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?