THE UNIVERSITY OF NORTH CAROLINA Continuing Operational Efficiencies October 10, 2013

THE UNIVERSITY OF NORTH CAROLINA

Continuing Operational Efficiencies

October 10, 2013

Setting the StageMr. Charles Perusse, Chief Operating Officer

UNC Resourcing Survey AnalysisMr. Ken Craig, UNCFIT Program Management Officer

Public-Private PartnershipsDr. Rick Niswander, Chief Financial Officer, East Carolina University

Unlocking Capital AssetsMr. Jonathan Womer, Associate VP for Finance and Economic Analysis

Moving ForwardMr. Charles Perusse, Chief Operating Officer

Continuing Operating Efficiencies

Outline

2

Student Quality and Success

Efficiency and Effectiveness

Fiscal Stability and Sustainability

Economic Development

Setting the Stage

Guiding Principles

3

Providing instruction, research, and public service excellence within the context of declining or finite resources

Increased focus on Return on Investment (ROI)

Heightened demand for transparency and accountability

Setting the Stage

Higher Education Trends

4

Ernst &Young

McKinsey&

Company

UNC / OSBM

Efficiency Report

Goal 4: Maximizing Efficiencies

UNC Strategic Plan

GA Execution Campus Execution

Campus- Initiated

Innovation(i.e. Bain)

PACE

UNC Resourcing Survey Analysis

Setting the Stage

UNC Efficiency Background

5


6

Fully Supported By Campus: Business functions performed solely by campus Examples: business affairs services, law enforcement, student tutoring, or library operationsIntra-campus Resource Share: Business functions performed by sharing resources with other campuses Examples: regional facility maintenance and IT supportContracted: Business functions performed external to UNC System Examples: energy performance contracting, printing services, and facility maintenance operations


Definitions

7

In continuing the Strategic Plan efforts regarding Maximizing Efficiencies, General Administration conducted a campus survey in July to: Determine similarities related to campus services

being delivered internally, co-sourced, or outsourced;

Provide examples of campus effectiveness efforts; and

Identify building blocks for new operational efficiency actions.


Campus Innovation

8


Survey Results

9

Business Area

Fully Supported by Campus

Contracted Service

Intra Campus

Resource Share

Common UNC Synergies

Athletics/Special Events 78 63 1

Facilities 451 339 19

Finance and Administration 162 60 16

Human Resources 92 31 5

Student Services 74 62 7

Systems and Technology 203 83 67

Travel 68 36 6

Grand Total 1,128 674 121

Notes :1. The analysis documents samples of campus resourcing. The results identify similarities but do not provide an all-inclusive listing of life-to-date campus resourcing efforts.2. Checkmarks apply to services where eight or more campuses used either outsource and/or co-source solutions resulting in a combined alternative service delivery percentage of 33% or higher.


Selected Examples – Facilities

Efficiency Gains DescriptionCost

ReductionsASU contracted with a vendor to reduce energy use, improve indoor air quality, reduce maintenance requirements, and replace failing equipment, creating approximately 6% energy savings per annum. $990,000 ECSU and FSU contracted with vendors to take advantage of energy efficiencies by replacing old heating, cooling, and lighting systems with new energy-efficient models. $1,136,000 UNCW contracted with vendors to provide housekeeping and security services for residence life facilities. $650,000 UNCA implemented a fully integrated direct digital control system (DDC) to achieve cost/GSF of $1.74 versus the Association of Physical Plant Administrators (APPA) $2.26 cost/GSF. $566,086 WCU contracted with a vendor to address lighting needs in various facilities including residence halls, parking, and other outdoor lighting using LED technology as much as practicable. $500,000 UNCA established greenscape standards/guidelines with maximum natural areas, using ground covers and mulch instead of grass and improvement of horticultural practices. This initiative eliminated 2.0 FTE and reduced UNCA ground maintenance cost per acre to $3,470 versus APPA costs of $5,316/acre. $328,218 NCSSM collaborated with the Durham Police Department for security services at an affordable amount to NCSSM while also offsetting some of the costs for the Durham PD. $275,000

10


Selected Examples – Finance and Administration

11


Reductions

UNCC implemented SciQuest automated purchase-to-payment solution for university commerce. The solution automated the internal approval and purchasing process, reduced order and invoicing errors, increased the amount of purchases using vendors on State contract, eliminated unnecessary delays, alleviated ordering and billing errors, allowed for consortia catalog savings, maintained audit trail that allowed for supporting documentation. $900,000

NCSSM co-sourced legal affairs and internal audit services with UNCGA. $149,000

UNCW optimized the central receiving function to reduce warehouse receiving costs by 33% and shifted responsibility to vendors to provide departmental delivery. $100,000

UNCG contracted with a vendor to enable credit card payments online and reduce PCI compliance costs. $100,000

UNCG contracted with a vendor to provide motor fleet management services. $90,000


Selected Examples – Information Technology

12


Reductions

UNC-CH outsourced its printing and copying services, which allowed for significant reductions to staffing requirements.

$2,248,384

ECU and FSU outsourced copier management services for office printing and faxing. This cost per copy contract included leasing and maintenance of printing/faxing equipment and reduced costs over hardware procurement and recurring maintenance expenses.

$1,500,000

UNC-CH outsourced workgroup services to provide a world-class email and free cloud collaboration environment to its employees and students while avoiding the costs of building and maintaining its own infrastructure and storage capacity.

$1,000,000

VMware software improved efficiency and reduced costs at NCSU by vitalizing edge unit server needs and disparate central IT server infrastructures into a centralized manage VMware farm.

$828,500

FSU joined the UNC hosting and database administrator (DBA) shared service to reduce hardware acquisition and maintenance costs and associated DBA requirements to sustain its Banner ERP System.

$600,000


Selected Examples – Student Services


Reductions

UNC-CH piloted a revolutionary joint electronic resource acquisition and sharing initiative with Oxford University Press in order to provide larger and more robust digital resources to students and researchers at all Triangle Research Library Network (TRLN) libraries. This pilot directly contributed to reduction of electronic titles among the TRLN libraries. $430,940 UNCA outsourced its bookstore operations to reduce operating costs by 4.0 FTE, decreased rental program costs by $65K/year, and increased contributions to scholarship aid by 103% for an annual contribution of $178K. $329,413 UNCSA outsourced bookstore operations that resulted in the reduction of operating costs by $255K and 2.0 FTE annually. $255,038 NCSU contracted with a vendor to reduce food costs by taking advantage of the alliance's national network consortia negotiated pricing discounts. $200,000 UNC-CH implemented an interlibrary lending and borrowing service for the purpose of sharing system-wide library collections. This initiative significantly reduced costs associated with storage, cataloging, circulation, and preservation of library assets for the entire UNC System. $195,000 NCSSM collaborated with UNC Hospitals for health services to students at an affordable cost. $125,000

13


Selected Examples – System-wide Services


Reductions

Strategic Sourcing $5,700,000

Public Private Partnerships - Energy Savings $3,500,000

SciQuest e-Procurement $3,500,000

Payroll Shared Services for nine campuses $1,500,000

Human Resources Data Mart $800,000

Shared Banner Hosting Service $800,000

Shared Database Administrator Service $500,000

Export Control and Data Mining Capabilities for Contract and Grant Opportunities $200,000

14

Public-Private Partnerships

15

1. Contract between a public and private entity to complete a project (or run an operation)

2. Often exchange of public revenue stream for constructing asset or up-front payment

3. Both public and private directly share the risks and rewards of completing the project: Typically the private is not paid if benefits are

not realized even if the project is completed Focused on outcome rather than output Often requires long time frames

What are PPPs?


16

Potential Risks: Requires more

vendor/contract management skills

It’s “different” – legal, process, financial issues

Potential Benefits: Vendor and the public

agency can focus on core expertise

Start without a big budget or get large up-front payment

Recent construction example (2013):


What are PPPs?

17

Includes consolidating Pediatrics, OB/GYN, fertility lab, and other operations that are currently located in multiple far flung locations

Approximately 120-140K gross square feet Savings of $750K+ from consolidation

Original Project: Self Liquidating Bond Included a 900-space parking deck Amount authorized for self-liquidating issue =

$71,605,960 Annual payment on a 30-year full amortization at

4.5% = $4,396,000 (4% is $4,140,980)


ECU Physicians Women’s and Children’s Clinical Operations

18

New Project: Lease term will be 10 years and ECU will have the

right to enter into another 10-year lease with option to purchase at fair market value

Annual lease cost is estimated to be $2.5M to $3.1M, depending on eventual size and the types of operations within the facility

Annual cash flow savings between $1.3M to $1.9M Parking deck not needed since facility will be built in

a lower density area where surface parking is sufficient

Adjacent to two leased clinical buildings and across the street from Brody School of Medicine



19


ECU Women’s and Children’s ClinicGreenville, NC

20

Benefits: Lowers risk and higher return Reduces leverage on balance sheet Reduces operating risk to ECU

Physicians Facility built to ECU specifications Shorter time of construction Helps control fixed costs



21

Unlocking Capital AssetsThe Ohio State University Parking Case Study

22

Exchanging the long‐term operation and use of infrastructure assets (or other capital assets with a revenue stream) for an up-front cash payment: Sale vs. lease Must be able to isolate (enough) from core

services to enable independent operation Legal constraints and possible tax benefits Deal must be big enough Common public sector examples: highways,

parking, water treatment plants

Unlocking Capital Assets

What is asset monetization?

23

Potential Benefits: More value can be

extracted from the asset Access to a lot of

money now Transformative

Recent parking in higher education example (2012):

Potential Risks: Performance oversight

and unanticipated change

Loss of annual revenue Use of up-front payment


Benefits and Risks

24

About 70,000 student FTEs 10% of budget comes from state funds ($6,000 per

FTE) AA Bond Rating but endowment behind aspirational

peers What was OSU selling?

36,000 parking spaces for 82,000 students and employees at about a 2% annual growth rate

City of Columbus: 2,300,000 population, campus two miles from downtown

$28.8 million in annual revenue and $11.5 million in operations, maintenance and annualized capital outlays

Permit prices have increased at about 5% a year


Ohio State University (OSU) – Background

25

Transportation

ParkingServices

PublicSafety

Ohio State University


OSU Lease Parking Operations

26

March 2011 – University Working Team formed Hired Morgan Stanley as financial advisor Mapping/questioning business processes,

inventory and condition of assets September 2011–Board authorization October 2011–RFQ issued for Concessionaires January 2012–Four bidders begin Due Diligence April 2012–RFP issued to three remaining

bidders May 2012–Three proposals received by OSU June 29, 2012–University awards to QIC September 21, 2012–Closing Day

Forums, protests, meetings,

faculty papers, email

campaigns

Governance


Ohio State University Timeline

27

$483M one-time up-front payment ($375M was minimum bid allowed)

20% higher than other two bids 5.5% cap on rate increases for the first 10 years and

4% thereafter Protections against competition Acceptance of OSU Transportation Sustainability Plan Performance requirements Faculty/student parking

benefits remain

Giving up about $17.3M a year – funded buses and other transportation


Ohio State University – Accepted Bid Terms

28

$483M put into endowment and designated for: Faculty Initiatives & Research: $200M Transportation & Sustainability: $150M

CABS (partial funding of the bus system) Pedestrian friendly infrastructure Energy efficiency projects

Student Scholarships: $83M Arts District: $50M

9% Expected Growth

Remaining transportation operating costs coming from other sources.

4.75%Reinvest

4.25%Spend


Ohio State University – Where the money is spent?

29

Ohio State Larger endowment Removed from permit/rate

setting/parking deck construction process (somewhat)

Transportation Sustainability Plan accurate for 50 years?

Good performance/contract management?

Risk of operation and capital cost vs. rate of return (9%?)

Private Investor/Operator Stability of transportation/

infrastructure assets. Able to extract more revenue

in the future? Significant urban public

demand? Able to operate more

efficiently than in the past? Able to meet performance

requirements?


Ohio State University – Was it a good deal?

30

Moving Forward

31

Efficiency

Cost (ROI)

Mission

Quality

Moving Forward

Priorities

32

Continue expanding energy conservation efforts and reducing energy consumption

Implement a spend analysis tool to enable further catalog and strategic sourcing savings

Continue expanding strategic sourcing efforts with Department of Administration, public schools, and private colleges and universities

Expand IT shared services for ERP hosting and DBA support services

Moving Forward

On-going Plans

33

Leverage center of excellence support from UNC-CH/NCSU to constituent campuses

Develop facilities maintenance optimization plans to reduce operating costs, seek private-public facility partnerships, and leverage existing capital assets

Moving Forward

Future Plans

34

BOG Discussion

Questions?

35

Documents

THE UNIVERSITY OF NORTH CAROLINA Continuing Operational Efficiencies October 10, 2013