Drive progress in student success and research growth

Using multi-purpose budget incentives

At EAB, we work with colleges and universities that range in size, selectivity, and across many other metrics—but all are seeking improvements in some way or another. Through our work on budget models, we have identified schools that have structured their budgets to influence a focus on key strategic initiatives. We will highlight two of those in this article:

1. Student success
2. Growing the research enterprise

1. Incenting student success, within and beyond the budget model

From improving retention rates to creating better career outcomes, student success is a top priority for most colleges and universities. However, as more institutions adopt budget models with meaningful cost and revenue incentives, deans may neglect student success goals by concentrating solely on P+L management and SCH generation.

Financially rewarding student success

To prevent this scenario, a handful of institutions have begun to experiment with performance funding to reward student success goals. For example, UC-Riverside allocates 20% of tuition revenue based on improvements in first-year retention and 4-year graduation rates.

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Similarly, the University of Kentucky established a $5 million performance to reward improvements in student retention. Kentucky calculates a per-student award rate and allocates funds to colleges for each additional student they retain compared to the previous year.


Although the $5 million is small portion of Kentucky’s total budget, the results demonstrate the potential impact of even small financial incentives. In the first year, 10 of 11 undergraduate colleges at Kentucky increased retention rates and received funding awards. Interestingly, the one college that did not improve retention rates acknowledged it was too focused on adding electives and increasing SCH production to capture increased revenue, and plans for course correct next year.

Lowering the barrier to entry

Rather than performance funding, some institutions have begun to direct seed funding toward initiatives that support student success. For example, the University of Maryland System (UMD) sought to improve student outcomes and reduce drop-fail-withdrawal (DFW) rates through course redesigns. To support this effort, UMD used strategic reserves to offer matching funds up to $20 thousand for each redesign—which faculty used to flip classrooms, collapse course sections, and create active-learning modules.


This incentive yielded significant long-term, sustainable improvements for UMD. The drop-fail-withdrawal (DFW) rate declined by seven percent, and 100% of course redesigns were sustained past the pilot phase. Moreover, the system achieved $1.8 million in savings, mostly by collapsing course sections and freeing up costly adjunct dollars.

2. Incenting research growth through budget models

From R1 aspirants to high-research institutions, growing research is a top priority for many colleges and universities. However, as research is typically a net expense, deans focused on P+L management may devalue research goals or even divest from some research in favor of more profitable activities.

To counteract this pressure, some institutions have established incentives that reward progress on research goals, and correct perverse incentives inadvertently created by activity-based budget models.

Rewarding research outputs

Most institutions seeking to grow research already allocate the majority of indirect cost recovery (ICR) to the originating college or to the VP of Research. However, some institutions are going a step further and experimenting with performance funds to reward research growth. For example, Queen’s University established a 1% tax on unit revenue and reallocates those funds back to the units based on their share of research grant funding.

Another institution incorporating research incentives into their budget model is UNC Chapel Hill. While Queen’s incents total research activity, UNC specifically incents new research growth. In particular, their budget model allocates 20% of tuition revenue to a performance pot, and 5% will reward gains. UNC is still in the design phase of this new model, though the two potential metrics to reward unit research gains are detailed below.


Correcting perverse incentives in faculty hiring

Institutions must also monitor for and correct unintended consequences created by the budget model that may undermine research goals. In the example below, SUNY Buffalo opted to allocate new tuition revenue from enrollment growth and state-approved tuition increases to the units specifically for research faculty hires. But because senior leaders lacked an enforcement mechanism, many units utilized funds for discretionary needs rather than investing in new faculty.


In response, leaders at SUNY Buffalo adjusted the model to regain some central authority over use of new tuition revenue. As shown above, 50% of new revenue flows to the academic units, but only after they create spending plans demonstrating their intentions to invest in new faculty hires. The remaining 50% flows into the Provost’s Strategic Investment Fund for strategic initiatives.

Dive deeper on budget models

To learn more about how to incorporate strategic goals around student success and research growth into the budget model, access the full study Aligning the Budget Model to Strategic Goals. This study outlines 13 executive-level budget model decision points that will help you create financial accountability, structure strategic reserves, and ensure units invest in institutional priorities. Access the full study.

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Aligning the Budget Model to Strategic Goals

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