Alex Usher had an interesting post on how universities are basically conflicted between their central authorities and the interests of the assorted disciplines that make up a university. He stresses that the actual point of a university is that it serves to advance knowledge by getting disciplines to work together to tackle problems in a manner that they would not do so independently and this means making choices in resource allocation across disciplines – even when it means deciding which disciplines are more valuable than others. He concludes” “In short, strong disciplines are necessary and important to insure academic quality. But letting them run the university is madness.”
In his discussion of universities as torn between centralized administrations and decentralized disciplines, Usher misses the best analogy for universities – federalism. Federalism is an amalgam of two or more jurisdictions, such that each participant retains some degree of local autonomy while receiving the benefits from a more centralized structure. Rather than specific disciplines, the main “regional” units in a university would more likely be faculties. Think of faculties as provinces and academic departments as municipalities. This allows for differences in approaches to teaching and research across groups of disciplines – the local autonomy – but there are also differences in the resource potential of the various faculties – just like the provinces of the Canadian federation. The degree of decentralization various across universities with larger ones often more decentralized than smaller ones.
I’m not really sure the “purpose” of a university and its central administration is to advance knowledge by getting disciplines to work together to tackle problems in a manner that they would not do so independently. I think the purpose of the university is to provide the fiscal and infrastructure framework to allow the various disciplines to work on their own and together if and when they find it advantageous to collaborate. Faculties within a university like faculty members in a department both cooperate and compete. Most interdisciplinary collaboration in my experience springs from motivated researchers who network extensively rather than internal administrative initiatives designed to bring researchers together.
The central administration provides the basic public goods such as registration of students, information infrastructure such as libraries and computer networks as well as physical infrastructure such as classrooms. That requires resources and that is where things get tricky. Some disciplines can charge more for their services than others. Some are lucrative sources of majors while others are service departments. How much of the revenue that they raise is retained within the faculty and how much is surrendered to “public goods” within the federation? How much cross-subsidization or “equalization” is there?
Moreover, it is not just about the revenues but also the costs. When deciding which disciplines are more valuable in resource terms, it is not just in terms of how much money they bring in but also what the costs are at the margin. For example, the marginal cost of an additional student in economics may be rather low compared to a lab-based discipline even if the lab-based discipline might be able to generate more revenue in the form of either tuition or research grants. In my experience, university administrators seem to be fixated on either costs or revenues but never seem to be able to being the two together in terms of the net benefit. Most of the discussions I have been involved with either argue that costs of a program are too high or that enrolment in a program is too low.
Making decisions solely on how many new majors a discipline brings in or how much outside funding can be attracted can be shortsighted if the marginal cost of the additional students is high. However, given the provincial funding models that stress per enrolled student funding, the financial direction of central administration is basically enrolment maximization and the disciplinary claims on resources are then tied to that enrolment irrespectiuve of the cost side.
I guess Alex Usher is a proponent of a stronger central authority when it comes to universities rather than more decentralization with its ensuring “madness”. I’m not sure a stronger central authority actually results in less “madness” but it's madness can cause more damage if a bad policy is imposed university-wide. I would argue that making resource allocation decisions at universities based solely on enrolment without looking at both the cost and benefits of the enrolment is not a good policy. Yet, it is the type of one-size-fits-all policy that a short-sighted central administration will often be tempted to make.
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Worthwhile Canadian Initiative 
Interesting reflection. IMO, administrators focus on gross revenue, as opposed to focusing on revenue and costs (i.e., net revenue), because it’s much much easier to do so. One student = $X in tuition and $X in provincial grant. Attributing cost, let alone measuring it, is incredibly difficult, especially if you are trying to build consensus around a “net revenue” model. Professors are your major cost. But they have multiple tasks – how much of their cost do you attribute to teaching, research and service? How much do you stick with the department or the faculty and how much gets charged to central? Administrative staff, your next major operating cost (let’s leave capital and infrastructure budgets separate for simplicity’s sake) also serve dual roles. Is the HR rep in a faculty a creature of the faculty or the central administration or both. Merely imagining the potential indirect or associated costs with program development, significant enrolment change, etc., is hard enough. Agreeing on amounts and assigning them correctly, well that’s a whole other kettle of fish. Much easier for administrators, and thus the sector, to chase revenue, hope for the best and adjust after the fact.