Planning, Budgeting and Forecasting Assessment · Planning, Budgeting and Forecasting Assessment. November 2014 . Corey Saunders, Director, Risk Advisory Services . Josh LaSov, Business

Planning, Budgeting and Forecasting Assessment

November 2014

Corey Saunders, Director, Risk Advisory Services Josh LaSov, Business Analytics Practice Leader West Region

One Union Square, Suite 1100

600 University Street Seattle, WA 98101

Planning, Budgeting and Forecasting Assessment Central Washington University

Table of Contents

Project Background, Objectives and Approach ..................................................................... 1 Project Background and Objectives ........................................................................................................ 1 Project Approach ..................................................................................................................................... 1

Executive Summary - Macro .................................................................................................... 2 Key Theme: Strategic Maturity ................................................................................................................ 2 Maturity Results Business Planning/Decision Support ......................................................................... 3 Assessment Results Improvement Needed ......................................................................................... 3

Key Findings - Summarized ..................................................................................................... 4 Key Findings ............................................................................................................................................ 4

Enrollment Model ...................................................................................................................... 6 Validation and Optimization Approach .................................................................................................... 6

Tuition Model............................................................................................................................. 6 Validation and Optimization Approach .................................................................................................... 6 Findings and Recommendations ............................................................................................................. 7 Accuracy and Financial Impact of Manual Entries ................................................................................... 8 Accuracy and Financial Impact of Waivers on Projected Revenue ......................................................... 8

Benchmarking ........................................................................................................................... 9 Triangulated Target Setting ..................................................................................................................... 9

Athletics ..................................................................................................................................... 9 Athletic Metrics ........................................................................................................................................ 9 Athletics Comparable Universities ........................................................................................................... 9 Average Salary per Head Coach ........................................................................................................... 10 Average Athletic Aid per Student Athlete .............................................................................................. 11 Recruiting Expense ............................................................................................................................... 11 Team Athletic Revenue ......................................................................................................................... 12 Total Expenses ...................................................................................................................................... 12

Facilities .................................................................................................................................. 13 Facilities Metrics .................................................................................................................................... 13 Facilities Comparable Universities ........................................................................................................ 13 Total Custodial Cost, per GSF and per Student .................................................................................... 14 Total Energy Cost, per GSF and per Student (including purchased utilities) ........................................ 14 Total Purchased Utilities, per GSF and per Student .............................................................................. 15 Total Maintenance Cost and FTEs ........................................................................................................ 15 Total Maintenance cost, per GSF and per Student ............................................................................... 16 Grounds In-House Staffing FTEs and Total Cost per Student .............................................................. 16 Total Grounds Labor and Non-Labor Cost per Acre .............................................................................. 17


Development ........................................................................................................................... 17 Development Metrics ............................................................................................................................. 17 Private Support Raised .......................................................................................................................... 18 Development Metrics ............................................................................................................................. 19 Campaign Goals .................................................................................................................................... 19 Endowment Goals ................................................................................................................................. 20 Funding Sources ................................................................................................................................... 20

Financial Services ................................................................................................................... 21 Financial Services Metrics ..................................................................................................................... 21 Finance Function: FTEs and Cost per FTE ........................................................................................... 22 Payroll Function: FTEs and Cost per FTE ............................................................................................. 22 Treasury Function: FTEs ....................................................................................................................... 23 AP Function: FTEs and Cost per FTE ................................................................................................... 23 AP: Percent of Payments Made by EFT/Wire or Check ........................................................................ 24 AP: Percent of Invoices Tied to a Purchase Order and Average Experience of AP Personnel ............ 24 AP: Cycle Time in Days and Direct AP Costs per Invoice Processed ................................................... 25 AR: Receipts Processed per FTE and Cycle Time from Receipt to Payment ....................................... 25 AR: Percent of Electronic vs. Manual Receipt of Funds and Costs to Create a Bill .............................. 26 Working Capital Analysis ....................................................................................................................... 26

Human Resources .................................................................................................................. 27 Human Resource Metrics ...................................................................................................................... 27 HR FTE and HR to Employee Ratio ...................................................................................................... 27 HR Expenses ......................................................................................................................................... 28 Number of Positions Filled and Average Tenure ................................................................................... 28 Annual Turnover and Average Tenure .................................................................................................. 29

Library ..................................................................................................................................... 30 Library Metrics ....................................................................................................................................... 30 Library Comparable Universities ........................................................................................................... 30 Library Professional FTEs and Salaries per Library FTE ...................................................................... 31 Number of Collections and Total Cost per Collection ............................................................................ 31 Annual Collections Change and Annual e-books Change ..................................................................... 32 Total Library Cost per Student and Average Weekly Gate Change from PY ........................................ 32

Financial Position ................................................................................................................... 33 Financial Position Metrics ...................................................................................................................... 33 Financial Position Comparable Universities .......................................................................................... 33 Enrollment and Selectivity ..................................................................................................................... 34 Freshman Retention and Tuition per Student ........................................................................................ 34 Instruction Expense per Student and Average Gifts per Student .......................................................... 35 Total Debt and Debt Service Coverage ................................................................................................. 35 Days Cash on Hand and Expendable Resources to Operations ........................................................... 36 Operating Revenue and Operating Cash Flow Margin .......................................................................... 36 Reliance on Tuition and Auxiliary Revenue and Reliance on State Appropriations .............................. 37

RCM Model .............................................................................................................................. 37 Review and Optimization Approach ...................................................................................................... 37 Findings and Recommendations ........................................................................................................... 38


Appendices ............................................................................................................................. 42 Benchmarking Sources ......................................................................................................................... 42 Athletics Data ........................................................................................................................................ 42 Facilities Data ........................................................................................................................................ 43 Financial Services ................................................................................................................................. 45 Human Resources ................................................................................................................................. 47 Library .................................................................................................................................................... 48 Financial Position .................................................................................................................................. 49 McGladrey Contact Information ............................................................................................................. 50


Project Background, Objectives and Approach Project Background and Objectives

Based on the results of Central Washington Universitys (CWU or the University) risk assessment, the top risks facing the University are around planning for the future, specifically related to declining revenues (i.e., funding cuts).

CWU has requested McGladrey, in support of CWU Advisory Services, to review their planning, budgeting and forecasting processes in order to identify areas of opportunity for planning best practices, process improvement, automation, and cost optimization, where possible. McGladreys review was guided by the financial, political and social responsibilities facing the University.

From July through October 2014, McGladrey worked with CWU to perform the following:

1. Validation and optimization of the enrollment forecasting model

2. Validation and optimization of the tuition forecasting model

3. Benchmarking University support functions

4. Responsibility-centered management model review and suggestions for optimization

Project Approach

In order to achieve the objectives, we performed the following tasks:

Interviewed key business stakeholders:

VP-Finance & Business Services/CFO

Chief Human Resources Officer

VP-Operations

Dean of Libraries

Interim Executive Officer of Alumni Relations

Interim AVP of Finance & Business Auxiliaries

AVP-Enrollment Management

AVP-Undergraduate Studies

Director-Budget & Budget Planning

Director-Research, Evaluation & Assessment

Director-Student Financial Services

Manager-Administrative Services/Facilities Management Department

Academic Finance Manager

Budget Analyst

Reviewed the enrollment and tuition models and validated the output numbers

Reviewed the Responsibility Centered Management (RCM) model with multiple CWU stakeholders

Reviewed the RCM model with RPM associates

Identified key metrics for each support function under scope

Gathered benchmarks for the identified metrics and prepared a variance analysis

2014 McGladrey LLP. All Rights Reserved. Page 1


Executive Summary - Macro Key Theme: Strategic Maturity

CWU has made great strides to achieve current state results. We found that CWU is thinking and acting in progressive ways. The theme of this report is that CWU is moving along the maturity scale in a number of process areas. Maturity in processes is similar to learning a language, you have to start with the alphabet, then words, etc. Similarly, in a number of newer processes for CWU, great progress has been made to mature those processes thoughtfully in a short amount of time. A lot of work is still ahead, but the foundation is being properly set.

Business Planning: No central business planning department currently exists. Business planning tasks are divided amongst a number of individuals and functions. Best practice is to have a centralized function that owns the business planning (i.e., budgeting, forecasting), financial and operational analytics, and performance management (i.e., key performance indicators (KPIs), benchmarking) functions. Hyperion will help link the various departments/individuals, but a dedicated department would help drive Hyperions value into the process.

RCM Model: The RCM model appears to be evolving nicely. Developing budget templates for the direct and indirect costs using cost centers will be critical in promoting accountability and improved results around the organization.

Budgeting Process: Designing and executing a timely budgeting process involves considerable project management and a formal budget schedule. CWU should work towards developing a thoughtful project plan, designing clear templates and providing adequate training for stakeholders on the process and Hyperion. CWU needs to own Hyperion and not rely on third parties to run the process. Not owning the process is where we often see implementations fail.

Performance Management/Benchmarks: Implementing a standard performance management process (i.e., utilizing dashboards and/or scorecards) for each department will help improve accountability and buy-in for this process. Additionally, we recommend focusing on productivity and utilization metrics to streamline department operations. Focusing solely on full-time equivalent (FTE) employees and cost per FTE metrics can be misleading.



Maturity Results Business Planning/Decision Support

Assessment Results Improvement Needed

Objective: To become a strategic business partner.

Transactional Focus Keeping the light on Reporting and compliance Limited value-add metrics/ reporting/forecasting No Key Performance Indicators (KPIs)

Process Focus Basic reporting Process variance and

risk minimized Leveraging technology Moderate ability to

dissect financial and operational results

Minimal KPIs in-place Disconnected planning

Business Partner Tracks and owns cost

center reporting Tracks and owns

performance management Involved in certain aspects

of strategic planning

Strategic Business Partner Strategic level decision

support Objective decision making

based on data Forward looking/strong

strategic planning process Strategic analytical focus

Productivity

Qua

lity The maturity model maps the development of

CWU in becoming a strategic business partner which utilizes the best practices of leading

organizations

Current State

Key Areas of Assessment Transactional Focus Process and Risk Focus Business PartnerStrategic BusinessPartner

Forecasting

Budgeting

Performance Management (benchmarking)

CWU Interviewee Range McGladrey Assessment



Key Findings - Summarized Key Findings

Enrollment Model

A limited forecasting model is in place at CWU. The current process is not documented (uses quarterly mini-stats for tracking enrollment, which are documented by OE), making the process difficult to replicate.

Tuition Model

Manual entry of census enrollment numbers into the tuition forecast model is subject to human error.

Planning is performed annually while operations are quarterly planning for revenue variances by quarter is recommended to help match spending with activity levels (Hyperion will help eliminate this issue with implementation of monthly planning).

Uncollectible amounts are not included in forecast tuition revenue number.

Athletic Benchmarks

Overall athletic metrics were aligned or on the lower end of the GNAC. Zero-based budgeting is recommended where each year all expenses have to be explained instead of starting with last years costs (incremental budgeting).

Facilities Benchmarks

Total custodial cost per student is above peer group average (2013: $224 vs. $205).

Energy costs are below peer group average, indicating strong energy expense management.

In-house maintenance staff full-time equivalent (FTE) employees exceeds peer group average (2013: 42 vs. 34).

Grounds cost per student (2013: $90 vs. $57) and FTE count (2013: 18 vs. 13) exceeds peer group average.

Development Benchmarks

CASE benchmarks average for Masters classified universities of all sizes is $49M and median is $40M. CWU is in the same category as 57.1% of other Masters classified universities for endowment value. CWUs endowment at $23M is lower than the mean and median peer group average.

The Private Support Raised of $2.7M in FY14 is slightly below the $6.7M CASE average and $5.3M median for Masters classified universities.

Financial Services Benchmarks

The entire finance group FTE count is lower than the peer group average (2014: 23 vs. 38). Total cost of the finance group per FTE is also lower than peer group average (2014: $71k vs. $126k).

Payroll FTEs are over double the peer group average (2014: 5 vs. 2), while total payroll department costs per FTE are lower than peer group average (2014: $66k vs. $118k).



Treasury FTEs are above the peer group average (2014: 3 vs. 1).

Accounts Payable (AP) has a lower FTE count than peer group average (2014: 3 vs. 6); however, total department costs per FTE are higher than peer group average (2014: $86k vs. $62k).

AP is a manual process with 99% of payments made by check which drives up the direct cost per invoice above the peer group average.

Days payable outstanding is well below the peer group average, indicating an opportunity to slow payments.

Days sales outstanding is 4 days in excess of top performers. At $400k per day, an opportunity to optimize working capital exists equaling $1.6M ($400k x 4 days)

Human Resource (HR) Benchmarks

HR FTE count is below the peer group average (2013: 11 vs. 18).

Total department expenses exceeded the peer group average by $1.4M in 2014 and $1.1M in 2013.

The average time to fill a position in 2013 took 94 days vs. the peer group average of 39.

Voluntary and involuntary annual turnover is well below the peer group average.

Library Benchmarks

Total cost per collection is well below peer group average (2013: $1.29 vs. $3.76).

Average weekly gate change from prior year is below peer group average for the last two years (2013: 1.1% vs. 5%).

Financial Position Benchmarks

A strong financial position is especially important in a sector with a negative outlook1 . Organizations with a strong financial position look more attractive for partnerships and typically attract more resources to take advantage of strategic opportunities.

Primary selectivity rate is well above average (2013: 80% vs. 68%).

Freshman retention rate is below peer group average (2013: 76% vs. 79%).

Instruction expense per student is well below peer group average (2013: $12,551 vs. $14,767).

Expendable resources to operations is well below peer group average (2013: .48 vs .71).

RCM Model

Planning is performed annually while operations follow academic quarters; investments in Hyperion software will allow for monthly budgeting, which could help eliminate this issue.

Top-down budgeting makes getting employee buy-in to the process difficult.

No variability factor is built into indirect costs.

1 Moodys 2014 outlook industry remains negative.



Routine capital from the State is included as a source of cash.

Carry Forward funds are being used in 2015 to fund operating expenses, raising longer-term sustainability concerns.

The current allocation method does not fully include the strategic plan.

Performance management is improving. Each function has varying degrees of granularity/quality.

The budget process is not conducive to effective performance management. CWU has plans for Hyperion and OE to improve budgeting.

Specific details at the cost center level for direct and indirect expenses will have to be further defined as the budget process and templates are developed with Hyperion software.

Enrollment Model Validation and Optimization Approach

In order to validate and optimize the enrollment model, McGladrey worked with John Swiney, AVP for Enrollment Management, to develop an enrollment forecasting model by quarter. Once developed, McGladrey worked with John to tie out the assumption numbers to internal and external sources. The forecast numbers in the model tie to Johns numbers provided for planning purposes. CWU now owns the model.

Tuition Model Validation and Optimization Approach

In order to validate and optimize the tuition model, McGladrey performed the following:

1. Accuracy and financial impact analysis of source data into model

2. Accuracy and financial impact analysis of waivers on projected revenue

3. Interviews with:

Shelly Baird, Director-Budget & Budget Development

Adrian Naranjo, Director-Student & Financial Services



Findings and Recommendations

Finding Detail Recommendation Impacts

1. Manual entry of census enrollment numbers into the tuition forecast model is subject to human error

In order to update the forecast model, three quarters of historical data is manually entered into an Excel spreadsheet. In order to validate the model, McGladrey audited the input data for the FY14 model and found errors where the numbers did not agree with the source data. The result was understatement of planned revenue by $150k.

With the upcoming implementation of Hyperion, McGladrey recommends that CWU has the tuition forecast model built into the software and load the appropriate data automatically. This will eliminate the risk of human error and eliminate the time spent manually entering the data.

Overstated or understated revenue forecasts

Overstated or understated students for each credit hour category

2. Planning is performed annually while operations are quarterly

The current tuition forecasting model is an annual model which is not aligned with quarterly operations.

As discussed in the enrollment model and RCM model sections, McGladrey recommends planning more granularly by planning each quarter. The enrollment model has been optimized to plan for students by quarter (fall, winter, spring). Since the revenue projections from the tuition model will ultimately go into the RCM budget, we believe seeing the revenue by quarter is strategic for planning purposes. As each college prepares their budgets, seeing the revenue trend by quarter will help plan for variable costs.

Reduced insight into revenue by quarter, which limits analysis of variable costs that could be optimized during quarters with lower revenue.

3. Uncollectible amounts are not included in forecast tuition revenue number

The forecast tuition revenue number does not take into account uncollectible amounts, potentially overstating the projected revenue number that will ultimately go into the RCM model and each colleges budget.

Calculate 3-year average historical bad debt percentage and apply to forecast tuition revenue number to determine a net number.

Overstated revenue for planning purposes.



Accuracy and Financial Impact of Manual Entries

The net revenue number in FY14 was $150k understated due to manual entry errors. Understating revenue is conservative and as long as the variance is not material, this is not a worrisome issue.

Accuracy and Financial Impact of Waivers on Projected Revenue

The net numbers in FY13 and FY14 created an immaterial understated revenue, which is conservative. In both years, the variance was less than 2.5% from actual.

Credits RUG NRUG RG NRGTuition $ Variance Tuition $ Variance Tuition $ Variance

25 + (2) - - - 11,356 (18,927) 30,089 - 13,220 - (18,927) 24 2 (0) - - 10,688 17,813 28,275 (9,425) 12,431 - 8,388 23 - - - - 10,020 - 26,461 - 11,642 - - 22 1 - - - 9,352 9,352 24,647 - 10,853 - 9,352 21 0 (0) - - 8,684 2,895 22,833 (7,611) 10,064 - (4,716) 20 (1) (0) - - 8,016 (8,016) 21,020 (7,007) 9,275 - (15,023) 19 (0) - - - 7,348 (2,449) 19,206 - 8,486 - (2,449) 18 (12) (1) - - 6,680 (80,160) 17,392 (17,392) 7,697 - (97,552) 17 (10) (1) - - 6,680 (66,800) 17,392 (17,392) 7,697 - (84,192) 16 (12) (1) 0 - 6,680 (82,387) 17,392 (11,595) 7,697 2,566 (91,416) 15 (15) (1) (0) (0) 6,680 (102,427) 17,392 (11,595) 7,697 (2,566) (116,587) 14 (5) 1 - - 6,680 (31,173) 17,392 17,392 7,697 - (13,781) 13 1 1 - - 6,680 8,907 17,392 11,595 7,697 - 20,501 12 3 1 (0) - 6,680 20,040 17,392 11,595 7,697 (2,566) 29,069 11 2 0 0 0 6,680 15,587 17,392 5,797 7,697 2,566 23,950 10 13 1 - 0 6,680 84,613 17,392 17,392 7,697 - 102,005 9 9 (1) - (0) 6,012 54,108 15,653 (10,435) 6,927 - 43,673 8 4 (0) - (0) 5,344 21,376 13,914 (4,638) 6,158 - 16,738 7 2 - (0) - 4,676 10,911 12,174 - 5,388 (1,796) 9,115 6 1 - - - 4,008 5,344 10,435 - 4,618 - 5,344 5 3 0 0 - 3,340 11,133 8,696 2,899 3,849 1,283 15,315 4 3 - - - 2,672 7,125 6,957 - 3,079 - 7,125 3 1 - - - 2,004 2,004 5,218 - 2,309 - 2,004 2 0 - 1 0 1,336 445 3,478 - 1,539 1,539 1,985 1 - - - - 1,336 - 3,478 - 1,539 - -

(11) (1) 1 (0) (120,685) (30,420) 1,026 (150,079)

Total $ Variance

Tuition $'s VarianceFY14 Student VarianceRUG NRUG RG

Budget Actual Var. Budget Actual Var.9% Waivers 6,544,000 5,999,021 544,979 6,389,000 5,166,255 1,222,745 WUE Total 1,573,711 1,520,034 53,677 1,500,000 1,634,139 (134,139) West Total 2,280,000 2,649,107 (369,107) 2,480,000 3,482,869 (1,002,869)

10,397,711 10,168,162 229,549 10,369,000 10,283,263 85,737

Green = Understated revenueRed = Overstated revenue

FY13 FY14



Benchmarking Triangulated Target Setting

McGladrey recommends its clients set targets using a triangulated approach. It is important to note external benchmarks are only one point on the triangle and equal consideration should be given to all three points before determining the best-fit target.

Athletics Athletic Metrics

For the Athletic performance metrics, McGladrey selected key ratios that drive financial performance of the Athletic department.

The following key metrics were analyzed:

Average salary per head coach

Average athletic aid per student

Recruiting expense

Mens and womens total revenue

Mens and womens total expense

Athletics Comparable Universities

For the athletics comparable universities, 11 universities were selected based on the GNAC:

Montana State University - Billings

Northwest Nazarene University

Seattle Pacific University

University of Alaska - Anchorage

Internal Targets

External BenchmarksHistorical Performance



University of Alaska - Fairbanks

Saint Martins University

Western Washington University

Western Oregon University

Humboldt State University

Dixie State College of Utah

Azusa Pacific University

Note: Benchmarks are calculated excluding CWU results. The ranking is based on all 11 above mentioned Universities and CWU. 1 is the highest ranking out of 12.

Average Salary per Head Coach

Note: Historical and comparative data provided by CWU.

Strength: Average salary per head coach is on the lower end of the GNAC average.

$49,800

$53,738

$52,129

$47,000$48,000$49,000$50,000$51,000$52,000$53,000$54,000$55,000

2013 Mean Median

Men's Team Average Salary per Head Coach

$43,954

$47,176

$41,485

$38,000$39,000$40,000$41,000$42,000$43,000$44,000$45,000$46,000$47,000$48,000

2013 Mean Median

Women's Team Average Salary per Head Coach

Rank: 7/12 Rank: 6/12



Average Athletic Aid per Student Athlete


Strength: Athletic aid per student is on the lower end of the GNAC conference.

Recruiting Expense


Strength: Recruiting expenses are on the lower end of the GNAC conference.

Rank: 9/12 Rank: 10/12

$3,898

$6,889

$5,705

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000

2013 Mean Median

Average Atheltic Aid per Male Student Athlete

$3,991

$7,306 $7,230

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000

2013 Mean Median

Average Atheltic Aid per Female Student Athlete

Rank: 7/12 Rank: 9/12

$19,971

$39,379

$20,565

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

2013 Mean Median

Men's Recruiting Expense

$13,194

$23,460

$17,508

$0

$5,000

$10,000

$15,000

$20,000

$25,000

2013 Mean Median

Women's Recruiting Expense



Team Athletic Revenue


Strength: Mens team revenue is aligned with GNAC conference.

Opportunity: Womens team revenue has room for improvement.

Total Expenses


Strength: Mens expenses are aligned with the GNAC. Womens expenses are towards the lower end which matches their position of being on the lower end of revenue for the GNAC.

Rank: 4/12 Rank: 9/12

$2,553,433 $2,610,417

$2,003,694

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

2013 Mean Median

Total Men's Team Revenue

$1,863,306

$2,215,023

$1,898,934

$1,600,000

$1,700,000

$1,800,000

$1,900,000

$2,000,000

$2,100,000

$2,200,000

$2,300,000

2013 Mean Median

Total Women's Team Revenue

Rank: 5/12 Rank: 9/12

$2,472,608 $2,523,950

$1,995,351

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

2013 Mean Median

Total Men's Expenses

$1,837,917

$2,191,457

$1,898,921

$1,600,000

$1,700,000

$1,800,000

$1,900,000

$2,000,000

$2,100,000

$2,200,000

$2,300,000

2013 Mean Median

Total Women's Expenses



Facilities Facilities Metrics

For the facilities benchmarks, McGladrey selected key financial and operational ratios that drive facilities performance, focusing on custodial, energy, maintenance and grounds costs. For the comparables, we collected data from the Association of Higher Education Facilities Officers.


Total custodial cost per gross square foot (GSF)

Total custodial cost per student

Total energy cost per GSF (including purchased utilities)

Total energy cost per student (including purchased utilities)

Total purchased utilities energy per GSF

Total purchased utilities per student

Total maintenance cost

Maintenance in-house staffing FTEs

Total maintenance cost per GSF

Total maintenance cost per student

Grounds in-house staffing FTEs

Total grounds cost per student

Total grounds labor cost per acre

Total grounds non-labor cost per acre

Facilities Comparable Universities

For the facilities comparable universities, McGladrey selected 5 universities. These 5 were selected based on the State of Washingtons Office of Financial Management comparable institution schedule provided by CWU and facilities recommendations:

California State University Chico


North Carolina Central University

Sonoma State University

Western Washington University

Note: Benchmarks are calculated excluding CWU results. Top performers is computed as a stronger than mean metric.



Total Custodial Cost, per GSF and per Student

Note: Historical data provided by Mickey Parker and comparables sourced from APPA.

Strength: Total custodial cost per GSF is aligned with peer best practice indicating effective use of custodial resources.

Opportunity: Total custodial cost per student is in excess of peer average, indicating potential opportunity for custodial optimization (people, process and technology improvements).

Total Energy Cost, per GSF and per Student (including purchased utilities)


Strength: Total energy cost per GSF and student is below peer average indicating strong energy expense management. This may also be attributable to less expensive electricity rates in Washington as compared to peers in other states such as California.

Top performers: $1.22

Mean: $1.34

Top performers: $171

Mean: $205

$1.33 $1.33

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

2012 2013

Total Custodial Cost per GSF

$234

$224

$150

$160

$170

$180

$190

$200

$210

$220

$230

$240

2012 2013

Total Custodial Cost per Student


Mean: $2.66


Mean: $409

$1.59 $1.56

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2012 2013

Total Energy Cost per GSF (including purchased utilities)

$279 $262

$0$50

$100$150$200$250$300$350$400$450

2012 2013

Total Energy Cost per Student (including purchased utilities)



Total Purchased Utilities, per GSF and per Student


Strength: Total purchased utilities per GSF and student is below peer average indicating strong energy expense management.

Total Maintenance Cost and FTEs


Opportunity: While total maintenance costs in 2013 only increased slightly, they are now towards the top end of the peer average. McGladrey recommends tracking the progression of this expense.

Opportunity: CWU has more in-house maintenance FTEs than the peer average, which could help explain why total maintenance costs exceed the peer group.


Mean: $2.34


Mean: $352

$1.38 $1.35

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2012 2013

Total Purchase Utilities per GSF

$242

$227

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2012 2013

Total Purchased Utilities per Student

Top performers: $2,645

Mean: $3,241

Top performers: 28

Mean: 34

$3,237

$3,311

$3,200

$3,220

$3,240

$3,260

$3,280

$3,300

$3,320

2012 2013

Total Maintenance Cost ($000's)

42 42

2527293133353739414345

2012 2013

Maintenance in-house staffing FTEs



Total Maintenance cost, per GSF and per Student


Strength: Total maintenance costs per GSF and student are below peer average, indicating strong maintenance expense management.

Grounds In-House Staffing FTEs and Total Cost per Student


Opportunity: Grounds in-house staffing FTEs is slightly above the peer average, indicating an opportunity to review headcount/personnel utilization.

Opportunity: Total grounds cost per student is well above peer average. This is driven by CWU having the second largest campus in the peer group.


Mean: $2.23


Mean: $351

$1.03 $1.01

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2012 2013

Total Maintenance Cost per GSF

$300 $294

$150

$200

$250

$300

$350

$400

2012 2013

Total Maintenance Cost per Student



Total Grounds Labor and Non-Labor Cost per Acre


Strength: Both grounds labor and non-labor costs per acre are aligned with the peer group, indicating solid grounds cost management.

Development Development Metrics

For the development benchmarks, McGladrey selected key ratios that drive performance within the development function. Pursuant to working with development, no corresponding historical metrics were tracked. McGladrey worked with development to help identify key development metrics that we recommend tracking going forward, as the department matures. McGladrey was able to pull select development data from CASE, but notes most data was not publicly available.

The following key metrics are recommended:

Number of significant face to face contacts by employee (i.e., how many strong relationships that each employee is regularly communicating with)

Number of total proposals (i.e., one-time gifts)

Number of annual gift proposals (i.e., annual/recurring gifts)

Number of major gift proposals (i.e., gift proposals in excess of a agreed-upon threshold)

Number of planned gift proposals (i.e., bequests)

Dollars committed

Dollars received

Travel expenses/dollars received

Salaries/dollars received

Total department costs/dollars received

Average salaries per employee

Top performer: $3,296

Mean: $3,651

Top performer: $310

Mean: $402

$3,289

$3,589

$3,100$3,150$3,200$3,250$3,300$3,350$3,400$3,450$3,500$3,550$3,600$3,650

2012 2013

Total Grounds Labor Cost per Acre

$415

$381

$300

$320

$340

$360

$380

$400

$420

$440

2012 2013

Total Grounds Non-Labor Cost per Acre



As development begins to plan for the next fiscal year, considering the forecast change in rate of giving to education will be instrumental in planning a realistic budget.

Private Support Raised

The Private Support Raised of $2.7M in FY14 is slightly below the $6.7M CASE average and $5.3M median for Masters classified universities. $2.7M is aligned with the average community college.



Development Metrics

CWU has plans to begin tracking face to face contacts.

Campaign Goals

CWUs first ever campaign was in 2007-2010 for $18M. This is slightly below the mean for community colleges and significantly below the $92M average and $100M median for Masters classified universities.



Endowment Goals

Note: Peer group index excludes CWU from average and median calculation.

CASE benchmarks average for Masters classified universities of all sizes is $49M and median is $40M. CWU is in the same category as 57.1% of other masters classified universities for endowment value. CWUs endowment at $23M is lower than the mean and median peer group average.

Funding Sources



Financial Services Financial Services Metrics

For the Financial Services metrics, McGladrey selected key financial and operational ratios that drive performance focusing on accounts payable (AP) and accounts receivable (AR). For the comparables, we collected data from the AP Network, a database containing cross industry benchmarks primarily consisting of for-profit organizations with 7-12% of population being higher education (which includes for-profit and not-for-profit). For FTE and costs per FTE metrics, we sourced benchmarks from APQC for higher education organizations.

The following AP key metrics were analyzed:

Percent of payments made by electronic funds transfer (EFT) or wire

Percent of disbursements made via check

Percent of invoices tied to a purchase order

Cycle time in days from receipt to payment for an invoice

Direct AP costs per invoice processed

Average experience of AP personnel

The following AR key metrics were analyzed:

Receipts processed/FTE

Cycle time from transmission of invoice to receipt of payment

Percentage of electronic vs. manual receipt of funds

Cost to create a bill

The following FTE and Costs per FTE key metrics were analyzed:

Finance function FTEs

Total cost to perform Finance function per FTE

Payroll function FTEs

Total cost to perform Payroll function per FTE

Payroll function FTEs

Total cost to perform Payroll function per FTE

Accounts Payable FTEs

Total cost to perform Accounts Payable per FTE

Treasury FTEs



Finance Function: FTEs and Cost per FTE

Note: Historical data provided by Joel Klucking.

Strength: Finance FTEs and cost per Finance FTE are both below the industry average. We recommend focusing on operational efficiency/utilization metrics which are analyzed on subsequent pages.

Payroll Function: FTEs and Cost per FTE


Strength: Payroll FTEs are above the industry average while total cost per Payroll FTE is below industry average.

$69,622 $68,290 $71,792

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

2012 2013 2014

Total Cost to Perform Finance Function per FTE

20.023.0 23.0

0

5

10

15

20

25

30

35

40

2012 2013 2014

Finance Function FTEs

Top performers: 17

Mean: 38

Top performers: $103k

Mean: $126k

$55,690 $56,850

$66,368

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2012 2013 2014

Total Cost to Perform Payroll Function per FTE4.8 4.8 4.8

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2012 2013 2014

Payroll Function FTEs

Top performers: 1

Mean: 2


Mean: $118k



Treasury Function: FTEs


Opportunity: Treasury FTEs are above the industry average. Further analysis is recommended around utilization in order to determine if the department is over staffed.

AP Function: FTEs and Cost per FTE


Strength: AP FTE count is below industry average.

Opportunity: AP expenses per FTE are above industry average. As shown on a later page, so are costs to process an invoice.

2.0

3.0 3.0

0

0.5

1

1.5

2

2.5

3

3.5

2012 2013 2014

Treasury Function FTEs

Top performers: 0.7

Mean: 0.9

$86,443 $86,443 $86,443

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

2012 2013 2014

Total Cost to Perform AP Function per FTE

3.0 3.0 3.0

0

1

2

3

4

5

6

2012 2013 2014

AP Function FTEs

Top performers: 2

Mean: 6


Mean: $62k



AP: Percent of Payments Made by EFT/Wire or Check


Opportunity: Best practice in modern AP departments is to transmit payments via EFT or wire. EFT and wire inherently have more controls, are less prone to human error, and less expensive than manual processing of physical checks.

AP: Percent of Invoices Tied to a Purchase Order and Average Experience of AP Personnel


Strength: CWU outperforms the peer average for ensuring invoices paid are tied to a purchase order. This indicates strong internal controls.

Opportunity: Average years of experience of CWU AP personnel is slightly below the peer average. Ensuring the department is run by an expert is key.

99% 99% 99%

0%

20%

40%

60%

80%

100%

120%

2011 2012 2013

Percent of Payments Made by Check

1% 1% 1%0%

10%

20%

30%

40%

50%

60%

70%

2011 2012 2013

Percent of Payments Made by EFT or Wire

Top performers: 60%

Mean: 25%

Top performers: 30%

Mean: 67%

83%85%

88%

50%

55%

60%

65%

70%

75%

80%

85%

90%

2011 2012 2013

Percent of Invoices Tied to a Purchase Order

Top performers: 80%

Mean: 55%

Top performers: 15

Mean: 10

98

7

02468

101214161820

2011 2012 2013

Average Experience of AP Personnel (years)



AP: Cycle Time in Days and Direct AP Costs per Invoice Processed


Opportunity: CWU is paying vendors more quickly than its peers, indicating a strain on working capital. Extending payments is highly recommended.

Opportunity: AP costs per invoice processed are higher than peer average. Part of the explanation can be traced back to the use of manual checks.

AR: Receipts Processed per FTE and Cycle Time from Receipt to Payment

Note: No historical data was available to be provided.

Key Metrics: McGladrey recommends CWU begin tracking the following key AR department metrics such as receipts processed per FTE to better understand productivity of department, as well as cycle time to understand working capital impacts. There is no right number of FTEs, instead organizations track the receipts processed per FTE since it also combines productivity.

68

0

5

10

15

20

25

30

2011 2012

Days Payable Outstanding

Top performers: 20

Mean: 10


Mean: $5.00

$8.37 $7.98 $7.61

$0.00$2.00$4.00$6.00$8.00

$10.00$12.00$14.00$16.00$18.00$20.00

2011 2012 2013

Direct AP Costs per Invoice Processed

1,838

11,394

49,755

0

10000

20000

30000

40000

50000

60000

Bottom Performers Median Top Performers

Receipts Processed/FTE

60

40

22

0

10

20

30

40

50

60

70


Cycle Time from Receipt to Payment (days)



AR: Percent of Electronic vs. Manual Receipt of Funds and Costs to Create a Bill

Note: No historical data was available to be provided.

Key Metrics: McGladrey recommends CWU begin tracking the following key AR department metrics. Electronic receipt of funds is more secure and less expensive than manual receipt. Costs to create a bill measures productivity and departmental expense. There is no right number of FTEs; instead organizations track the cost to create a bill since it also combines productivity.

Working Capital Analysis

Opportunity: Improving CWUs AR and AP days to align with peer averages would create an estimated additional $5.7M to $12.2M in working capital. A focus on setting targets and tracking performance for controllable AR and AP accounts is recommended.

0%

48%

95%

0%10%20%30%40%50%60%70%80%90%

100%


Percentage of Electronic vs. Manual Receipt of Funds

$46.10

$6.87

$0.97$0.00$5.00

$10.00$15.00$20.00$25.00$30.00$35.00$40.00$45.00$50.00


Costs to Create a Bill

0 5 10 15 200 -$ 2,665.8$ 5,331.6$ 7,997.3$ 10,663.1$ 1 399.7$ 3,065.5$ 5,731.3$ 8,397.1$ 11,062.8$ 2 799.4$ 3,465.2$ 6,131.0$ 8,796.8$ 11,462.6$ 4 1,598.9$ 4,264.7$ 6,930.5$ 9,596.2$ 12,262.0$ 6 2,398.3$ 5,064.1$ 7,729.9$ 10,395.7$ 13,061.5$

Acco

unts

R

ecei

vabl

e (A

R)

Red

uctio

n

Accounts Payable (AP) Days ExtensionWorking Capital Sensitivity Analysis ($000's)

2012 CWU Peer Index Opportunity $ Per DayAR Balance 10,302$ DSO 26 22.0 4 399.7$ AP Balance 4,162$ DPO 8 20.0 12 533.2$

Working Capital Analysis ($000's)



Human Resources Human Resource Metrics

For the Human Resource (HR) metrics, McGladrey selected key financial and operational ratios that drive performance focusing on expense management, turnover and retention, recruiting effectiveness and compensation. For the comparables, we collected data from the Society for Human Resource Management (SHRM), a database containing cross-industry benchmarks. McGladrey used benchmarks combining for-profit and not-for-profit organizations nationwide with 1,000 to 2,499 FTEs.

The following key HR metrics/benchmarks were provided:

HR FTEs

HR to employee ratio

HR expenses

HR expense to operating expense ratio

Number of positions filled

Average employee tenure in years

Annual turnover rate

Annual involuntary turnover rate

Time to fill positions (days)

HR FTE and HR to Employee Ratio

Note: CWU data provided by Edna Comedy. Comparable data sourced from SHRM.

CWUs HR FTE count is lower than the average. While this information is informative, on subsequent pages we focus more on cost and operating results of the department (stronger measures of a department).

12 12 11

4

6

8

10

12

14

16

18

20

2012 2013 2014

HR FTE's

Mean: 18

0.83 0.84 0.79

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2012 2013 2014

HR to Employee Ratio

Mean: 1.31

HR FTEs HR to Employee Ratio



HR Expenses


Opportunity: Expenses, stand-alone, are well above the average (even with less FTEs). This indicates an opportunity to further review all the expenses incurred by the department and rationalize them. HR expense to operating ratio is aligned due to lower levels of operating expenses for the comparable organizations.

Number of Positions Filled and Average Tenure


Strength: The number of positions filled is aligned with similar size organizations.

Opportunity: CWU historically takes longer than average to fill positions, which can add to the total cost to hire.

2.1%

3.4%

3.5%

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%

2012 2013 2014

HR Expense to Operating Expense Ratio

$1,849

$3,118$3,423

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2012 2013 2014

HR Expenses ($000's)


Mean: $1,889M

Top performers: 0.2%

Mean: 3.6%

75

10494

-

20

40

60

80

100

120

2012 2013 2014

Time to Fill Positions (days)

146

210

250

0

50

100

150

200

250

300

2012 2013 2014

Number of Positions Filled

Top performers: 300

Mean: 210

Top performers: 21

Mean: 39



Annual Turnover and Average Tenure


Strength: The annual turnover rate is below the average, indicating solid employee loyalty. Average employee tenure is aligned with comparable average.


Strength: The annual voluntary and involuntary turnover rate is below the average, indicating solid employee loyalty.

7%

10% 11%

0%2%4%6%8%

10%12%14%16%18%20%

2012 2013 2014

Annual Turnover Rate

10.5 10.29.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2012 2013 2014

Average Employee Tenure

Top performers: 7%

Mean: 15%

Top performers: 12.6

Mean: 9.4

Top performers: 4%

Mean: 13%

Top performers: 1%

Mean: 7%

6%

8% 9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014

Annual Voluntary Turnover

1% 1%2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014

Annual Involuntary Turnover



Library Library Metrics

For the library benchmarks, McGladrey selected key financial and operational ratios that drive library performance focusing on head count, collections, costs, e-books and gate count. For the comparables, we collected data from the Academic Library Survey.


Library professional FTEs

Salaries per library FTE

Number of collections

Annual collections change (%)

Total library expenditures per student

Total cost per collection

Annual e-book change (%)

Average weekly gate change from prior year

Library Comparable Universities

For the library comparable universities, McGladrey selected 12 universities. These 12 were selected based on the State of Washingtons Office of Financial Management comparable institution schedule provided by CWU.




Central Connecticut State University

Southern Connecticut State University

Salisbury University

Bridgewater State College

University of Massachusetts Dartmouth

Montclair State University

Rowan University

William Paterson University of New Jersey

Radford University

Note: Benchmarks are calculated excluding CWU results. Top performers is computed as a stronger than mean metric.



Library Professional FTEs and Salaries per Library FTE

Note: Historical data was provided by Patricia Cutright

Opportunity: CWU has more library FTEs than the peer group, indicating potential opportunity to review headcount/personnel utilization.

Strength: Salary per Library FTE is aligned with the top performers in the peer group.

Number of Collections and Total Cost per Collection


Strength: CWU maintains larger volumes of collections at a lower cost per collection than the peer group. As depicted on later pages, overall library expense is aligned with peer averages, telling us that the higher number of collections on hand is not an issue.

$69,864

$65,448

$67,863

$60,000$62,000$64,000$66,000$68,000$70,000$72,000$74,000$76,000$78,000$80,000

2011 2012 2013

Salary per Library FTE

18.1 18.1 18.5

10.011.012.013.014.015.016.017.018.019.020.0

2011 2012 2013

Library Professional FTEs


Mean: 15.9


Mean: $77,412

$1.25 $1.34 $1.29

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2011 2012 2013

Total Cost per Collection

2,772,098

2,533,4872,736,116

1,000,0001,200,0001,400,0001,600,0001,800,0002,000,0002,200,0002,400,0002,600,0002,800,0003,000,000

2011 2012 2013

Number of Collections

Mean: 1,347,556


Mean: $3.76



Annual Collections Change and Annual e-books Change


Opportunity: Continue to focus on e-books and online learning in order to align with a key strategic opportunity for growth.

Total Library Cost per Student and Average Weekly Gate Change from PY


Strength: Total library cost per student is slightly below peer average, indicating solid library cost management.

Opportunity: Gate Change the last two years has been below peer average, indicating low utilization of services/facilities.

-382.9%

61.7%

-38.9%

-500.0%

-400.0%

-300.0%

-200.0%

-100.0%

0.0%

100.0%

200.0%

2011 2012 2013

Annual e-books Change (%)

20.4%

-8.6%

8.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2011 2012 2013

Annual Collections Change (%)

Mean: 3.2% Mean: 185.6%

19.1%

-20.7%

1.1%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2011 2012 2013

Average Weekly Gate Change from Prior Year

$365 $361

$386

$300.00

$320.00

$340.00

$360.00

$380.00

$400.00

$420.00

2011 2012 2013

Total Library Cost per Student


Mean: $396


Mean: 5.1%



Financial Position Financial Position Metrics

For the financial position benchmarks, McGladrey selected key ratios both Moodys and McGladrey use to evaluate universities at the financial statement level. Moodys uses these ratios to evaluate the credit worthiness of a higher education institution.


Enrollment FTE

Primary selectivity rate

Freshman retention rate

Net tuition per FTE student

Total instruction expenses per student

Average gift per student

Total debt

Expendable financial resources to operations

Days cash on hand

Operating revenue

Operating cash flow margin

1-year debt service coverage

Reliance on tuition and auxiliary revenue

Reliance on state appropriations

Financial Position Comparable Universities

For the financial position comparable universities, McGladrey selected 12 universities. These 12 were selected based on the State of Washingtons Office of Financial Management comparable institution schedule provided by CWU:




Central Connecticut State University

Southern Connecticut State University

Salisbury University

Bridgewater State College

University of Massachusetts Dartmouth

Montclair State University

Rowan University

William Paterson University of New Jersey

Radford University

Note: Benchmarks are calculated excluding CWU results. Top performers is computed as a stronger than median metric.



Enrollment and Selectivity

Note: Pursuant to discussion with John Swiney, CWU reclassified remedial courses to self-support in fall 2011, reducing comparability of FY11 data.

Note: CWU data was sourced from the 2012 and 2013 annual reports.

Opportunity: Enrollment FTE has fluctuated year over year with 2013 numbers coming more in line with the peer average. Focusing on stabilizing and then growing this number will be key.

Freshman Retention and Tuition per Student

Note: Freshman retention ratio provided by John Swiney.

Note: Tuition per student = Tuition less tuition discounts / FTEs.

Opportunity: Freshman retention rate is below peer group average, indicating room for improvement. Retention is a key metric reviewed by Moodys.

Opportunity: Net Tuition per Student in 2013 is below the peer group average. Continuing to analyze tuition rate scenarios is recommended.

81%

78%80%

60%

65%

70%

75%

80%

85%

2011 2012 2013

Primary Selectivity Rate

9,982

9,581

10,177

8,500

9,000

9,500

10,000

10,500

11,000

2011 2012 2013

Enrollment FTE

Top performers: 10,865

Mean: 10,243

Top performers: 75%

Mean: 68%

6,913

7,698

6,907

$6,000

$6,500

$7,000

$7,500

$8,000

$8,500

$9,000

2011 2012 2013

Net Tuition Per Student

81.5%

76.1% 76.0%

71.0%

73.0%

75.0%

77.0%

79.0%

81.0%

83.0%

85.0%

2011 2012 2013

Freshman Retention Rate


Mean: 79.1%


Mean: $7,396



Instruction Expense per Student and Average Gifts per Student

Strength: Instruction expense is aligned with the top performers in CWUs peer group.

Opportunity: Average gifts per student is well below the peer group average, indicating a large opportunity to improve gift collections.

Total Debt and Debt Service Coverage

Note: Debt service coverage indicates your ability to incrementally borrow additional debt; the higher the ratio, the better. Ratings agencies tend to focus on this ratio in industries that are consolidating.

Opportunity: CWU has moderate to low levels of debt, but limited debt service coverage as a result of weak profitability. Debt service is a leading indicator of your ability to borrow incremental capital. The stronger the organizations financial position, the more attractive the organization look for partnerships and the better positioned the organization is to take advantage of strategic opportunities.

$36 $52 $40

$-

$50

$100

$150

$200

$250

$300

$350

$400

2011 2012 2013

Average Gifts per Student

$13,057 $13,018

$12,551

$11,000

$11,500

$12,000

$12,500

$13,000

$13,500

$14,000

$14,500

$15,000

2011 2012 2013

Instruction Expense per Student


Mean: $14,767


Mean: $241

2.471.96 2.21

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

2011 2012 2013

Debt Service Coverage

$142 $139 $137

$0$20$40$60$80

$100$120$140$160$180$200

2011 2012 2013

Total Debt ($M)

Top performers: $73M

Mean: $186M


Mean: 5.15



Days Cash on Hand and Expendable Resources to Operations

Note: Expendable resources to operations is defined as your ability using unrestricted resources to meet the needs of your operating and interest expenses.

Opportunity: Both metrics indicate CWU is below the peer group average in financial strength to meet operating expense needs. The results have increased year over year and McGladrey recommends continuing to focus on increasing these metrics as they are important to Moodys and will become increasingly important as the industry continues to consolidate.

Operating Revenue and Operating Cash Flow Margin

Opportunity: Both metrics indicate top line revenue is fairly aligned with the peer group average. Continuing to focus on growth, in growing area (i.e., distance learning) will be key to continue growing these results.

68

119 121

0

50

100

150

200

250

2011 2012 2013

Days Cash on Hand

0.38

0.440.48

0.25

0.35

0.45

0.55

0.65

0.75

2011 2012 2013

Expendable Resources to Operations

Top performers: 248

Mean: 189

Top performers: .69

Mean: .71

11.38% 11.33% 10.09%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2011 2012 2013

Operating Cash Flow Margin

$192$181 $187

$0

$50

$100

$150

$200

$250

2011 2012 2013

Operating Revenue ($M)

Top performers: $219M

Mean: $202M


Mean: 15.54%



Reliance on Tuition and Auxiliary Revenue and Reliance on State Appropriations

Strength: CWU is not fully reliant on auxiliary and state revenue sources. As state appropriations have declined, this indicates strength in CWUs revenue strategies.

RCM Model Review and Optimization Approach

In order to review and make suggestions for optimization to the RCM model, McGladrey performed the following:

1. Interviews with the following individuals to discuss their involvement with the RCM model and to learn more about how the model is intended to function:

Joel Klucking, AVP Finance & Business Auxiliaries (Interim)

Steve DeSoer, Vice President, Operations

Tamara Wolford, Academic Finance Manager

Tracy Pellett, Associate Provost

John Swiney, AVP Enrollment Management

Shelly Baird, Director, Budget & Budget Development

Jim DePaepe, Executive Director, Organizational Effectiveness

2. Model review and analysis with RPM associates Partner, Dave Maddox

20.51% 17.00% 16.40%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2011 2012 2013

Reliance on State Appropriations

53.93%

58.65%

56.11%

51.00%

52.00%

53.00%

54.00%

55.00%

56.00%

57.00%

58.00%

59.00%

60.00%

2011 2012 2013

Reliance on Tuition and Auxiliary Revenue


Mean: 50.16%


Mean: 25.05%



Findings and Recommendations


1. Planning is performed annually while operations are quarterly

The current RCM model is constructed to facilitate annual revenue allocations to each of the four colleges. Planning is not aligned with actual quarterly operations.

As with the optimization to the enrollment and tuition forecast models, we recommend making this model quarterly. We believe seeing the revenue by quarter is strategic for planning purposes. As each college prepares their budgets, seeing the revenue trend by quarter will help plan for variable costs and make more profitable decisions.

This will require continued investments with Organizational Effectiveness to ensure monthly and quarterly dashboard reports are available to tie annual revenue allocations to plan. Currently this is done via memo entries and offline budgets not included in the FMS and BPS system.

Granular detail that can be used to drive objective decision making is absent from the process.

2. Top down budgeting communication can be improved as the process matures

The current model advises each college how much money they have to spend annually. This is a negotiated item between the Provost and the Cabinet. Deans have input into budget priorities for each college but little input into the overall indirect and ASL indirect allocation decisions from senior management.

As the process matures, we recommend providing direct expense data to each college and let the planners develop their own budgets (using predefined templates). The data will empower the colleges, increasing overall buy-in to this top down budgeting approach.

Implementing a process for review of indirect costs will help build buy-in from the colleges on the indirect costs since each cost will have to be justified and not solely based on prior years number. Allowing the colleges to be a part of this process will also help with buy-in. We recommend a modified budget process with prior year actual versus budget and incremental decisions be summarized.

Lack of ownership of budgets by departmental stakeholders.




3. No variability built into indirect costs

The indirect costs are planned for on an annual basis reducing the ability to identify and plan for variable costs.

Budget for the indirect costs quarterly and use drivers that can help calculate variability as the enrollment and tuition model assumptions change. We recommend setting up templates in Hyperion to help automate this process.

Hyperion Strategic planning module may be needed to create reports that will simulate the indirect and ASL indirect allocations on direct cost on a quarterly basis for each college within the RCM environment.

Financial results will not reflect the true activity of the organization; they will be overstated or understated since current software purchases do not include Hyperion Strategic Planning.

Indirect allocations and memo RCM entries will need to be made on a periodic basis for college reporting.

4. University Carry Forward is included as a source of capital

The FY15 RCM model includes a University Carry Forward of $6.5M that represents additional revenue needed in order to sustain current year operations.

As the University begins to think and act more like a for-profit organization, emphasis on reducing or eliminating the need for carryover funding in the current revenue stream should be considered. Through your strategic planning process, initiatives should be evaluated that will help increase profitability. We also recommend, as part of this new budget process, to provide the colleges data that can help them identify which courses are top and bottom profit performers and plan accordingly to minimize loss exposure. Additionally, the University should consider performing an analysis to determine how many more years they can continue offering a carry forward.

Using carryover is not sustainable and over time will negatively impact CWUs financial position (results).




5. The current allocation method does not fully include the strategic plan

The proposed model does not fully reward behavior for actions to align and accomplish the strategic plan. For example, one of the strategic initiatives is to grow distance and online learning, but these initiatives are directly rewarded in the current model.

Consider a larger matrix of assignable revenue factors in order to encourage behavior that will accomplish the strategic objectives of the University and enhance financial results. Online learning is very important for growth and, if included as a factor, careful consideration will need to be given on how to execute. Often a centralized function will spearhead online learning. The colleges should be rewarded for working with the centralized function and the centralized function evaluated on how well it works equally with the colleges.

Behaviors by staff that are not fully aligned with CWUs overarching strategic plan.

6. 148 funds should be included as a source of capital

148 funds which primarily include summer school revenues should be included in the model, yet budgets for summer school costs are separate from the current RCM process.

Include 148 funds and follow the recommendation in Finding #4. Profitability analytics will be key to maintaining financial position while accomplishing strategic initiatives.

Reduced ability to view specific department (or cost center) performance.

7. Performance management is not fully implemented by function/cost center

Each functional area (cost center) currently does not consistently track their key metrics against best practice.

Integrated with the budget process, the key KPIs identified in this report and other reports prepared for the University should be tracked in order to promote accountability and encourage performance improvement. A formal performance management process should be developed and implemented as part of the budget planning process.

The ability to hold stakeholders accountable for financial results is limited in absence of formal agreed-upon KPIs.




8. The budgeting process should be formalized with key dates and templates.

The budgeting process will need to become formal with key due dates and templates. In order to accomplish constructing the budget in year 1, Budget and Business Planning should consider how to develop digestible budget templates, develop a thoughtful budget cycle project plan and provide adequate support/training for key stakeholders.

Building an extensive project plan and having a strong project management team in place to track the projects progress will be key. A typical first year budget process will include the following partially sequential illustrative steps: 1. Building a project plan

(i.e., Gantt chart) 2. Identifying cost centers 3. Identify costs for each

cost center and ensure data can be allocated appropriately given the current reporting environment

4. Design templates incorporating key drivers and considering fixed vs. variable costs

5. Train stakeholders at each cost center to complete the templates

6. Consolidate templates and integrate balance sheet and cash-flow

7. Identify and model existing and future strategic initiatives via scenario analysis

8. Run sensitivity analysis 9. Finalize budget and

budget package

A formal budget process will enable key decisions, metrics and analysis to take place on a timely basis and delivery by key due dates.

9. Cost centers for the direct and indirect expenses will have to be further defined

Further defining cost centers for the direct and indirect expenses will be necessary to create a meaningful budget and functional accountability.

Further allocate costs by function. Hyperion should be set up to capture costs as management determines they should be allocated. One of the issues with this is comparables and new reporting. For comparables, ensure historical results are loaded into Hyperion under the new allocation method. For reporting, dual reporting at first with the old and new view is often required.

Without cost centers, accountability for performance is significantly minimized as well as visibility into actual performance.



Appendices Benchmarking Sources

Athletics Data

Note: Data provided by CWU.

Department Source Rationale

Athletics GNAC Best comparable representation of CWU athletics because of same conference teams.

Facilities*Association of Higher Education Facilities Officers ("APPA")

APPA is the primary source of facility data. Comparable institutions nationwide report their results to this source.

DevelopmentCouncil for Advancement and Support of Education

Documents

Planning, Budgeting and Forecasting Assessment · Planning, Budgeting and Forecasting Assessment. November 2014 . Corey Saunders, Director, Risk Advisory Services . Josh LaSov, Business