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 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

WU – Physical Growth

14 12 10 8 6 4 2 0 2.0

2.4

2.3

2.6

3.1

3.2

1968 1978 1988 Danforth Campus 4.0

4.1

5.6

5.7

6.0

6.5

1998 2008 Medical Campus 2014

WU – Budget Growth

Millions of dollars

Total University Budget $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 $29 1960 $393 1985 $2,472 2014

WU – Clinical Revenue Growth

Millions of dollars

School of Medicine Clinical Revenue $1,000 $800 $600 $400 $200 $0 $2 1960 $105 1985 $993 2014

WU – Student Enrollment Growth Total Enrolled Students 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 6,417 7,757 1960 1985 14,503 2014

WU – Employment Growth Total Faculty and Staff 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 3,242 1,197 1960 6,065 2,239 1985 9,579 4,114 2015 Staff Faculty

National Growth of “Eds and Meds” National Institutes of Health Billions of dollars, 1966-2013 $35 $30 $25 $20 $15 $10 $5 $0 $0.4

$1.1

$3.4

1960 1970 1980 $7.6

$17.8

1990 2000 $30.9

$29.3

2010 2013 Source: NIH.gov

National Growth of “Eds and Meds” National Science Foundation Billions of dollars, 1960-2013 $8 $7 $6 $5 $4 $3 $2 $1 $0 $0.9

$2.2

$2.3

1960 1970 1980 $3.1

$4.9

1990 2000 $6.9

$6.5

2010 2013 Source: NSF.gov

National Growth of “Eds and Meds” Total Medical Spending Billions of dollars, 1960-2012 $3,000 $2,500 $2,000 $1,500 $1,378 $2,486 $2,800 $1,000 $724 $500 $256 $27 $75 $0 1960 1970 1980 1990 Source: Centers for Medicare & Medicaid Services 2000 2010 2012

National Growth of “Eds and Meds” Medicare and Medicaid Spending Billions of dollars, 1966-2010 $600 % of Federal Budget $500 $400 $300 23.6% $200 14.1% $100 10.7% $0 2.3% 1966 6.6% 1970 1980 1990 Medicare Medicaid Source: Centers for Medicare & Medicaid Services 2000 25.0% 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, FY04-FY14 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 6,091 6,414 Medical School 717 858 Danforth Schools FY04 FY14 1,242 1,775 CFU & Auxes

Danforth Schools Staff Size, FY04-FY14 400 350 300 250 200 150 100 50 0 Sam Fox A&S Business Engineering FY04 FY14 Law Social Work

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

New Staff Positions in CFU & Auxes, 2004-2014 119.3

125 100 75 50 25 0 32 89 81.8

39.6

38.7

24 50.7

57.1

FP M IS &T Re A& se ar D ch & Pa te St nt s ude nt CF Se U rv ice Aca de s m ic Ce nt er s Aux es Ot he r Adm in Ot he r S tude nt

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 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

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

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 2 000 000 1 500 000 1 000 000 500 000 101% Sq. Ft. Increase 3.0% Overall Energy Increase 12 000 000 11 000 000 10 000 000 9 000 000 8 000 000 7 000 000 6 000 000 0 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 5 000 000

Avoided Energy Cost, 1990-2014

$120 000 000 $100 000 000 $103M Cumulative $80 000 000 $60 000 000 $40 000 000 $20 000 000 $15.7M in FY14 $0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Cumulative Cost Avoidance Annual Cost Avoidance

2014

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

Benefits and Compensation Cost Savings Year 2005 2006 2007 2009 2010 2013 2014 Area of Benefits Plan Changed Dental coverage Tuition benefit, retirement Retirement, tuition eligibility Stop-loss level, retirement, life insurance coverage Coverage for partners, stop-loss level Self insure stop-loss premiums Drug formulary, HSA vendor, RMSA plan Total: FY14 Savings $ .04M

$ 4.6M

$ 1.4M

$ 2.3M

$ 1.2M

$ 1.3M

$ 2.0M

$ 12.9M

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

CFU Budget Reductions FY15 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 $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

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

Achieved Savings

Project completed, savings achieved

Procurement Facilities Shared Services Research Administration Total Savings $ 7.5M

$ 4.4M

$ .1M

$ .1M

$12.1M

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

Prospective and Potential Savings

Prospective: Decisions made, not yet implemented/savings not yet realized Potential: Early in process; savings represent rough estimate of potential

Procurement Facilities Shared Services Research Administration Prospective $ .4M

$ 4.5M

$ .4M

$ .0M

Potential $ .0M

$ .0M

$ .9M

$ 1.0M

Other Total Savings $ .7M

$ 5.9M

$ .0M

$ 1.9M

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

Distribution of Savings CFU & Auxes Achieved Prospective Potential Total $ 2.7M

Danforth Schools $ .8M

WUSM $ 8.6M

Total Savings $12.1M

$ 3.7M

$ 2.1M

$ 5.9M

$ .3M

$ 1.6M

$ 1.9M

$ 6.5M

$ 1.1M

$12.4M

$20.0M

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

Total Projected Annual Cost Savings, FY16 Benefits Energy CFU Budget Cuts Efficiency Initiative Total Savings $ 12.9M

$ 15.7M

$ 11.8M

$ 20.0M

$ 60.4M

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?