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![Page 1: Efficiency Update Hank Webber. Agenda Provide an overview and update on Washington University’s cost savings efforts, particularly in the central administration.](https://reader035.fdocuments.in/reader035/viewer/2022062718/56649e855503460f94b86e0b/html5/thumbnails/1.jpg)
Efficiency Update
Hank Webber
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Agenda
Provide an overview and update on Washington University’s cost savings efforts, particularly in
the central administration
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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)
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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
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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
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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)
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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
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WU – Clinical Revenue Growth
School of Medicine Clinical RevenueMillions of dollars
$2 $105
$993
$0
$200
$400
$600
$800
$1,000
1960 1985 2014
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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
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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
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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
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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
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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
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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”
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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%
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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CFU Budget Reductions
FY15 and beyond: Committed to holding central administrative expense growth to 4% (vs. historic 6% growth)
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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)
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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
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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
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Achieved Savings
Procurement $ 7.5M
Facilities $ 4.4M
Shared Services $ .1M
Research Administration $ .1M
Total Savings $12.1M
Project completed, savings achieved
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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
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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
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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
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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
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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
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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
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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
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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?