IBB 101

A bird’s eye view of UVM’s new budget model


Tom Streeter

Research universities can do great things: offer life-changing experiences to their students, make discoveries that transform human life for the better, create a space for asking hard questions, and more. They can make the world smarter. But on a day to day level, universities are big sprawling bureaucracies, where it’s hard to see what’s working and what’s not. When it comes to universities, success is difficult to measure and even harder to predict.

Who could have known that Jody Williams, a UVM psychology major who graduated in 1972, would go on to win the Nobel Peace Prize in 1997? Who could have known, in 1956, when UVM hired a young scholar called Raul Hilberg, that he would go on to publish his earth shattering magnum opus on the Holocaust, which in turn created the discipline of Holocaust studies and eventually put crucial questions on the world’s agenda?

If you are a university administrator, you may dream of producing more Williamses or Hilbergs, but what you get is requests of a more mundane sort: a psychology department argues it is absolutely essential to hire a neuroscientist and give them a lab to do path breaking research, the history department wants an expert in sixteenth century Europe because their research helps us understand how the modern world got to be this way, the chemistry department needs more people to teach courses and labs to do research, and the writing program needs more staff because they can’t possibly ensure that the students will learn to write properly without them. So who gets the money?

Welcome to the blurry world of higher education financing. Budgets are finite, ambitions are not. There’s no button you can push to automatically produce heretofore unknown knowledge and ideas that have world-wide impact. Administrators cannot know for sure which investment will lead to success and which won’t; since the 1970s higher ed funding has been largely flat or worse so they can’t simply promise everybody everything and wait to see what happens. They have to somehow make guesses about where to put the money when the outcomes are unknowable.

The old mode of handling budgeting over the years at UVM and elsewhere was less a budget model than the result of inertia. Allocations were based upon the funding levels of the previous year. If revenues were down, cuts tended to be made evenly across the board. If revenues were up, those who could get central administration’s ear would beg for the new revenue, and administrators would have to choose. This model was predictable, rigid, and incremental; it rewarded incumbent programs and squeaky wheels, and made it hard for central administrators to unilaterally implement broad swift change if that’s what they wanted to do. And faculty were often left feeling frustrated and taken for granted because they felt like they were always treading water.

This is where incentive Based Budgeting (IBB) comes in. IBB is a flavor of Responsibility Center Management (RCM), a trend that has become popular among the acronym-admiring world of higher ed consultants and academic management organizations. RCM/IBB is less a budget model than a management philosophy. The core idea sounds simple: IBB proposes that colleges  are responsible for raising their own funds and covering their own costs.  If you use less space, you have more money for other things; if you teach more students who pay tuition, you’ll get more money. Deans are “incentivized” to find ways to recruit more students and find new funding sources. It sounds very straightforward.

Scratch the surface, however, and things become much less straightforward. For example, you might make lots of money if you got three hundred students to sign up for a giant course in nursing taught by a single instructor, but then the students would not be likely to become good nurses. So you have to account for quality, somehow. Paying a historian to teach twenty students costs less than half what it would cost to pay a computer scientist to teach the same number of students because of the computer scientist’s higher salary. You have to account for that. And students looking for a university want choices; they may end up majoring in mechanical engineering, but they may not have chosen to come to UVM if it had not offered classics. The list of good things not easily achieved by IBB incentives is quite long.

So actually implementing IBB involves large numbers of adjustments and complications that try to take into account the many complexities, while still trying to follow the basic philosophy. (UVM’s first IBB manual is 37 pages long and has been amended more than a dozen times since 2016.) The adjustments and complications, moreover, often involve making educated guesses or subjective assumptions in how they are designed. The devil is truly in the details. (In the description that follows, I will indicate those features of IBB involving educated guesses or subjective assumptions with this sign: 😈)

To begin with, IBB is designed so that when tuition comes in, before it goes to the colleges, central administration takes a percentage😈 off the top of tuition dollars, which then becomes a roughly forty million dollar “subvention fund,” that in turn is rerouted for various😈 purposes. Currently this fund is mostly returned to colleges, but it includes money contributing to an administrative “Strategic Investment Fund,” currently a bit less than $6 million, the administration can then use for various special😈 projects. To deal with the varying cost of different types of teaching, each college is assigned a specific multiplier which is applied to how much money they get per student, aka “weighted student credit hours”: the largest college, Arts and Sciences (CAS) is assigned a multiplier of 1.0😈. All the other colleges get more money per student: Agriculture and Life Sciences (CALS): 1.10😈, College of Engineering and Mathematical Sciences (CEMS): 1.10😈, College of Education and Social Services (CESS): 1.10😈, College of Nursing and Health Sciences (CNHS): 1.30😈, Grossman School of Business (GSB): 1.10😈, Rubenstein School of Environment and Natural Resources (RSENR): 1.20😈, and the College of Medicine (CoM): 1.30😈. With close to 12,000 students taking four or five classes a semester, those fractions of a point can add up.

I could go on with many more such wrinkles: accounting for office, lab, and classroom space😈, how the library and other parts of the university that serve everyone are accounted for😈, and the decision making processes😈 for making all the other judgments. But the point is simply that IBB cannot be as simple, transparent, and free of subjective assumptions as it might at first seem. When Provost Rosowsky says “the money flows directly to the colleges,” he is simplifying in the extreme.

All of which only shows that the old, inertial, squeaky wheel way of doing things has been replaced, not with a seamless, transparent, friction free method, but with a new set of structures that also involve making subjective judgments and educated guesses. If under the old model, the Deans had to fiercely defend their existing budgets while maneuvering to get ahold of any surpluses when they appeared, under the new model, Deans need to spend their energy trying to maneuver around and influence all the smaller influential bits of the IBB system, all the devils.

Even so, does IBB work? Nationwide, the jury is still out. There are many claims of success, and many claims of failure, often involving the same institution and the same basic set of facts. There is not much aggregate evidence that IBB increases a university’s overall revenues or educational excellence, though one can find anecdotal evidence here and there that is both good and bad.

The most common criticism of IBB/RCM models is that they create destructive competition and duplication between units. As Boston University President Robert A. Brown put it, “It can lead to all [kinds] of perverse incentives, like engineering schools that want to teach English.” If, hypothetically, an engineering school teaches English, they get the money and the English department doesn’t.

A case in point at UVM is the College of Medicine, which historically has offered very few undergraduate courses. The CoM is now teaching a three credit course in five sections with 266 undergraduate students in each. Leaving aside the question of whether or not these courses are worthwhile, the incentive created by IBB rewards the CoM (with its 1.3 multiplier per student) for teaching extra large classes full of students that otherwise would be taking classes in other colleges. Money moves away from other colleges into the CoM, but no new funds for the university are generated. An “educational stewardship committee,” currently advisory to the Provost, has been created to look into such problems, but the point is that the core incentive in the current system rewards colleges for drawing students away from other colleges, a process that does not help the university as a whole in any obvious way.

The point there is that since each school risks losing money when its students go take relevant courses in other colleges (say, a writing course, or a course on American government), their incentive is either (a) to in-house the course by hiring their own instructors, which creates duplication which is expensive to the university as a whole, or (b) simply to cancel these course requirements—there is evidence this might be happening at UVM—creating narrower majors and narrower minds.

Relatedly, what this first point illustrates is that throughout the university, pressure is generated to substitute economic logic for sound academic reasoning.  It can be felt in department meetings, where faculty are asked to develop sexy new “products,” and all the way down to our advising responsibilities, where it becomes natural for a faculty member to wonder whether they should now be steering students away from other colleges and from interdisciplinary programs – because these could threaten the bottom line in one’s own college. 

Another criticism is that IBB turns short term conditions into long term policies. If enrollments are at one moment going up in a college, money flows in its direction, and that college then has funds to use to keep expanding enrollments into the future. If enrollments are down one year, the budget contracts quickly, which can lead to a downward spiral. And another criticism is that colleges are effected by upturns and downturns in enrollments, but recruiting of students is done largely centrally, which limits colleges’ control over the variable that most effects their revenue.

University budgeting has always been a contentious, imperfect process. United Academics is not opposed to IBB per se, but it worries that administrators use it to shirk responsibility for what are often judgment calls disguised as mathematical certainties, and we believe that more faculty oversight of the design and implementation of whatever budget model is used would lead over time to wiser decisions.

There’s no telling where the next Raul HIlberg or Jody Williams at UVM will come from. But it’s important that they came to UVM, not for some small part of it, but for the whole thing. The word “university” is derived from Latin for “the whole.” A university is larger than the sum of its parts; in the larger scheme of things, UVM needs a broad array of programs, departments, perspectives, and individuals. That very breadth and diversity is its strength. At any one time, some parts may be thriving while other parts may be struggling, but they all need each other. This condition needs to be central to university decision making, however it is organized.


For a quick overview of alternative budget models followed by universities in general, see: