AN ANALYSIS OF THE EFFECTS OF RESPONSIBILITY CENTER MANAGEMENT ON COSTS AT TWO PUBLIC RESEARCH UNIVERSITIES IN THE UNITED STATES: A SYNTHETIC CONTROL APPROACH

Abstract

This study examines the effect of responsibility center management (RCM), a decentralized budget model, on total operating costs at the University of New Hampshire (UNH) and the University of Arizona (UofA). Both universities in the study implemented RCM with the primary goal of controlling costs, among other goals. To address the research question, this study draws from extant literature on RCM and higher education cost and is theoretically framed using the principal-agent theory and the revenue theory of cost. The synthetic control method (SCM) – an econometric technique used to estimate the causal effects of policies, programs, interventions, and idiosyncratic events – is employed to conduct the analysis. The main findings of the study indicate that RCM positively impacted total operating costs at UNH and the UofA. However, with regard to UNH, further analysis did not reveal a significant causal effect with respect to RCM’s impact on total operating costs. Additionally, as it relates to the UofA, the results revealed that RCM had a significant causal effect on total operating costs after the first year of implementation but not thereafter. The findings of this study contribute to research and practice. With regard to research, this study is the first to bridge the gap between the RCM literature and the higher education cost literature by providing empirical insight regarding RCM’s effect on total operating costs. Additionally, this study contributes to the use of theory in the RCM literature by using two theoretical frameworks to guide the inquiry. As it relates to practice, the results of this study – specifically that RCM positively impacted total operating costs – balance previous anecdotal claims regarding RCM’s utility by providing empirical insight on RCM at UNH and UofA to guide future decision-making. This study outlines several recommendations for future research to further develop empirical studies on RCM. Specifically, the study recommends the use of mixed methodologies to elucidate a fuller picture of RCM and ultimately help university leaders develop specific recommendations for policy and practice around resource allocation.