Efficiency Update Hank Webber Agenda Provide an overview

Efficiency Update Hank Webber

Agenda Provide an overview and update on Washington University’s cost savings efforts, particularly in the central administration

National Context Universities facing conflicting pressures: • Reduce the rate of growth of tuition • Reduce administrative costs • Ensure that resources are directed to mission-specific areas • Provide new services, many of which are very labor intensive and expensive (i. e. off-campus security, child care, career services, commercialization of research)

Washington University is a large economic entity – $2. 5 billion total revenue – 13, 600 benefits eligible Faculty and Staff – 14, 500 enrolled students – Over 60% of operating expenses are compensation and benefits

Washington University The University has seen very rapid growth over the past few decades This growth is a sign of our institutional success and is also a reflection of national growth trends in large research universities and academic medical centers

GSF (million) WU – Physical Growth

WU – Budget Growth Millions of dollars Total University Budget

WU – Clinical Revenue Growth Millions of dollars School of Medicine Clinical Revenue

WU – Student Enrollment Growth Total Enrolled Students

WU – Employment Growth Total Faculty and Staff

National Growth of “Eds and Meds” National Institutes of Health Billions of dollars, 1966 -2013 Source: NIH. gov

National Growth of “Eds and Meds” National Science Foundation Billions of dollars, 1960 -2013 Source: NSF. gov

National Growth of “Eds and Meds” Total Medical Spending Billions of dollars, 1960 -2012 Source: Centers for Medicare & Medicaid Services

National Growth of “Eds and Meds” Medicare and Medicaid Spending Billions of dollars, 1966 -2010 $600 % of Federal Budget $500 25. 0% $400 $300 23. 6% $200 14. 1% $100 $0 2. 3% 1966 6. 6% 1970 10. 7% 1980 Medicare 1990 Medicaid Source: Centers for Medicare & Medicaid Services 2000 2010

Results of Washington University’s Growth • We have become a much stronger academic institution over the last thirty years – U. S. News and World Report Undergraduate ranking has gone from #24 in 1987 to #14 today – Similar increases seen in rankings of many of our academic programs and graduate schools • We have achieved this institutional success while maintaining strong financial stability – Continue to have the highest credit ratings from Moody’s (Aaa) and S&P (AAA) – Maintained budget surpluses for at least the past 20 years – Average endowment return for the last 30 years has been 10. 6%

Questions and Needs • Our recent rapid growth does not address the question of whether the institution is operating as efficiently as possible • Continued academic progress will require continued attention to maintaining efficiencies, and the identification of new resources to support institutional goals

Washington University Staff Size, FY 04 -FY 14

Danforth Schools Staff Size, FY 04 -FY 14

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 FY 04 to. 50 in FY 14 • Significant growth in the Brown School is a result of the creation of a Master’s of Public Health program in FY 10 • Increases in clinical revenue have outpaced growth in Medical School staff – FY 04: WU earned $76, 000 in clinical revenue per staff person – FY 14: WU earned $155, 000 in clinical revenue per staff person

New Staff Positions in CFU & Auxes, 2004 -2014

Sources of CFU Staff Growth Much of the CFU staff growth over the past decade can be explained by three trends: – Changes in organizational structure/insourcing – Increased administrative needs in response to University growth – Creation of new programs

Changes in Organizational Structure / Insourcing • In 2006, the career centers of three schools centralized into a school-wide Career Center located in the CFU • Student Union and Student Life employees were included in the CFU staff count starting in 2008 • In 2012, 32 Quadrangle Housing employees and over 60 Residential Life housekeeping staff who were previously outsourced became WU employees

Responses to University Growth Danforth Campus Facilities: 35 new positions – Danforth Campus has added 1. 7 million square feet since 2008 – Square feet per facilities FTE has increased from 36 k/FTE to 39 k/FTE Alumni & Development: 82 new positions – Leading Together campaign launched in 2012; as of June 31, 2014, had raised $1. 3 B toward goal – Donations per FTE has increased from $720, 790 in FY 05 to $932, 950 in FY 14 IS&T: 89 new positions – Some of this growth was a response to the increasing demand for commodity IT services and a need to serve a larger campus and community

New Programs • The Community Service Office was created in 2004 • Mc. Donnell International Scholars Academy was created in 2005 • Danforth Center on Religion and Politics was created in 2010 • In 2006, the new Kemper Art Museum building was completed and the Museum’s programs significantly expanded • The WU Police Department now provides off-campus policing services

Non-Mission Cost Reduction/Efficiency Efforts Containing the growth in non-mission costs has been a priority for many years Notable areas of effort: • Energy • Benefits and Compensation • CFU Budget Reductions • University Efficiency Initiative

Historical Energy Use by Type 2, 500, 000 12, 000 11, 000 2, 000 101% Sq. Ft. Increase 1, 500, 000 MMBTU 9, 000 8, 000 1, 000 3. 0% Overall Energy Increase 7, 000 500, 000 6, 000 0 5, 000 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 Coal Natural Gas Fuel Oil Propane Electricity Building Area (FT 2) 10, 000

Avoided Energy Cost, 1990 -2014 $120, 000 $103 M Cumulative $100, 000 $80, 000 $ $60, 000 $40, 000 $15. 7 M in FY 14 $20, 000 $0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Cumulative Cost Avoidance Annual Cost Avoidance

Benefits and Compensation • In 2014, Employee Benefits cost WU $262 M • 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 $13 M • Total costs avoided since implementation of benefit changes: $60. 5 M

Benefits and Compensation Cost Savings Year Area of Benefits Plan Changed FY 14 Savings 2005 Dental coverage $. 04 M 2006 Tuition benefit, retirement $ 4. 6 M 2007 Retirement, tuition eligibility $ 1. 4 M 2009 Stop-loss level, retirement, life insurance coverage $ 2. 3 M 2010 Coverage for partners, stop-loss level $ 1. 2 M 2013 Self insure stop-loss premiums $ 1. 3 M 2014 Drug formulary, HSA vendor, RMSA plan $ 2. 0 M Total: $ 12. 9 M

Budget Reductions • From FY 10 to FY 14, we have made $12 M in budget reductions in the CFU • Schools have also made significant budget reductions, including a recent reduction of 15 positions in the Law School

CFU Budget Reductions FY 15 and beyond: Committed to holding central administrative expense growth to 4% (vs. historic 6% growth)

University Efficiency Initiative Hired Huron Consulting Group at beginning of 2013 calendar year to provide a high-level assessment and to identify savings opportunities in 4 areas: – Facilities – Procurement – Research Administration – Organization of CFU support services These represent 4 of the 5 areas of greatest savings at peer institutions (excluded IT because in transition period)

Phase 1 Assessment Goals • Identify ways to reduce operating costs, increase productivity and identify work that can be eliminated • Identify $5 M to $10 M in savings in the CFU and $10 M to $20 M in savings in the schools to redeploy • Implement ideas that provide the greatest possible financial impact while maintaining or strengthening the level of core services

What We Learned • Washington University is a very well-run university. We offer high quality services to our community at costs that are generally equal to or below our peers • There areas of opportunities to improve administrative efficiency • There is little “low-hanging fruit” • The challenge is to go from good to great in Facilities, Procurement, Research Administration, and Administrative Services • Current university culture is nervous about idea of further centralization

Achieved Savings Project completed, savings achieved Procurement $ 7. 5 M Facilities $ 4. 4 M Shared Services $ . 1 M Research Administration $ . 1 M Total Savings $12. 1 M

Achieved Savings – Examples • $1. 3 M savings in year 1 from consolidated custodial contract • $1. 1 M savings from pharmaceutical rebates • $1 M savings from renegotiated office supplies contract • $1. 2 M savings from new specialty drug distribution contract • $900 k savings from Dell desktop and laptop computers contract • $712 k savings from energy projects • $194 k savings from shared services pilots in Medical School and Student Services

Prospective and Potential Savings Prospective: Decisions made, not yet implemented/savings not yet realized Potential: Early in process; savings represent rough estimate of potential Prospective Potential Procurement $ . 4 M $ . 0 M Facilities $ 4. 5 M $ . 0 M Shared Services $ . 4 M $ . 9 M Research Administration $ . 0 M $ 1. 0 M Other $ . 7 M $ Total Savings $ 5. 9 M . 0 M $ 1. 9 M

Prospective Savings – Examples • $1. 1 M from operational improvements in Danforth facilities • $1. 7 M from energy savings initiatives • $680 k savings from closing Ovations and DC programs • $400 k savings from CFU shared service center • $360 k savings from expansion of prompt pay discount program • $324 k savings from custodial cost avoidance at Medical School

Distribution of Savings Achieved Prospective Potential CFU & Auxes $ 2. 7 M Danforth Schools $ WUSM $ 8. 6 M Total Savings $12. 1 M . 8 M $ 3. 7 M Total - $ 6. 5 M . 3 M $ 1. 1 M $ 2. 1 M $ 1. 6 M $12. 4 M $ 5. 9 M $ 1. 9 M $20. 0 M - $

Implementation Costs • We estimate that these efforts will cost approximately $9 M in one-time costs and $0. 5 M in ongoing costs to implement • Implementation costs are primarily related to energy initiatives and new technology systems

Total Projected Annual Cost Savings, FY 16 Benefits $ 12. 9 M Energy $ 15. 7 M CFU Budget Cuts $ 11. 8 M Efficiency Initiative $ 20. 0 M Total Savings $ 60. 4 M

Next Steps • Complete Phase 1 of the Efficiency Initiative – Implement and realize all prospective and potential savings • Take another major look at potential cost savings from additional energy initiatives • Create greater efficiencies in commodity IT

Other Issues • How does one increase efficiencies while respecting existing culture and ensuring high employee morale/engagement? • Should the University undergo a more significant reorganization to achieve greater efficiencies? • Should we hire a small group of permanent staff to work on constantly improving operational efficiency? • To what degree can more efficient shared service centers be implemented within the University’s existing culture?