of people across the University have been active participants in meetings and information sessions. Frequent discussions, town halls and presentations have been held with more planned.

A web page: http://www.mcmaster.ca/vpacademic/New_budget_page.html has been created to host a suite of information resources for faculty and staff. These resources contain more detailed information about the specifics of the new model. I encourage you to review these materials and to gain a deeper understanding of this process. As we move forward, budget managers will have more opportunities to learn more.  The budgeting year and timelines will not change for 2014/15. Budgeting guidelines will be distributed to envelope managers in November and the process to build next year’s budget will remain unchanged.

While implementing a new budget model can seem daunting, I am confident that the collective work of many across campus over the past few years has provided an excellent foundation as we enter this next critically important phase. I thank you for your commitment to the University and to this new model and look forward to working with you to successfully implement this important project.

An email account has been set up for you to direct your questions. It is newbudget@mcmaster.ca

Thank you again,

Sincerely,

David Wilkinson

Provost, Vice-president Academic