Activity Based Costing

Story/Background

In 2015 CA Governor Brown and UC President Napolitano mandated a pilot program to implement an Academic Cost Structure and Performance Management System based on Activity Based Costing (ABC) principles in order for higher education institutions to better understand their cost structures. Most applications of ABC have been in private industry and the question of this pilot is whether ABC would translate well at the university level; whether its contribution would offset its cost. Within a university, ABC would provide course-level activity data, potentially providing leadership access to critical information needed to promote innovation and improvement of education delivery. The unique hybrid business models of universities combined with the complexity of their costs structures have historically impeded the type of comprehensive analysis provided by ABC. However, given the potential significant impact to student success, it is a question that must be explored.

In partnership with UCOP, Bill and Melinda Gates Foundation, Deloitte, Pilbara and Grant Thornton, UCR has answered this mandate and is currently in a pilot project to assess the feasibility of employing ABC at the university level. The ABC pilot dovetails perfectly with UCR’s New Budget Model which moves the campus from a ‘central planning’ paradigm to a model in which Deans and Department Chairs have greater latitude in adjusting activities in support of their mission. In theory, ABC would work in tandem with this new model to better position leadership to understand the range of options before them and then to more accurately determine what portfolio of course types will lead to the optimal balance of cost and outcomes. In the past, university leadership has been unable to answer key management questions in developing their course catalogues. For example, the true cost differential of a 300 student lecture versus a 20 student seminar has not been available, limiting the ability of leaders to make informed decisions based on actual cost. ABC has the potential to afford leadership with previously unquantifiable information which will allow them to focus on activities that provide the most value and optimize student success.

In order to perform these cost allocations in a replicable manner and to determine the overall feasibility of ABC, UCR has collaborated with consultancy firms to build a new University Management Model. The model was built in the latter part of 2015 and is currently in the testing phase. The substantial data output from the model will be rigorously validated and analyzed. The results of the analysis will be presented in a white paper to the Bill and Melinda Gates Foundation. This white paper, authored by Vice Chancellor for Planning and Budget Anguiano, will start a national conversation about the use of ABC in higher education to promote better education outcomes.

With the ABC pilot project, UCR is at the forefront of forward-thinking leadership, willing not only to ask the difficult questions, but also to propose and explore potential solutions which could have lasting impacts on how American universities approach education and think about student success.

If you have specific questions regarding the ABC project at UCR, please contact:

Kimberly Villanueva
Interim Director, Strategic Project Management
kimberly.villanueva@ucr.edu