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Efficiency Update
Hank Webber
Agenda
Provide an overview and update on Washington University’s cost savings efforts, particularly in
the central administration
National Context
Universities facing conflicting pressures:
• Reduce the rate of growth of tuition
• Reduce administrative costs
• Ensure that resources are directed to mission-specific areas
• Provide new services, many of which are very labor intensive and expensive (i.e. off-campus security, child care, career services, commercialization of research)
Washington University
Washington University is a large economic entity
– $2.5 billion total revenue
– 13,600 benefits eligible Faculty and Staff
– 14,500 enrolled students
– Over 60% of operating expenses are compensation and benefits
Washington University
The University has seen very rapid growth over the past few decades
This growth is a sign of our institutional success and is also a reflection of national growth trends in large research
universities and academic medical centers
WU – Physical Growth
2.4 2.6 3.2 4.15.7 6.52.0 2.3
3.14.0
5.66.0
0
2
4
6
8
10
12
14
1968 1978 1988 1998 2008 2014
Danforth Campus Medical Campus
GS
F (
mill
ion)
WU – Budget Growth
Millions of dollars Total University Budget
$29 $393
$2,472
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1960 1985 2014
WU – Clinical Revenue Growth
School of Medicine Clinical RevenueMillions of dollars
$2 $105
$993
$0
$200
$400
$600
$800
$1,000
1960 1985 2014
WU – Student Enrollment Growth
Total Enrolled Students
7,757
14,503
6,417
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1960 1985 2014
WU – Employment Growth
Total Faculty and Staff
1,1972,239
4,1143,242
6,065
9,579
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1960 1985 2015
Staff
Faculty
Source: NIH.gov
National Institutes of HealthBillions of dollars, 1966-2013
National Growth of “Eds and Meds”
$0.4 $1.1$3.4
$7.6
$17.8
$30.9$29.3
$0
$5
$10
$15
$20
$25
$30
$35
1960 1970 1980 1990 2000 2010 2013
Source: NSF.gov
National Science FoundationBillions of dollars, 1960-2013
National Growth of “Eds and Meds”
$0.9
$2.2 $2.3
$3.1
$4.9
$6.9$6.5
$0
$1
$2
$3
$4
$5
$6
$7
$8
1960 1970 1980 1990 2000 2010 2013
Source: Centers for Medicare & Medicaid Services
National Growth of “Eds and Meds”
Total Medical SpendingBillions of dollars, 1960-2012
$27 $75$256
$724
$1,378
$2,486
$2,800
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1960 1970 1980 1990 2000 2010 2012
1966 1970 1980 1990 2000 2010$0
$100
$200
$300
$400
$500
$600
Medicare Medicaid
Source: Centers for Medicare & Medicaid Services
2.3% 6.6%10.7%
14.1%
23.6%
25.0%
Medicare and Medicaid SpendingBillions of dollars, 1966-2010
% of Federal Budget
National Growth of “Eds and Meds”
Results of Washington University’s Growth
• We have become a much stronger academic institution over the last thirty years
– U.S. News and World Report Undergraduate ranking has gone from #24 in 1987 to #14 today
– Similar increases seen in rankings of many of our academic programs and graduate schools
• We have achieved this institutional success while maintaining strong financial stability
– Continue to have the highest credit ratings from Moody’s (Aaa) and S&P (AAA)
– Maintained budget surpluses for at least the past 20 years
– Average endowment return for the last 30 years has been 10.6%
Questions and Needs
• Our recent rapid growth does not address the question of whether the institution is operating as efficiently as possible
• Continued academic progress will require continued attention to maintaining efficiencies, and the identification of new resources to support institutional goals
Washington University Staff Size, FY04-FY14
717 1,242858
6,091
1,775
6,414
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Medical School Danforth Schools CFU & Auxes
FY04 FY14
Danforth Schools Staff Size, FY04-FY14
0
50
100
150
200
250
300
350
400
Sam Fox A&S Business Engineering Law Social Work
FY04 FY14
Sources of School Staff Growth
• School staff growth has generally followed the growth of student enrollment
• Ratio of school staff members to enrolled students has decreased from .53 in FY04 to .50 in FY14
• Significant growth in the Brown School is a result of the creation of a Master’s of Public Health program in FY10
• Increases in clinical revenue have outpaced growth in Medical School staff
– FY04: WU earned $76,000 in clinical revenue per staff person
– FY14: WU earned $155,000 in clinical revenue per staff person
New Staff Positions in CFU & Auxes, 2004-2014
32
8981.8
39.6 38.724
119.3
50.7 57.1
0
25
50
75
100
125
Sources of CFU Staff Growth
Much of the CFU staff growth over the past decade can be explained by three trends:
– Changes in organizational structure/insourcing
– Increased administrative needs in response to University growth
– Creation of new programs
Changes in Organizational Structure / Insourcing
• In 2006, the career centers of three schools centralized into a school-wide Career Center located in the CFU
• Student Union and Student Life employees were included in the CFU staff count starting in 2008
• In 2012, 32 Quadrangle Housing employees and over 60 Residential Life housekeeping staff who were previously outsourced became WU employees
Responses to University Growth
Danforth Campus Facilities: 35 new positions
– Danforth Campus has added 1.7 million square feet since 2008
– Square feet per facilities FTE has increased from 36k/FTE to 39k/FTE
Alumni & Development: 82 new positions
– Leading Together campaign launched in 2012; as of June 31, 2014, had raised $1.3B toward goal
– Donations per FTE has increased from $720,790 in FY05 to $932,950 in FY14
IS&T: 89 new positions
– Some of this growth was a response to the increasing demand for commodity IT services and a need to serve a larger campus and community
New Programs
• The Community Service Office was created in 2004
• McDonnell International Scholars Academy was created in 2005
• Danforth Center on Religion and Politics was created in 2010
• In 2006, the new Kemper Art Museum building was completed and the Museum’s programs significantly expanded
• The WU Police Department now provides off-campus policing services
Non-Mission Cost Reduction/Efficiency Efforts
Containing the growth in non-mission costs has been a priority for many years
Notable areas of effort:
• Energy
• Benefits and Compensation
• CFU Budget Reductions
• University Efficiency Initiative
Historical Energy Use by Type
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
11,000,000
12,000,000
Coal Natural Gas Fuel Oil Propane Electricity Building Area
MM
BTU
Build
ing
Area
(FT2
)
3.0% Overall Energy Increase
101% Sq. Ft. Increase
Avoided Energy Cost, 1990-2014
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
Cumulative Cost Avoidance Annual Cost Avoidance
$
$103M Cumulative
$15.7M in FY14
Benefits and Compensation
• In 2014, Employee Benefits cost WU $262M
• Cost per employee has risen 5% annually since 1999; mainly driven by increasing health care costs
• Benefit changes implemented since 2005 reduced 2014 costs by $13M
• Total costs avoided since implementation of benefit changes: $60.5M
Benefits and Compensation Cost Savings
Year Area of Benefits Plan Changed FY14 Savings
2005 Dental coverage $ .04M
2006 Tuition benefit, retirement $ 4.6M
2007 Retirement, tuition eligibility $ 1.4M
2009Stop-loss level, retirement, life insurance coverage $ 2.3M
2010 Coverage for partners, stop-loss level $ 1.2M
2013 Self insure stop-loss premiums $ 1.3M
2014 Drug formulary, HSA vendor, RMSA plan $ 2.0M
Total: $ 12.9M
Budget Reductions
• From FY10 to FY14, we have made $12M in budget reductions in the CFU
• Schools have also made significant budget reductions, including a recent reduction of 15 positions in the Law School
CFU Budget Reductions
FY15 and beyond: Committed to holding central administrative expense growth to 4% (vs. historic 6% growth)
University Efficiency Initiative
Hired Huron Consulting Group at beginning of 2013 calendar year to provide a high-level assessment and to identify savings opportunities in 4 areas:
– Facilities
– Procurement
– Research Administration
– Organization of CFU support services
These represent 4 of the 5 areas of greatest savings at peer institutions (excluded IT because in transition period)
Phase 1 Assessment Goals
• Identify ways to reduce operating costs, increase productivity and identify work that can be eliminated
• Identify $5M to $10M in savings in the CFU and $10M to $20M in savings in the schools to redeploy
• Implement ideas that provide the greatest possible financial impact while maintaining or strengthening the level of core services
What We Learned
• Washington University is a very well-run university. We offer high quality services to our community at costs that are generally equal to or below our peers
• There are areas of opportunities to improve administrative efficiency
• There is little “low-hanging fruit”
• The challenge is to go from good to great in Facilities, Procurement, Research Administration, and Administrative Services
• Current university culture is nervous about idea of further centralization
Achieved Savings
Procurement $ 7.5M
Facilities $ 4.4M
Shared Services $ .1M
Research Administration $ .1M
Total Savings $12.1M
Project completed, savings achieved
Achieved Savings – Examples
• $1.3M savings in year 1 from consolidated custodial contract
• $1.1M savings from pharmaceutical rebates
• $1M savings from renegotiated office supplies contract
• $1.2M savings from new specialty drug distribution contract
• $900k savings from Dell desktop and laptop computers contract
• $712k savings from energy projects
• $194k savings from shared services pilots in Medical School and Student Services
Prospective and Potential Savings
Prospective Potential
Procurement $ .4M $ .0M
Facilities $ 4.5M $ .0M
Shared Services $ .4M $ .9M
Research Administration $ .0M $ 1.0M
Other $ .7M $ .0M
Total Savings $ 5.9M $ 1.9M
Prospective: Decisions made, not yet implemented/savings not yet realized
Potential: Early in process; savings represent rough estimate of potential
Prospective Savings – Examples
• $1.1M from operational improvements in Danforth facilities
• $1.7M from energy savings initiatives
• $680k savings from closing Ovations and DC programs
• $400k savings from CFU shared service center
• $360k savings from expansion of prompt pay discount program
• $324k savings from custodial cost avoidance at Medical School
Distribution of Savings
Achieved Prospective Potential Total
CFU & Auxes $ 2.7M $ 3.7M - $ 6.5M
Danforth Schools $ .8M - $ .3M $ 1.1M
WUSM $ 8.6M $ 2.1M $ 1.6M $12.4M
Total Savings $12.1M $ 5.9M $ 1.9M $20.0M
Implementation Costs
• We estimate that these efforts will cost approximately $9M in one-time costs and $0.5M in ongoing costs to implement
• Implementation costs are primarily related to energy initiatives and new technology systems
Total Projected Annual Cost Savings, FY16
Benefits $ 12.9M
Energy $ 15.7M
CFU Budget Cuts $ 11.8M
Efficiency Initiative $ 20.0M
Total Savings $ 60.4M
Next Steps
• Complete Phase 1 of the Efficiency Initiative
– Implement and realize all prospective and potential savings
• Take another major look at potential cost savings from additional energy initiatives
• Create greater efficiencies in commodity IT
Other Issues
• How does one increase efficiencies while respecting existing culture and ensuring high employee morale/engagement?
• Should the University undergo a more significant reorganization to achieve greater efficiencies?
• Should we hire a small group of permanent staff to work on constantly improving operational efficiency?
• To what degree can more efficient shared service centers be implemented within the University’s existing culture?