Transcript Slide 1
THE UNIVERSITY OF NORTH CAROLINA
Continuing Operational Efficiencies
October 10, 2013
Outline
Continuing Operating Efficiencies
Setting the Stage
Mr. Charles Perusse, Chief Operating Officer
UNC Resourcing Survey Analysis
Mr. Ken Craig, UNCFIT Program Management Officer
Public-Private Partnerships
Dr. Rick Niswander, Chief Financial Officer, East Carolina University
Unlocking Capital Assets
Mr. Jonathan Womer, Associate VP for Finance and Economic Analysis
Moving Forward
Mr. Charles Perusse, Chief Operating Officer
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Setting the Stage
Guiding Principles
Student Quality and Success Efficiency and Effectiveness Fiscal Stability and Sustainability Economic Development
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Setting the Stage
Higher Education Trends
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
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Setting the Stage
UNC Efficiency Background
PACE Ernst & Young Campus Initiated Innovation (i.e. Bain) UNC / OSBM Efficiency Report McKinsey & Company UNC Strategic Plan Goal 4: Maximizing Efficiencies GA Execution Campus Execution
UNC Resourcing Survey Analysis
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UNC Resourcing Survey Analysis
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UNC Resourcing Survey Analysis Definitions
Fully Supported By Campus:
Business functions performed solely by campus
Examples: business affairs services, law enforcement, student tutoring, or library operation
s
Intra-campus Resource Share:
Business functions performed by sharing resources with other campuses
Examples: regional facility maintenance and IT support
Contracted:
UNC System Business functions performed external to
Examples: energy performance contracting, printing services, and facility maintenance operations
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UNC Resourcing Survey Analysis Campus Innovation
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.
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UNC Resourcing Survey Analysis
Business Area
Athletics/Special Events Facilities Finance and Administration Human Resources Student Services Systems and Technology Travel
Grand Total
Survey Results
Fully Supported by Campus Contracted Service Intra Campus Resource Share
78 451 162 92 74 203 68
1,128
63 339 60 31 62 83 36
674
1 19 16 5 7 67 6
121 Common UNC Synergies
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.
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UNC Resourcing Survey Analysis Selected Examples – Facilities
Efficiency Gains Description
ASU 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.
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.
UNCW contracted with vendors to provide housekeeping and security services for residence life facilities.
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.
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.
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. 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.
Cost Reductions
$990,000 $1,136,000 $650,000 $566,086 $500,000 $328,218 $275,000 10
UNC Resourcing Survey Analysis Selected Examples – Finance and Administration
Cost Reductions Efficiency Gains Description
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 $149,000 NCSSM co-sourced legal affairs and internal audit services with UNCGA.
UNCW optimized the central receiving function to reduce warehouse receiving costs by 33% and shifted responsibility to vendors to provide departmental delivery. UNCG contracted with a vendor to enable credit card payments online and reduce PCI compliance costs.
UNCG contracted with a vendor to provide motor fleet management services.
$100,000 $100,000 $90,000 11
UNC Resourcing Survey Analysis Selected Examples – Information Technology
Cost Reductions Efficiency Gains Description
UNC-CH outsourced its printing and copying services, which allowed for significant reductions to staffing requirements.
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.
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. 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. 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.
$2,248,384 $1,500,000 $1,000,000 $828,500 $600,000 12
UNC Resourcing Survey Analysis Selected Examples – Student Services
Efficiency Gains Description
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. 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.
UNCSA outsourced bookstore operations that resulted in the reduction of operating costs by $255K and 2.0 FTE annually.
NCSU contracted with a vendor to reduce food costs by taking advantage of the alliance's national network consortia negotiated pricing discounts. 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.
NCSSM collaborated with UNC Hospitals for health services to students at an affordable cost.
Cost Reductions
$430,940 $329,413 $255,038 $200,000 $195,000 $125,000 13
UNC Resourcing Survey Analysis Selected Examples – System-wide Services
Efficiency Gains Description
Strategic Sourcing Public Private Partnerships - Energy Savings SciQuest e-Procurement Payroll Shared Services for nine campuses Human Resources Data Mart Shared Banner Hosting Service Shared Database Administrator Service Export Control and Data Mining Capabilities for Contract and Grant Opportunities
Cost Reductions
$5,700,000 $3,500,000 $3,500,000 $1,500,000 $800,000 $800,000 $500,000 $200,000 14
Public-Private Partnerships
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Public-Private Partnerships What are PPPs?
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
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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
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Public-Private Partnerships What are PPPs?
Potential Benefits:
Vendor and the public agency can focus on core expertise
Start without a big budget or get large up-front payment Potential Risks:
Requires more vendor/contract management skills It’s “different” – legal, process, financial issues Recent construction example (2013):
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Public-Private Partnerships
ECU Physicians Women’s and Children’s Clinical Operations
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)
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Public-Private Partnerships
ECU Physicians Women’s and Children’s Clinical Operations 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
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Public-Private Partnerships
ECU Women’s and Children’s Clinic Greenville, NC
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Public-Private Partnerships
ECU Physicians Women’s and Children’s Clinical Operations 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
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Unlocking Capital Assets
The Ohio State University Parking Case Study
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Unlocking Capital Assets What is asset monetization?
Exchanging the long
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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
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Unlocking Capital Assets Benefits and Risks
Potential Benefits:
More value can be extracted from the asset
Access to a lot of money now
Transformative Potential Risks:
Performance oversight and unanticipated change
Loss of annual revenue
Use of up-front payment
Recent parking in higher education example (2012):
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Unlocking Capital Assets Ohio State University (OSU) – Background
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
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Unlocking Capital Assets OSU Lease Parking Operations
Transportation Parking Services Public Safety
Ohio State University
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Unlocking Capital Assets Ohio State University Timeline
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 Governance Forums, protests , meetings, faculty papers, email campaigns
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Unlocking Capital Assets
Ohio State University – Accepted Bid Terms
$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
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funded buses and other transportation
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Unlocking Capital Assets
Ohio State University – Where the money is spent?
$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
Remaining transportation operating costs coming from other sources.
4.75% Reinvest 9% Expected Growth 4.25% Spend
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Unlocking Capital Assets
Ohio State University – Was it a good deal?
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?
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Moving Forward
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Moving Forward
Priorities Cost (ROI) Efficiency Mission Quality
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Moving Forward
On-going Plans
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
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Moving Forward
Future Plans
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
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BOG Discussion Questions?
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