In Brief
How RCM fits, and may not fit, in the current and future landscape
- The RCM model has delivered key benefits to colleges and universities, but recent challenges in higher education have uncovered limitations for long-term success in volatile times.
- Its limitations include complexity, reliance on stable leadership, dependence on the landscape, misalignment with broader investment needs, and increased financial risk due to decentralization.
- Market shifts are highlighting the need for centralized risk management.
Over the past decade, more than 100 higher education institutions have adopted an RCM budgeting framework, moving away from traditional incremental budgeting. RCM has delivered key benefits, including increased entrepreneurship and revenue growth, shifts in institutional activity, and better alignment of administrative services — fostering accountability and ownership. However, as market conditions grow more volatile, the model’s limitations have become increasingly tested. While effective during stable times, RCM may warrant refinements during periods of stress or transitions.
Here are four considerations for how RCM may be challenged during market fluctuations:
1. RCM requires active management and a steeper learning curve than incremental budgeting, which can be more difficult to navigate amid the high turnover rates of presidents, provosts, and CFOs.
RCM demands continuous, hands-on management to determine investment opportunities and school-level strategies. However, leadership turnover undermines its stability, with provosts serving an average of three years and presidents serving 5.9 years, according to The American College President: 2023 Edition, by the American Council on Education (ACE). These rates, coupled with the steep learning curve of RCM, which can require up to a year to gain proficiency, challenge its sustained effectiveness and long-term viability.
2. RCM promotes entrepreneurship, but its success depends on the broad opportunities within the marketplace.
RCM is designed with incentives that are often rooted in growth across various metrics such as credit hour production, graduation rates, and research growth. Multiple financial pressures, such as declining enrollment, rising administrative and service costs, and inflation, make the trade-off of generating revenue while managing costs increasingly difficult to sustain.
3. RCM enables investments at the college and school level, yet many institutions find that their most significant opportunities lie in larger, more coordinated investments across the organization.
Historically, institutions have provided seed funding to deans to launch new programs, betting on smaller, independent initiatives. However, today’s institutions are increasingly focused on larger, coordinated investments, like creating new colleges or regional campuses, such as the University of South Carolina’s new health sciences campus or the expansion of Omaha’s Creighton University into Phoenix. This shift toward more significant, institutional-level investments is often challenging in a decentralized model, which uses incentives to distribute strategic and discretionary dollars to operating units.
4. A decentralized budget model may potentially expose institutions to risk during unprecedented times.
A proven way to manage risk is through a portfolio strategy and diversifying investments. In a decentralized model, however, revenues and expenses are fragmented across units, forcing each one to manage risk independently. Given the unprecedented times in higher education today, it may be necessary to centralize efforts and adopt a more coordinated strategic approach, rather than relying on a distributed, incentive-based system that pushes units to operate on their own.
Amid these evolving dynamics, what might another budget model look like?
Huron’s emerging view is that an effective model balances the motivational strengths of RCM with the adaptability needed to respond to evolving institutional priorities. This approach enables leaders to focus more on advancing academic innovation and research impact, rather than administrative details. Ultimately, success comes from a financial framework that fosters collaboration, encourages accountability, and supports institutions in responding effectively to changing conditions, building resilience for the future while staying true to their core missions today.
We encourage you to reach out as we continue to explore this hybrid model and discuss what an approach could look like for your institution.