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Business Officer Magazine
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Operation Simplify

Reducing complexity in the financial management infrastructure—from 22,000 funds to 160 funds—has proved a powerful ally in UC Berkeley’s campaign to optimize resources.

By Catherine Lloyd and Erin S. Gore

Financial Reporting and Management: Telling the Higher Education StoryIn 2004, the state of California provided 28 percent of the funding for the University of California, Berkeley (UC Berkeley). State funding steadily decreased during the following eight years, representing just 12 percent of revenue by 2012.

That dramatic decline, coupled with the community's call for increased accountability within higher education, spurred UC Berkeley to take a comprehensive look at how it could make better use of its resources to achieve financial sustainability. The resulting effort features a three-pronged approach: Control expenses, grow revenues, and improve resource allocation.

*In addition to managing the revenue generation program—aimed at cultivating an entrepreneurial culture on campus—Berkeley's Operational Excellence Program office is overseeing a multiyear initiative to reduce administrative costs and increase operational efficiencies. The latter, known as the Operational Excellence Program (OE), has the goal of reducing administrative costs by $75 million annually, freeing more resources to be used for teaching, research, and public service.

The OE Program grew out of a 2009 review of the campus operational and financial environment led by a campus steering committee and facilitated by an outside consulting firm. The results pointed to seven areas that offered significant opportunities to improve our operational effectiveness while reducing the costs of campus operations. By the beginning of 2011, teams consisting of academic and nonacademic campus leaders had proposed and received funding for 23 projects with implementation timetables ranging from several months to several years. By area, these projects include:

Read About the Operational Excellence Program

To get more details on these initiatives, please visit the UC Berkeley Operational Excellence Web site and download the January 2014 Progress Report (http://oe.berkeley.edu/sites/default/files/OEPOProgressReport_Final.pdf).

  • Energy management. Establish a centralized energy office to track, monitor, and manage energy usage campuswide, as well as provide incentives to encourage energy conservation at the unit level. (Actual FY13 annual energy savings: $2 million.)
  • Finance. Streamline the budget and planning processes by deploying a software solution (Oracle Hyperion Planning, named CalPlanning) that provides support for analysis and decision making.
  • High-performance culture. Develop operating principles to guide the work of the institution's administrative employees (see sidebar, "Easier Does It"), and build a framework to provide each unit with Web-based reports showing performance on financial and administrative metrics.
  • Information technology. Implement a third-party productivity services suite to lower per-unit costs of e-mail, calendar, and collaboration tools. (UC Berkeley projects $3.7 million in annual run-rate savings. Actual FY13 savings: $4.1 million.)
  • Shared services. Group some finance, IT, and HR employees in shared service centers to streamline and simplify common administrative and transactional tasks and processes. (UC Berkeley projects $6.9 million in annual run-rate savings.)
  • Procurement. Implement BearBuy, a campuswide e-procurement system, to help channel purchases to strategic vendors. (Actual FY13 savings: $10 million.)
  • Student services. Create an advising council to develop metrics and assessment tools for curricular and cocurricular advising, construct a one-stop center for student transactions, and centralize responsibilities related to UC Berkeley's $12.2 million annual purchases for food and beverage.

As detailed below, the offices of the vice chancellor for administration and finance and the chief financial officer have taken an active role in many of the Operational Excellence projects. 

Far Fewer Funds

Because it was viewed as an enabler of other initiatives, the finance initiative, encompassing CalPlanning, was one of the first to receive funding. Simplifying our financial management infrastructure by removing unnecessary busywork would not only help control costs but also free up resources to be directed toward other institutional priorities.

With optimal resource allocation as our goal, we wanted to make the budget more metrics-driven, and enable every unit to see how it was doing in relation to its expenses and desired outcomes. By providing units with greater insight into their financial status—including the major expense drivers that impact costs—we'd give them the tools for making more strategic decisions.            

In short, we wanted people to think at a higher level about what they wanted to accomplish ("Does this program deliver value for the money spent?"), rather than focusing on the funding itself ("How do I save this money in case I need it next year?"). That meant standardizing a format for and greatly simplifying our complicated chart of accounts.      

At UC Berkeley—and we're undoubtedly not alone—we had 22,000 funds, each listed in the chart of accounts, each requiring a lot of effort to tag, track, and report on. Many had a narrow purpose and locally imposed restrictions. In fact, some policies required the creation of a new fund for any new scope of work with $25,000 or more in funding. If people had a fund with, say, $5,804 remaining, they'd have to move expenses around to use up the balance.

Certainly, some funds must be tracked separately because they carry a major restriction. But at UC Berkeley we ended up with a conglomeration of small pots of money that, over the years, people had forgotten about and never spent, or had carefully "squirreled away" for the future. Instead of languishing in a unit or department budget, those resources could be directed to new projects, innovations, or institutional goals. 

At one time, the accumulation of funds made sense. In a world before computers, the general ledger was the only management tool; paper records provided the only mechanism for tracking financial performance against various fund restrictions. But, the last time fund accounting manuals had a major overhaul was decades earlier—before cell phones, before large-scale enterprise systems, and before student systems that generate more rich data than we could ever cram into the general ledger.

Today's technology offers many faster and more detailed alternatives for aggregating and producing information on our operations and programmatic objectives. The complexity of fund accounting, as it has evolved over the years, isn't necessary anymore and just gets in the way of effectively communicating financial performance.  

In order to make our chart of accounts more nimble and tell our story better, we created an algorithm. If a department spent more than 5 percent of its budget on a particular fund, meaning the fund was actively managed, we'd include that fund in the CalPlanning budget system. Of the 22,000 funds, only 250 met the criteria for inclusion in the CalPlanning system. The people in charge of those higher-level funds could see the supporting detail, and they liked having far fewer funds for which to build budgets and analyze scenarios. The next year, we received numerous requests to move budgets to even higher-level "bucket" funds—Unrestricted, Gifts, Endowments, Contracts and Grants—and the trend is for more and more units to do this.

We all know there are really only three kinds of nonsponsored funds: the "good" (unrestricted), the "bad" (restrictions for certain purposes, such as for financial aid or a particular department), and the "ugly" (rarely spendable because of being restricted to a particular narrow purpose, such as planting tulips). This year we have required that divisions begin to work on the first-dollar principle, a practice where they push programmatic expenses toward their sources in order of restriction: "ugly" to "good," manufacturing flexibility in their unrestricted dollars to advance their strategic initiatives.

At the same time, divisions and fundraisers are encouraged to manufacture flexibility in new gifts and existing restricted funds, prioritized by their highest fund balances. That might mean contacting a donor's family to remove restrictions, or ensuring that a new fund authorization contains cascading language (if one criterion for spending the funds is not met, another would apply instead, then another, and so on).

Diving Into Data

Implementation of CalPlanning in 2012, after two years of preparation, has lightened the transactional load on UC Berkeley's financial professionals and freed them to do more in the areas of data analysis and decision support. With the Web-enabled system, users can view summaries of financial data, create an operating budget using data-entry screens and automated calculations, and generate detailed reports. Its Human Capital Planning position module, which replaced numerous ad hoc systems, imports data from our HR system so units can accurately forecast future salary and benefits costs.

For 2012–13, UC Berkeley produced its first all-funds budget that planned for operating expenses across all revenue streams and provided for strategic use of fund balances. The new budget plan outlined what the university does with its money, what its objectives are for the coming year, and the metrics put in place to hold units accountable. The plan showed the academic units only in aggregate, giving them time to become comfortable with a holistic presentation of financial data and with providing greater transparency to available funds.

To deal with the mind-set shift needed for CalPlanning to succeed, we formed a financial analysis and planning outreach unit to provide workshops, active learning opportunities, and coaching to every division on campus. Over the course of nine months, outreach teams of finance experts would support each unit by presenting recommendations and best practices for moving to the new system, determining how to address impacts to local systems, and improving users' comfort level with the changes being made.

UC Berkeley now has detailed CalPlanning budgets in place for each campus unit. Going forward, every level of the organization is encouraged to look at the complete resource picture. This represents a fundamental shift from the historical practice of incremental budgeting. Instead of simply asking for more money to undertake or expand projects, units have to figure out what they could stop doing, or do differently, to free up money for new priorities at their level and also institutionwide.

To support those discussions and decisions, UC Berkeley invested in an enterprise data warehousing tool. We call it Cal Answers—a centralized tool where everyone accesses the same institutional data without having to run a variety of reports and review countless spreadsheets. While UC Berkeley has always produced data and used metrics, primarily for external stakeholders, the new tool—which uses the tagline "One Question, One Answer"—puts detailed, accurate, and consistent information in the hands of campus stakeholders.

With Cal Answers, for example, users can quickly access information on first-year retention rates, degree recipients, and enrollment by school for the last five years. As another example, Cal Answers shows, in real time, which courses are overenrolled and enables users to do trends backward to identify the courses that are consistently overenrolled. With that data in hand, a department can make strategic decisions to take money away from, or run fewer of, courses that aren't in high demand, and move that money to courses that are.

In 2013 we added student financial aid information to Cal Answers. This module enables units to answer questions about access and affordability, such as, "Which people take the longest to earn a degree? What are the characteristics of their academic program? What kind of financial support did they receive?" No matter what the topic, the data provide the basis for conversations, problem solving, and negotiations based on hard facts, not someone's interpretation of the truth.

More to Streamline

In a continuing effort to simplify reporting, last year UC Berkeley also took on the One Hierarchy project. Aimed at creating consistency among 35 divisions whose organizational data hierarchies often varied, this project streamlined the organizational component of the chart of accounts. The changes then had to be implemented in 43 ancillary systems on campus. In the end, this project eliminated one fifth of the individual values, and made it easier for divisions to compare their financial data and other metrics.

In addition, the associate vice chancellor's office joined in the design and implementation of the Campus Shared Services initiative. We wanted to standardize administrative work, standardize processes, and leverage technology to deliver quality and timely services. UC Berkeley already had small pockets of shared services, primarily in the area of research administration, but each used the financial systems differently.

In a constrained environment such as higher education, where the atmosphere is familial and administrative employees typically perform many different tasks, the implementation of shared services does not happen quickly; the cost benefit is realized over a longer period. It's necessary to take the time to go into each division or department and rationalize the work in such a way that it can be aggregated into one position. That position, which is often paid from numerous pots of money, then moves to a centralized location.

Often, that concept doesn't sit well with academic departments because the loss of positions, even administrative ones, translates into less per-student spending and thus being lower on the list in various college rankings. On the other hand, removing administrative personnel and their associated benefits from a department's financials gives a much clearer picture of cost comparability across campus. What's left are primarily the academic costs specific to curriculum and research.

After many discussions, we moved any unit employee who spent more than 50 percent of his or her time on HR, IT, research, or finance-related administrative work into the shared services center.  We agreed, for the first few years, to bill each academic unit for 95 percent of what it had previously paid for each relocated position. The remaining 5 percent saved on staff support became each unit's to spend on its highest priorities.

With so many tasks, functions, and processes changing, people can easily get caught up in the minutia of what's new and different. They may forget to look at the big picture—how freeing up and reallocating resources can accomplish something for the good of the entire institution. That's why we wanted to connect the Operation Excellence initiatives to an overarching strategic campus goal.

For UC Berkeley, that goal is expanding critical gateway courses that are needed but not always available. In a university with 25,000 undergraduates, students rightfully have concerns about getting the classes they need to declare a major or complete a degree within four years. Launched in 2009, the Common Good Curriculum initiative aims to increase availability of those required courses, as well as diminishing the backlog of students waiting for certain offerings in such areas as reading and composition, foreign languages, math, and the sciences.

Everyone on campus can feel proud of the Common Good Curriculum because it directly impacts students: A greater availability of courses leads to faster graduation, which can mean taking out fewer loans to complete a degree. With that goal in mind, more units realized they could reallocate and redirect some of the funds they had always considered set in stone.     

The chief financial officer's office did its part to optimize resources and, in the process, showed others on campus that space has a cost, too. By making better and more modern use of our building—reducing the number of single offices, for example—we freed up enough space to accommodate HR personnel who had been working in leased quarters.

Consolidating capital leases saved UC Berkeley about $5 million—and clearly emphasized that every division on campus could simplify in some way and make better use of the money, facilities, and personnel it already has.   

CATHERINE LLOYD is executive director, office of the associate vice chancellor and chief financial officer, at the University of California, Berkeley. ERIN S. GORE, formerly UC Berkeley's associate vice chancellor and chief financial officer, is now co-head of Wells Fargo's education and nonprofit banking group.

Flashback ... 19 Years Ago

In an April 1995 Business Officer article, business officers debate the future of fund accounting . . .

Fund Accounting Is Dead

Over the last 30 years, colleges and universities have created extremely complex convoluted accounting and reporting systems. Fund accounting does a wonderful job of delving into great levels of detail-much of it redundant or focused on management's intentions. It's up to management to deploy financial and other resources in the manner most appropriate for the organization as a whole. Colleges and universities have historically met accountability requirements to donors, sponsors, and others through the fund accounting mechanism. With a new financial reporting model, [they] have the opportunity to streamline many of the complex processes that have been designed to support funds. Businesses have similar requirements and have found other ways to deal with accountability. I am confident that we can use mainstream solutions and let fund accounting rest in peace.

Joanne Coville, then controller, Stanford University; recently retired as vice president for finance and administration, Scripps College, and currently one of NACUBO's authors for its Financial Accounting and Reporting Manual

Fund Accounting Lives

Financial reporting changes in the way restrictions are lifted means that resources carefully segregated may be reported as available for current operations; this may place the central financial staff at odds with deans, department chairs, and faculty who want to control, through restrictions, the availability of resources. During this transition from fund reporting to summarized financial reports of net assets, financial officers should evaluate some of the complexity of the traditional fund accounting model. The fund concept means accounting segregation, not necessarily physical segregation of resources. Systems must be in place to ensure that colleges and universities meet their stewardship and fiduciary obligations. Fund accounting is a management tool. Fund accounting will continue to serve colleges and universities well as the building blocks of their accounting systems.

Jerry Farley, then vice president for administrative affairs at the University of Oklahoma; currently president, Washburn University

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Easier Does It

Why is it so hard to get things done here?" That question often came up at the University of California, Berkeley, among faculty, students, and staff alike. It provided the impetus for the Berkeley Operating Principles project, one of the university's 25 initiatives under the banner of Operational Excellence.

In October 2012, UC Berkeley invited faculty, staff, and student employees to participate in CultureCal, an in-person and online brainstorming event to develop administrative principles for guiding strategic decisions and day-to-day activities. More than 2,300 people accepted the invitation by proposing principles, posting comments, and promoting their favorites.

The finalized set of five principles is now being embedded in campus operations both formally and informally. These principles state that:

  • We include and excel, together.
  • We imagine and innovate.
  • We simplify.
  • We are accountable to each other.
  • We focus on service.

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