Resource Allocation in Private Research Universities (review)

This volume is the publication of a dissertation, typos and all, in the Routledge-Falmer Series in Higher Education. Rodas's chief aim is to illuminate how university administrators "shape and allocate the annual operating budget" (p. 4) through a comparative, qualitative approach, based principally on interviews with key personnel at six pseudonymous private research universities. Despite the limitations of the method and the dissertation format, the study does succeed in exploring some fundamental issues of financial management.

Rodas posits three basic approaches: (a) centralized resource allocation in which most decisions are made by the university administration, (b) decentralized resource allocation, in which budgetary control lies with the operating units, and (c) a "value-outcomes" model in which performance measures are coupled with decentralized control to steer unit behavior. The case studies, however, turn out to be a dialogue between centralized and decentralized approaches. Two universities cling to what the author clearly regards as old-fashioned central control. The other four lie on a continuum from simple block allocations to operating units to Responsibility Centered Management (RCM). This last approach places full responsibility for revenues and expenditures with the units, but then also taxes them to support nonrevenue units like the library and the president's office. One university has operated on RCM for a number of years, and another has recently incorporated its key features. The implication seems evident that this is the wave of the future.

It is not difficult to make the case against centralized allocation. An inherent problem exists where there is no connection between income and expenditures. Spending can be wasteful, especially when the units feel obligated to consume their entire annual allocation. Units and their heads have little incentive to raise funds they cannot retain. Nor will units make hard choices to cut spending when budgets are tight. This indictment, however, comes from the decentralized universities, and is offered largely to rationalize their approach. The two centralized universities in fact seemed to have the fewest problems. One relied on the close attention, bordering on micromanagement, of the president. (Rodas classifies this institution as decentralized, but his interviewee called it "highly centralized," p. 147.) The other achieved a high degree of consensus through an allocation committee. At both universities, the administration possessed the means to pursue university goals.

The four universities practicing decentralization generally praised it. They testified that deans and/or department heads knew the prices of the resources they used and made their spending choices appropriately. Deans were reputed to be much more entrepreneurial. RCM in particular was lauded for creating an allocation system with accountability, transparency, and a common set of rules. Nevertheless, as I read this book, I saw the drawbacks associated with decentralization as more numerous and serious. And the greater the decentralization (e.g., RCM) the more serious the difficulties

All four decentralized institutions complained of the lack of central capacity to pursue university-wide goals. They felt this powerlessness most acutely as pressures mounted to strengthen undergraduate education, foster interdisciplinarity, and enhance institutional reputation. All had plans afoot to withdraw funds from the operating units and bring them back to the president and provost. Since schools and departments vary greatly in their capacity to raise external funds and generate additional enrollments, decentralizing formulas tend to exacerbate inequality across units and intensify competition. To compensate, an elaborate system of subsidies and charges is required. Once in place, such formulas prove exceedingly rigid. In some cases, the provost had to constantly intervene to maintain the system—moving control back toward the center again and generating conflict and suspicion in the process.

The decentralized universities all attempted to address these problems. Although admirable in intent, the endeavor struck me as symptomatic of a deeper dysfunction. Decentralized systems require a great deal of time and effort to establish. The central administration must develop the capacity to process and monitor...