Creating a departmental contacts list

Hi there

For various nodes on my site I might need a 'University' field, so for example I can assign a contact node to a certain university.

That's easy enough by creating a new field. But once that value is chosen, in the context of a contacts node I'd want to offer the user a list of departments associated with that University to select from.

How do I do that in Drupal?

Am I better off creating a university node and having that referenced?

Apols - I think this is another query re Drupal basics.