A Progression of Cost Savings Initiatives

Sue Hodges Moore, Northern Kentucky University

Ken Ramey, Northern Kentucky University

Ken Kline, Northern Kentucky University

Shandy Husmann, Huron Consulting Group

Greg Bedell, Huron Consulting Group

SECTION I – CONTEXT OF COST SAVINGS INITIATIVES AND THE IMPORTANCE FOR UNIVERSITIES

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Fiscal Challenges have Prompted Industry-Wide Higher Education Cost Savings Initiatives

Maximizing institutional effectiveness is a common challenge for higher education institutions in today’s environment.

Recent fiscal challenges have required universities of all sizes to undertake cost savings initiatives in order to navigate the challenging financial times and effectively position the institution for the future. Common goals for these initiatives include:

Improving organizational effectiveness.

Enhancing service delivery across the institution.

Increasing operational efficiency.

Identifying opportunities for cost reduction and/or revenue enhancement.

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Organizational Efficiency and Cost Reduction Efforts are an Evolutionary Process

In the face of unprecedented fiscal challenges, universities across the country have undertaken various initiatives charged with streamlining, optimizing, and leveraging resources:

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Immediate Incremental Transformational

Across the board budget cuts

Capital project delay/cancellation

Postponed deferred maintenance

Service reductions HR management

More aggressive budget cuts

Procurement strategies Programmatic

changes/eliminations Review of individual

functional areas

Comprehensive, system-wide operational and programmatic reviews

Organizational rationalization

Shared services Process standardization Business process

redesign

Short-Term / Temporary Easier to Implement

Longer-Term / Structural More Complex

Benefits of Transformational Approaches

Transformational approaches, such as horizontal business process redesigns or vertical organizational rationalizations, while more difficult to implement, have the potential for securing long-term gains in both efficiency and performance. The optimal operating model for each primary university

function depends on its strategic objectives and the environment, but should:

Take advantage of scale.

Reduce duplication and inefficiency.

Meet customer needs.

Provide flexibility to meet changing demands and context.

Increase transparency of operational performance.

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Critical Success Factors for Effective Efficiency and Cost Reduction Reviews

The approach to assessing the landscape must produce specific, actionable recommendations that can result in substantive changes/improvements for the institution. Critical success factors include:

Articulate objectives/desired end-goals at the start.

Understand the university’s appetite for change.

Engage key campus stakeholders in solution development.

Utilize data-driven business cases and objective measures.

Pursue opportunities for enterprise-wide resource stewardship.

Prioritize resulting opportunities for implementation.

Ensure implementation is driven/supported by leadership.

Establish methods to measure savings and track progress.

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Northern Kentucky University A Major Metropolitan Comprehensive University

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1997 Today Change

Enrollment 11,785 15,738 34%

Degrees/Credentials Conferred 1,640 2,838 73%

Unrestricted General Fund Budget $71M $223M $152M

Endowment $12.3M $68M 453%

Grants/Contracts $3.4M $7.5M 121%

Faculty/Staff 1,550 2,030 31%

Average Class Size 23 24 +1

Student Faculty Ratio 16:1 17:1 +1

Bachelors Programs 51 69 +18

Masters Programs/Certificates 7 30 +23

Professional Doctorates 0 2 +2

Juris Doctorate 1 1 -

Northern Kentucky University Current Planning Context

System-level Strategic Agenda: Stronger by Degrees College Readiness

Student Success

Research, Economic, and Community Development

Efficiency and Innovation

NKU Points of Focus, 2012-14 Student Success

Teaching and Learning

Scholarship and Public Engagement

Enrollment Management

Funding and Resource Development

Organizational Effectiveness

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Northern Kentucky University Financial Context

FY12-13 unrestricted operating budget of $223M.

Total state appropriation reduction of $8.3$ (15%).

5 state budget cuts in 6 years.

Lowest state funding per FTE in KY.

SA is 21% of budget; tuition is 62% of budget.

State mandated tuition rate caps since 09-10.

Three new state-funded buildings opened since 2008, with no M&O funding from the state ($4.4M).

Mandated/unfunded state retirement system rate increases totaling $4.4M since FY08.

Implementation of SAP ERP system since 2005.

11% enrollment growth over last six years.

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SECTION II – COST SAVINGS THROUGH REALLOCATION PROCESSES AND OTHER INTERNAL COST SAVING APPROACHES

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NKU REALLOCATION APPROACH 1: HIGH BUDGET CUT TARGETS WITH REINVESTMENT PLANS

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High Budget Cut Targets with Reinvestment Plans: Budget Environment

2008-09 Budget Planning Environment Great uncertainty with the budget.

State appropriation – 15% reduction proposed.

Tuition rate increases unknown (single digits assumed).

Significant budget pressures.

ERP system cost escalation.

Two new buildings opening.

Other non-discretionary expenses.

Leadership Sense of urgency.

Belief that we had to plan for the worst.

Desire to continue to move the institution forward.

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High Budget Cut Targets with Reinvestment Plans: Step 1: Establish Budget Principles

Preserve our core strengths.

Protect student access and affordability.

Invest in competitiveness, particularly around people.

Continue to improve institutional effectiveness, including increased efficiencies and cost containment.

Make incremental progress on our business plan in line with regional needs.

Continue to support Vision 2015 (northern Kentucky region’s strategic plan) in more focused and targeted ways.

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High Budget Cut Targets with Reinvestment Plans: Step 2: Reductions

8% Budget Reduction Targets for each VP Area (high targets)

Base on total budget less fixed costs and revenue supported expenditures

Reductions not prioritized (assume they will happen)

Required information: Description of each cut with examples of cost containment and

efficiencies to absorb the cut

Impact statement required addressing the impact to:

Student learning / student success

Service levels (to internal and external)

Workload of existing employees (all divisions)

Overall campus environment

Specific activities in other divisions 14

High Budget Cut Targets with Reinvestment Plans: Step 2: Reductions - Assistance Provided

Budget Office and each VP reviewed every fund center in their budget. Is what we’re funding now more important than other things

we should be funding?

Can the objective be achieved in a more cost effective manner?

Solicited ideas from campus and the community.

Formed the President’s Advisory Committee for Efficiencies and Savings (PACES).

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High Budget Cut Targets with Reinvestment Plans: Step 3: Reinvestment Plans

4% Reinvestment plan targets for each VP area.

Due ~ three weeks after their proposed budget cuts.

Prioritized.

Required information: Narrative description.

Strategic linkage.

Restoration of budget cuts required a linkage to the university’s strategic priorities.

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High Budget Cut Targets with Reinvestment Plans: Results and Conclusions

Results: 42% of the cuts were reallocated to higher priorities.

33% of the cuts were kept centrally for state budget cuts.

25% of the cuts were reinstated

Conclusions: Setting high budget reduction targets allows for more flexibility

in how reductions are taken.

The process helped vice presidents take a more strategic approach to budget reductions and reallocations.

Cuts are often based on fairness while investments are based on priorities.

Confidentiality is critical with high budget cut targets.

The process required a lot of time and effort on the part of each vice president.

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NKU REALLOCATION APPROACH 2: BALANCED BUDGET CUT TARGETS WITH DIVISIONAL RESPONSIBILITY FOR REALLOCATIONS

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Balanced Budget Cut Targets with Divisional Responsibility for Reallocations: Budget Environment

2009-10 Budget Planning Environment State Appropriation: 5% reduction.

Tuition rate increases: 4% - 6%.

Budget Pressures

Increases in fixed costs.

Retirement system contribution increases.

Leadership Fatigue from the previous year’s process.

Realistic targets rather than scenario planning.

Committed to advancing strategic initiatives utilizing their current resource base.

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Balanced Budget Cut Targets with Divisional Responsibility for Reallocations: Budget Environment

Central budget cut targets set to balance to non-discretionary expenditures. Targets assumed no centrally funded investments.

Each VP submitted proposed central budget cuts for their area.

VPs tasked with submitting a reallocation plan moving funds within their area to advance strategic priorities.

Information required similar to previous process.

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Balanced Budget Cut Targets with Divisional Reallocation for Investment: Results and Conclusions

Results: Very limited central investments.

Very limited divisional reallocation to fund strategic initiatives.

Conclusion: A mechanism is needed to encourage vice presidents to

reallocate to fund strategic initiatives or they must be funded centrally through higher budget cut targets.

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NKU REALLOCATION APPROACH 3: UNBALANCED BUDGET WITH BRIDGE FUNDING AND TARGETED REDUCTIONS

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Unbalanced Budget with Bridge Funding and Targeted Reductions: Budget Environment

2010-11 Budget Planning Environment State Appropriation – flat.

Tuition rate increases – 4% - 6%.

Budget Pressures

Increases in fixed costs.

Retirement system contribution increases.

New building opening and pressure to fund merit increases.

Leadership Desire to fund strategic initiatives to advance the institution.

Wanted a different approach that targeted specific cuts without consideration for which division the function was in.

Set a target of $5 million for 2011-12.

Used $1 million in bridge funding to balance the 2010-11 budget.

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Unbalanced Budget with Bridge Funding for Targeted Reductions: Step 1: Identity targets

Gathered ideas submitted in previous years. Campus community

PACES

Gathered ideas from publications and articles.

Met with each VP to gather ideas.

Filtered list to a manageable number.

Tracked each idea. Decided

Decision needed, some additional analysis may be required

Additional analysis required

Defer

No longer under consideration

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Unbalanced Budget with Bridge Funding for Targeted Reductions: Results and Conclusions

Results: Exceeded goal of $5 million.

Conclusion: Using bridge funds allowed for sufficient time to explore ideas

on the table.

Having an unbalanced budget created a sense of urgency.

Some decisions were made centrally that would have been difficult for vice presidents to make on their own.

Decisions were made solely based on the merit of the proposal exclusive of division.

We did not report how much was being cut by division.

Final decisions: see central budget decisions at http://ppb.nku.edu/budget/annualbgt/fiscalyearinfo/fiscalyear20112012.php.

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Changes in Budget Process – Reallocation Planning

Vice presidents prepare divisional reallocation plans near the beginning of the budget process. Central funds are provided for university-approved fixed costs.

Central funds are provided for “essential expenditures”.

Protect the university from significant legal and financial liability.

Maintain the safety and security of our students, faculty, and staff.

Required to comply with new federal or state regulations.

VPs take care of all other needs through reallocation plans.

Central investments are provided if funds are available for strategic priorities at the end of the budget process.

New process promotes a change in mindset away from tell me how much money I will get, and then I will cover the rest of what I want to do.

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COMMITTEE APPROACH: PRESIDENTS ADVISORY COMMITTEE ON EFFICIENCIES AND SAVINGS (PACES)

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Committee Approach: PACES

Advisory Committee of 25 members consisting of mostly mid-level administrators across campus (Directors, AVPs, etc.)

Met quarterly for ~ 2 years.

Vetted all ideas submitted by the campus committee and engaged in brainstorming activities to develop “big ideas”.

Formed working groups to explore specific topic areas. Employee Incentive Plan

Capturing and Documenting Cost Savings & Efficiencies

Communications Workgroup

SAVES workgroup

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Committee Approach: PACES Results and Conclusions

Results: Working groups made progress in their areas.

Ideas considered low hanging fruit were addressed by the group.

No big ideas came out of the group.

Conclusions: Composition of each group is critical.

SAVES group consisted almost entirely of VP assistants.

A process is needed for examining ideas beyond asking the manager in charge of the impacted area to make a recommendation.

Lack of accountability will prevent success.

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SECTION III: EXTERNAL ASSISTANCE

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Rationale for External Assistance

Lack of internal capacity to conduct analysis.

Need for neutral third party.

Desire for in-depth experience and knowledge of best practices in areas targeted for analysis and improvement.

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Huron Consulting Group Engagement Overview (1 of 2)

NKU engaged Huron in 2010-11 to identify opportunities to improve organizational effectiveness, enhance service delivery, and increase operational efficiency.

The goal of the organizational effectiveness assessment was to support NKU’s pursuit of four strategic priorities. Developing talent in the region and across the Commonwealth.

Increasing student engagement in learning.

Ensuring academic quality.

Engaging in effective regional stewardship.

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Huron Consulting Group Engagement Overview (2 of 2)

The engagement focused on five work scope areas: Improving service to the NKU student.

Maximizing the effectiveness of the procurement function.

Advancing the overall information technology (IT) function.

Optimizing critical administrative IT systems.

Identifying additional opportunities to manage NKU in the most efficient and effective manner.

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Huron’s Guiding Methodology

Huron utilized a common five-step guiding methodology across all work scopes in order to provide consistency and enable comparison of recommendations and project outcomes:

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Activity Description

1. Project Organization

Ensure shared project vision/goals and develop project plan Collect data

2. Situational Analysis

Conduct interviews Review data and develop analysis of current state

3. Gap Analysis and Alternatives

Compare with desired future state and best practices Determine organizational and operational gaps

4. Recommendations and Metrics

Develop and prioritize recommendations Identify/develop key performance metrics

5. Implementation Planning

Assess implementation considerations Develop implementation roadmap

Huron Approach: Elements of a Business System

We believe that institutions maximize their effectiveness when the following five elements of a holistic business system are aligned: Organizational Structure

People

Performance Measurement

Technology

Business Process

Utilizing this framework, Huron explored the context of the situation for each, identified relevant gaps and alternatives, and provided recommendations to better align these elements within each functional area.

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Assessment Process: Interview and Data Collection

The project lasted for ~10 weeks and included extensive interviews, data collection, and analysis. Interviews:

During the course of the study, Huron met with over 190 NKU stakeholders representing a broad cross-section of the institution, including: the president and various vice presidents, academic deans, department chairs, and representatives from 20+ divisions. Two student focus groups were also conducted with ~45 participants.

Data collection:

Approximately 50 distinct data items were requested across the work scopes, including: organizational charts, detailed revenue and expenditure data, compensation / fringe benefit data, administrative policies, process maps, enrollment management data, data surveys, etc.

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Summary of Primary Recommendations

Several opportunities to improve operational efficiency and address organizational gaps were identified across the five work scopes.

Huron identified over 130 total recommendations which highlighted opportunities to improve: Institutional and inter-departmental communication.

Customer service (to both students and staff.

Metric/strategic measure utilization.

Processes and duplicative efforts.

System integration and data integrity.

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Summary of Primary Recommendations: Student Administrative Services

Huron reviewed the enrollment management, student services, and bursar operations functional areas in order to identify process-driven opportunities that could be improved to provide for a more streamlined and pleasant student experience.

Primary, high-priority recommendations included: Implement a one-stop-shop for student services to

encompass: Admissions, Registrar, Bursar, and Student Financial Assistance.

Streamline and automate selected processes within reviewed functional areas for improved efficiency.

Evaluate opportunities for improving financial aid verifications.

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Summary of Primary Recommendations: Procurement and Strategic Sourcing

The primary objective of the procurement review was to identify ways to enhance the efficiency and effectiveness of NKU’s procurement operations, as well as to improve sourcing of goods and services.

Primary, high-priority recommendations included: Develop and establish a procure-to-pay vision, strategy, and

methodology.

Transition the organization to new roles and provide training to close skill gaps.

Execute wave 1 of identified strategic sourcing commodity areas and prompt pay discount negotiations for ACH payments.

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Summary of Primary Recommendations: IT – Strategic Resource Allocation

NKU made significant investments in IT and wanted to identify opportunities to maximize organizational efficiency and performance. The objectives of this review included evaluating the current IT investment approach and identifying ways to evaluate investment requests in the context of other campus needs.

Primary, high-priority recommendations included: Create a data cleanup task force led by functional users to

identify and correct known issues with SAP.

Develop an IT cost strategy to support University goals and institutional expectations for IT.

Expand classroom support staff to offset technology risks from disrupting class sessions.

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Summary of Primary Recommendations: IT – Post ERP Optimization

NKU made a significant investment in SAP with the ultimate objective of improving service to students, faculty, and staff by advancing overall organizational efficiency and use of data to inform strategic decision making. The focus of this work scope was to evaluate how the system was currently used and identify opportunities to maximize this investment.

Primary, high-priority recommendations included: Commit additional resources to resolve SAP issues in 12

months.

Initiate a project to catalog/correct all data errors.

Mandate SAP training for user positions that require its use.

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SECTION IV: RESULTS FROM EXTERNAL ASSISTANCE

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Approach to Implementation

Hired a full-time consultant (in President’s Office) with background in postsecondary education and health care, business process improvement, training and development, and conflict resolution to provide support to the divisions.

Created a responsibility matrix to track progress and implementation.

Asked VPs to provide bi-monthly updates; discussed updates and priorities in Executive Team meetings.

Assigned special projects to consultant, e.g., post-award grants administration, policy audit.

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Selected Accomplishments/Projects Underway

Data Quality

Policy Audit

Cohesive Strategic and Financial Planning

Student Administrative Services

Procurement

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Student Financial Aid

Process: Team formed with IT and financial aid staff.

Process mapped and inconsistencies or complicated paths identified.

Improved interface between financial aid system, SAP and student portal.

Added front line staff to assist with student interactions.

Results: Sped up notification process and significantly reduced student

wait.

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Northern Kentucky University

Student Success Center

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University Center Square Footage

1st Floor – 6,100 SF

2nd Floor – 14,300 SF

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Student Focus Groups

43 students in Focus Groups

35 intercept interviews

Good mix of students

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Student Focus Groups

Student Experience Career Development Center not well known around

campus.

Frustration with One-Stop Call Center.

Quality and availability of advisors.

“IT is everywhere and nowhere at the same time.” Connection & access.

Limited group study spaces.

“The ones in the library are always being used.”

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Student Focus Groups

Department / Component Synergies Bursar / Financial Aid / Registrar / All Card

Central Advising / Career Development Center

Interview sessions Professional development

IT Space / Group Study Space

Presentation Software access Hardware access

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Student Focus Groups

Counter vs. Cubicle vs. Office? Counter

General questions.

Cubicle

Comfortable talking about nearly all issues with professional staff.

Office

Scheduled meeting.

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Major Occupants

Components

Central Advising Center

Career Development

One Stop Center

Student Financial Assistance

Bursar Operations

Registrar

Call Center

IT Engagement Space

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Vision

Advising and Career Development co-located.

One Stop Center.

Technology space scattered throughout.

Open, welcoming, light – filled space.

Office cubicles and conferring rooms.

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ARCHITECTURAL RENDERINGS

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ARCHITECTURAL RENDERINGS

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ARCHITECTURAL RENDERINGS

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ARCHITECTURAL RENDERINGS

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PROCUREMENT RECOMMENDATIONS

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Procurement Recommendations

Develop and establish procure-to-pay vision, strategy, and methodology.

Transition organization to new roles and provide training to close skill gaps.

Execute strategic sourcing wave 1 and prompt pay discount negotiations for ACH payments.

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Procurement Recommendations

A reorganization to more closely align Procurement & AP/Travel would allow us to enhance the strategic planning process and procure-to-pay strategies and to streamline operations in general.

Will allow better communications with departments and give us an opportunity to improve strategic sourcing and payment options and comprehensive training.

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Procurement Recommendations Campus Wide

Office Related Products.

Maintenance and Repair Supplies (MRO).

Procurement Card Program.

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Procurement Recommendations Campus Wide – Office Products

Communicate and market the new KEPC OfficeMax contract to campus users and drive down maverick spend with non-contract suppliers. “Off contract office supplies spend with Staples is over a third

of the spend with NKU’s contract vendor Cardinal Office Supplies.”

“NKU spent approximately $3,820 on 121 different SKUs of black pens alone paying prices that range from the best value option of $0.10 per pen to the most expensive $3.36 per pen.”

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Plan Campus Wide – Office Products

Implemented automatic substitutions for similar products to drive spend to less expensive items with the same specifications.

We also began automatically substituting remanufactured toner for OEM supplies with similar yield at a significant discount.

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Progress Campus Wide – Office Products

Saved over $61K on office supplies.

Received first partial year rebate for more than $25K.

Redirected nearly $50K from off-contract spend to spend with our contracted vendor to gain assurance of contract pricing and increase the rebate.

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WRAP-UP AND QUESTIONS

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