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The previous budget model provided historically based budgets that did not align with the academic plans or activities of McMaster. There was no transparency in these base budget allocations. Some growth funding was provided based on enrolment in addition to allocations of central funds that lacked transparency. There was also difficulty in properly funding initiatives involving non-traditional approaches such as our Arts and Science program.

  • BMTF I:
    • Formed in 2007 to review the current budget model and investigate alternatives.
    • Recommended a version of an activity-based budget system that supports and enhances our academic mission
    • Established some of the basic principles underpinning the new budget model
  • BMTF II:
    • Established in 2009 to respond to recommendations of BMTF I
    • Review included:
    • Establishment of University Fund to support strategic initiatives
    • Recommendations on methodologies for each revenue type
    • Allocation methodology for Occupancy Costs and Support Unit costs
  • BM Implementation Team:
    • Responded to issues/concerns from BMTFII report
    • Completed in-depth modelling of the new budget model recommendations

The premise of the budget model assures financial responsibility, accountability and fairness. It is based on the concept of an activity-based model but is a hybrid of that.

Framework Revenues are allocated to Faculties based on activity called “Revenue Drivers” (enrolment, teaching, research, other). The Support unit (e.g. Library, SGS, HR, etc.) fixed budgets are deducted from the Faculty revenues based on activity, called “Cost Drivers”. Support Unit Budgets are Fixed Budgets and Faculty Budgets are Activity-Based – hence Hybrid! Resulting amount comprises each of the Faculty.

The percentage charged to various Faculties is reviewed annually based on cost drivers and Faculties may contribute more or less towards a particular support.

BMTF I had established a set of principles that would serve as the framework for the examination of any new budget model. These principles state that a budget must:

  • Promote transparency, trust and engagement
  • Assure financial responsibility, accountability and fairness
  • Advance the efficient use of physical and human resources
  • Have predictability and stability
  • Enable innovation, creativity and change
  • Assign fiscal and academic responsibility to the appropriate levels
  • Build the student learning experience both inside and outside the classroom
  • Enable rapid response to opportunities
  • Ensure the sustainability of areas of existing and emerging excellence in keeping with academic priorities

Additional guidelines adopted by BMTF II and based upon additional feedback are:

  • Support and enhance the academic mission (research and teaching)
  • Avoid the creation of “silos” and promote interFaculty / departmental cooperation
  • Keep things simple, not too many variables
  • Utilize the concept of “materiality” – spend time on large items, set a limit under which the item will not form part of the components of a budget model
  • Be simple to administer
  • A research infrastructure fund (RIF) will be established to promote the support of research at McMaster University

All budget allocations in the new budget model will be net allocations

In 2013-14 was the final year under the previous budget system.

2013-14 formed the base year to compare the new budget model and the previous model. The new budget is a change to the allocation methodology. An adjustment would be calculated to bring the new model into line with the current budget of the Faculties (hold harmless). Hold harmless means that no Faculty’s new budget (revenues less support unit allocations) would be less than their Year 0 base budget allocation. Holding harmless does not imply that issues such as policy levers or decreased enrollments will not be applied and budgets decreased as a result.

The budgets are allocated at the envelope level as with the current budget allocation methodology. Deans and Directors of Administration will work with the departments as they do currently to provide budget information.

Revenues and expenses have been allocated to the Faculty level, not departmental level. Faculties can use a similar methodology to devolve the budgets but that is not part of the new model and Faculties decide how to implement the model.

The new budget model is an important tool in planning for resource allocation. Having said that, the heightened focus on revenues and costs demands that university leaders remain vigilant in ensuring that academic planning remains the primary factor driving decisions. Accurate and timely information, transparency and stakeholder engagement all play a role in ensuring sound academic planning. The new budget model provides decision makers with clear budget information from which effective decisions can be made.

See "Tools" tab for more information.

The inherent decentralization of the budget model does make interfaculty cooperation complicated. It must be noted that the current budget methodology does not make it any less complicated in fact it currently provides no incentive for interfaculty cooperation. There is currently no provision for teaching students in other Faculties and there is no acknowledgement of space that is used in a Faculty to house interdisciplinary programs. The previous budget model had led to Faculties refusing the supply courses to other Faculties’ students and it is the students who have suffered as a result. The new budget model provides compensation that resolves some of these issues. The new budget model provides predictable income for teaching students in other Faculties through tuition sharing, rather than unreliable one-time allocations. The new budget model will also provide transparent information for Faculties to use to determine other revenues and expenses for interdisciplinary programs.

There was a lack of trust in the previous budget model as there was no explanation possible for the existing budget allocations. This has led to mistrust between Faculties and departments which has supported the establishment of silos rather than decreased them.

Each Interdisciplinary program is assisgned a home faculty referred to as the “Coordinating Faculty”. The Net Revenue, which is defined as the BIU and Tuition funding (based on program FTEs, rates and weights) less central support unit costs (based on program cost drivers), will be allocated to the Coordinating faculty through the McMaster Budget Model. The Net Revenue allocations are released at a Faculty level; however the Coordinating faculty will request the breakdown by program/department (including space, student and employee FTEs, etc) in order to correctly attribute the Net Revenue to the program. The miscellaneous and other fees will be received directly into the Program account.

Combined or double honours programs between Faculties have been coded in Mosaic to attribute revenue to the Faculty in which the student was enrolled in Year one.

Under the current funding models for research, research does depend on other operating funds for support. The new budget model makes this transparent so that the University can make informed decisions in regard to the support of research.

The creation of the Research Infrastructure fund reallocation some revenue in the model from less research intensive faculties to the highly research intense areas.

Facilities operations and maintenance expenses will be distributed and paid by all units that have assigned space, using a university wide, per-NASM charge. This charge will reflect averaged maintenance costs for the entire campus, not actual costs for individual buildings and does not distinguish between the uses of space. This is an advantage to research because wet and dry lab spaces are both significantly more expensive to run than office space.

Many other universities have adopted a hybrid of activity based budgeting. These include the University of Toronto, Queens University, York University, the University of Saskatchewan and many other universities in the United States and Australia.

Ancillary units are not included in the new model as they work on a cost recovery basis and have been paying occupancy costs for several years.

Revenue sharing agreements of multi-institution collaborative programs will continue to be handled outside of the framework.

An activity unit is a unit that generates revenue, typically Faculties in this model. All of the operating revenue earned by that activity unit is attributed to the unit.

A cost driver is a unit of activity that causes a cost to be incurred. For instance a cost driver for the Registrar would be undergraduate FFTE.

Hold harmless means that no Faculty’s new budget (revenues less support unit allocations) would be less than their Year 13/14 base budget allocation, unless there is an adjustment to what revenue components are included in the budget allocation or their activity level decreases e.g. lower student enrolment, MTCU policy levers etc.

Year 13/14 was used as a base comparison between the new budget model and the previous model, where a transition adjustment will be calculated to bring the new model into line with the previous model allocations to Faculties (hold harmless).

The transition from the old to the new budget model will be implemented in a way that preserves the integrity of envelopes and allows for no area to have a decrease in base budget below the adjusted 2013/14 base budget.

This will be preserved through the use of the University Fund. This provides the recognition that decisions have been made by the Budget Committee and Provost over the years and that those decisions should be upheld for a reasonable time.

Grants that provide support to a targeted program and have a different base BIU value than other programs are allocated directly to the faculty containing the targeted program.

Undergraduate Grant Allocation:

  • Funding based on the term enrolment results of the Faculty according to the MTCU’s basic operating grant formula.
  • The BIU rate used will align with the MTCU’s funding rate for undergraduate accessibility

Graduate grant allocations to Faculties has been broken out into two pools to stay consistent with the Ministry of Training Colleges and Universities (MTCU) methodology.

  1. Graduate Students up to 2007-08.
  • Funded based on their 3-term enrolment results through the basic operating grant formula
  • Graduate Growth over 2007-08.
    • Measured as growth in Fall Eligible FTEs with funding rates for Masters and Doctoral students

    Facilities operations and maintenance expenses will be distributed and paid by all units that have assigned space, using a university wide, per-NASM charge. This charge will reflect averaged maintenance costs for the entire campus, not actual costs for individual buildings and does not distinguish between the uses of space. This is an advantage to research because wet and dry lab spaces are both significantly more expensive to run than office space.

    Space is expensive. Not only are the costs of our current space (operating and deferred maintenance) a large area of fixed costs, with deferred maintenance being significantly under-funded, the costs associated with expanding our facilities are expensive. If we can make better use of existing space, we can save substantial funds that would otherwise need to be devoted to new buildings. Charging for space is an incentive to economize our space and to make efficient use of this constrained resource, rather than trying to hold on to space that may not be required.

    Off campus space, with some exceptions such as the Downtown Centre areas used by McMaster administrative staff, are excluded where they have their own arrangements to pay for facilities and utilities. Faculties will be responsible for making these payments directly to the facility such as the RJC and satellite campuses.

    The costs of space will be assigned based on prior-year actuals. Changes in assigned space will be reflected in the following year’s projections and there will be a one time adjustment to true up prior year actuals.

    All space is assigned either to an activity unit or a support unit. Research space would be typically assigned to the Faculty where the PI is located and the Faculty would be responsible for occupancy costs.

    Other income includes a variety of items including student account interest, interest on account balances and miscellaneous items. This is income that cannot be directly attributed to an activity unit.

    All indirect cost of research (ICR) funding in the new budget model is now flowed to the faculty either in their allocation or via Journal Entry, with the exception of a 7% levy to provide the VPR with a Discretionary Fund.  Allocation adjustments are made to acknowledge that a portion of ICR goes directly to the faculty and not through central allocation. ICR is allocated in full and is excluded from contributions to both the University Fund (UF) and Research Infrastructure Fund (RIF).

    McMaster is known as a research intensive university and we value research. The RIF is intended to be a redistribution of operating allocations to acknowledge the research focus of the University.

    Support units are critical enablers who provide the resources, tools and support to foster strong academic programs for the activity units. These include (but not limited to) academic administration, student services, administration as well as scholarships. Activity units are charged for these services based on cost drivers.

    There is no change planned to the current process of meeting with the Budget Committee. Requests for changes would go to that committee through the envelope manager.

    It should be noted that McMaster’s new budget model is not a true activity based budget where support units are concerned. In such a model each net new employee, for example, would result in an increase of $X to HR.

    The new budget model will hold support units at their current Year 0 budget allocation levels unless an increase (or decrease) is granted following an application through the governance mechanism. Envelope managers will submit their budgets to the Budget Committee who will recommend to PVPD any changes to budgets. Within the approved budgets, the drivers being developed for the support units will be used solely to allocate costs to activity units and not in aggregate to set the budgets. Activity units’ budgets will be assessed a charge based on the percentage of their use of a support unit.

    Deployed services are services provided by FHS that would have to be provided centrally if FHS did not provide them. In essence, the cost of these is added to the central service cost and reallocated out using each faculty’s drivers.

    There is no option to opt out of cost drivers for support units.

    The expectation is that the model will continually be a reviewed by BMIT and changes will be made during the initial years. The model will evolve and there will be a full review after five years (after 2018/19 fiscal year).

    Slip year amounts will be reduced as all modelling is done using projections instead of fixed prior year values.

    Students located off campus are treated much the same as students located on campus because common services tend to be available wherever students are located. Common services such as the Museum of Art are charged to all students regardless of location because it is a service supported by the university as a whole.

    The new budget model provides reimbursement to Faculties for their teaching at 100% of their Faculty tuition rate. This approach differs from the previous budget model which does not provide any direct funding for teaching offered by one Faculty to students from another Faculty.

    Graduate tuition is allocated 100% to the Faculty where the student is registered.

    The University Fund performs two primary functions with regard to envelope budget allocations: it preserves the 2013/14 base budget and it is the primary mechanism for allocations that support strategic plans. The University Fund contribution is calculated as a percentage of total attributed revenue from operating grant, tuition fee, investment income and other income. The fund is governed by the Provost consulting with PVPD to ensure that it supports academic priorities and needs.

    Examining other universities with similar activity based budget systems some University Funds have as much as 10% of total allocated revenues. The McMaster new budget model has been modelled using a UF funded at 8% of total allocated revenues (excluding Indirect Cost of Research revenue) per year using a similar off-the-top calculation as other universities have adopted. In determining a reasonable allocation for McMaster a number of items were discussed:

    • the UF must be sufficient to transition to the new budget model during the implementation phase
    • the UF must be sufficient to fund strategic priorities, commitments already existing and new initiatives aligned to the President’s letter Forward with Integrity and underfunded areas.