Streamlining the System
The University of North Carolina’s collaborative leadership and cost-saving methodology have resulted in significant efficiency gains at institutional and state levels.
By James Smith, Krista Tillman, and Hilary Coman
Bowles was reacting, in part, to legislative concerns that the 16-campus university was heavy on administration. Rather than simply instituting budget cuts, his goal was to retarget administrative funds toward UNC’s core missions of education, research, and public service. With each campus having its own administration, Bowles thought it quite possible that a deliberate examination of all operations could identify redundancies and lead to efficiencies and synergies that would support his goal. He realized the potential impact of redeploying funds from administrative costs to academics to better serve UNC students. He also saw the inherent economies of scale across such a large system.
Bowles would begin by challenging his immediate staff at the system’s central administrative office. To capitalize on the anticipated economies of scale, he asked all the chancellors to follow his lead on their own campuses. Rather than setting percentage targets or citing fixed dollar amounts, however, he directed each chancellor to find savings and efficiencies by examining his or her own respective administrative structures.
At the time, the entire operating budget for the UNC system totaled $5.1 billion. Any dollar savings would not only show that the university was serious about not asking taxpayers for additional funding but also demonstrate that it was a good steward of the money already entrusted to it.
In fact, UNC identified about $32 million in cash savings across the system within one year of Bowles’s inauguration, and it continues to work with state legislators toward other cost reductions.
Appointing a High-Level Committee
|Seven Guiding Principles|
Even after the President’s Advisory Committee on Efficiency and Effectiveness (PACE) completed its report to the University of North Carolina’s governing board and the state legislature, work continues on ways the campuses can operate more efficiently on their own as well as together. These seven principles guide UNC’s ongoing efforts:
1. Collaborate between and among constituent institutions. Working together informs, assists, and encourages best practices.
2. Leverage the strength of the system whenever and wherever possible. In UNC’s case, 16 campuses are usually more powerful than one.
3. Enable innovative purchasing techniques and foster negotiation capabilities across the system.
4. Avoid redundancy in processes. Eliminate duplicative controls, especially when a process has multiple control points. Opt for sampling versus conducting overlapping checks.
5. Benchmark within practice areas where feasible. Relevant comparisons not only help identify the ranges within the system but also enable institutions to review data with their peers and identify new and efficient practices.
6. Manage growth in employee headcount and ensure that a decision to hire is the right one. Simultaneously, push for the best from contractors and vendors and use service-level agreements where appropriate to ensure that the decision to contract for a product or service leads to desired results.
7. Facilitate information aggregation and dispersal. While seemingly simple, the complexities of 16 different institutions make gathering and sharing information across campuses challenging.
In their campaign to identify savings and capitalize on systemwide efficiencies, UNC’s general administration office and the individual campuses followed the leadership of the President’s Advisory Committee on Efficiency and Effectiveness (PACE). The committee’s eight members—leaders drawn from business, government, and academia—had the overall task of making the university more mission focused while ensuring that its financial operations were both transparent and in support of the core missions.
Committee members had six months in which to do their work and produce a report for submission, first to the governing board and then to the state legislature. The work of PACE was augmented by a project manager plus operational support provided by UNC’s finance division (including the vice president and associate vice president of finance). In addition, every campus appointed several representatives to participate in the initiative.
In the spirit of transparency, the committee conducted four open meetings during the report preparation period. Each session was broadcast live via videoconferencing to various campus sites. The committee also conducted biweekly conference calls with the project team and the campus-based participants.
Determine What People Really Do
The PACE project took a fundamentally different approach from cost-cutting exercises typically used on college campuses. Rather than simply reducing budgets by a certain percentage to meet a specific goal, PACE called first for cost identification. Core faculty functions—instruction, research, and public service—were not within the scope of this project.
The remaining costs, dubbed “enabling activities,” were then divided into 12 functional categories:
- Academic administration and support.
- Accountability activities.
- Advancement activities.
- Auxiliary services.
- Enrollment-related activities.
- External activities.
- Facilities management.
- Fiscal activities.
- Human resources.
- Information technology.
- Sponsored-project activities.
- Student-service activities.
Notably, the committee did not dismiss these enabling activities—many of which directly support students—as mere administrative overhead. As Barbara Carroll, vice chancellor for human resources at North Carolina State University, Raleigh, observed, “Employees perform such functions so that faculty members don’t have to—thereby freeing faculty to teach, conduct research, and extend public service.”
Next, the committee asked managers at each campus and within the general administration office to match employees’ time and effort against the range of enabling functions. PACE’s six-month schedule didn’t permit detailed time-and-effort analyses, so managers provided their best estimates of how employees allocated time among the functions. For example, if a dean spent 20 percent of his or her time on development, that portion of the full-time-equivalent position and the proportional cost was reported under the category of advancement activities, rather than academic administration.
Not surprisingly, this exercise of matching time and effort to core and enabling functions produced mountains of data. On behalf of all the campuses, North Carolina State University hosted the information-gathering process and built a database that allowed the committee to see where UNC was spending its money based on what employees were actually doing—not on chart of accounts definitions or on employees’ roles in their particular organizations.
Areas of Analysis
Because the university took a unique approach to identifying the areas of effort and expenditure, benchmarking the data versus other systems made little sense. Instead, internal comparisons would better identify the areas in greatest need of improvement. Led by chief fiscal officers and the PACE project manager, UNC’s campus managers discussed how best to compare the data across the various locations. Ultimately, they decided to normalize data to allow for an intrasystem comparison of enabling activities, controlling for campus size to the greatest extent possible.
Drawing on the expertise of its institutional researchers, PACE leaders developed standardized metrics (generally in terms of cost per 100 students or output per 100 employees) for assessing each enabling activity. For functions that affected both groups, the index was composed of student and employee headcounts (student/employee index); the auxiliary services department, which serves students and the campus community of employees, is such an example.
Following is a list of some common enabling activities and the metrics for assessing their efforts:
- Academic administration and support—expenditures per 100 headcount of students.
- Accountability activities—number of full-time employees (FTEs) involved in activity per 100 employee headcount.
- Advancement activities—the cost associated with raising $1.
- Auxiliary services—expenditures per 100 headcount of student/employee index.
- Enrollment-related activities—number of FTEs in activity per 100 headcount of students.
- External activities—number of FTEs in activity per 100 employee headcount.
- Facilities management—expenditures per 10,000 gross square feet.
- Fiscal activities—expenditures per 100 headcount of student/employee index.
- Human resources—ratio of issued W-2 forms to FTE employees in activity.
- Information technology—expenditures per 100 headcount of student/employee index.
- Sponsored-project activities—expenditures in research/public service per FTEs in sponsored-project activities.
- Student-service activities—number of FTEs in activity per 100 headcount of students.
None of UNC’s institutions had used these metrics prior to the PACE initiative, and the results raised many intriguing questions. Why, for example, did two or three institutions in the system have one metric so significantly different from their peers? Or, if one institution were far over or far under the metrics reported by the others, might those functional areas be good candidates for cost reallocations?
These metrics were not intended to be prescriptive but rather to provide a starting point for additional study. Typically, the results reported by each campus would form a cluster, with several “outliers” on either side of that cluster. The outlier institutions could then start asking “why?” questions and look further into how they could operate more cost-effectively.
The biggest discrepancy among institutions appeared in the metric for advancement activities. In fact, the amount being spent on fundraising surprised a number of campus representatives, as did the duplication of efforts among various units and departments. And, based on the metric, at least one institution in the system discovered it was spending more than $1 to raise $1.
Breaking Down Barriers
Based on their analysis of the various metrics, PACE members recommended the formation of several systemwide working groups composed of campus managers. Each team, numbering between six and eight members, met face to face and via teleconference over approximately three months. In that short time, each group had frank conversations about the barriers faced by the UNC system and its campuses, identified cost-saving opportunities that might arise if campuses worked together more effectively, and prepared a report with specific recommendations.
For example, one working group concentrated on auxiliary services, encompassing dining, vending, bookstores, textbook rental, and other retail. One of its recommendations, still in development, is the UNC Textbook Buyback Consortium. The idea is to enable students to get the best possible prices for their used books regardless of whether they attend a small or large university within the system. The self-managed consortium would save costs by eliminating the profit margin that typically accrues to independent middlemen or wholesalers.
Out of the working group related to facilities management came the recommendation that all UNC institutions—not just a few—participate in APPA’s Facilities Performance Indicator Survey. All campuses would then have the means of measuring their performance against industrywide metrics.
The three other groups discussed academic administration and support, information technology, and barriers to efficiency and effectiveness. Formation of this last group did not stem directly from the quantitative data collection but from the qualitative feedback garnered through interviews with members of the UNC Board of Governors and with chief financial officers and chancellors of universities throughout the system. The work of the group focused on barriers revealed processes that could be improved but were currently impeded by state regulations or general administration guidelines. Many of these processes related either to construction and leasing or to personnel and human resources.
President Bowles appointed the advisory committee in March 2006 and requested a final report by the following November for presentation to the governing board. So, once the working groups formulated their recommendations, the real sprint to the finish began. PACE finalized the presentation, met the deadline, and received the board’s approval of its plans. UNC then submitted the findings to the state legislature and requested lawmakers’ action on several of the recommendations.
As a result, in July 2007, the North Carolina General Assembly passed the “PACE Bill,” which reworked key statutory requirements to enable the campuses to operate more efficiently. Specifically, legislators removed several barriers at the state level by:
- Raising informal limits for small construction.
- Increasing the dollar limits within which the university may use its own workforce to undertake construction projects.
- Repealing and modifying certain reporting requirements, including the elimination of an annual budget flexibility report.
- Eliminating the requirement for prior approval of an employee’s home as the employee’s duty station.
- Amending certain statutes pertaining to construction and leasing of real property.
In addition to these legislative changes, the PACE initiative led to such systemwide efficiencies as:
Enhanced academic administration and support. Management signed a new contract that guarantees more rapid delivery of library materials across the system, acquired a virtual union catalogue to expedite searches across all library catalogues, and greatly expanded the existing voluntary consortium to leverage systemwide buying power.
Increased auxiliary services. The university partnered with the National Association of College and University Food Services for a suite of professional services designed to maximize operational effectiveness in dining services. It also instituted a mandatory trademark-licensing program at all campuses.
Expanded information technology. IT leadership increased the sharing of professional staff among the campuses (for example, database administrator services); developed a cell phone allowance policy; consolidated mobile communication devices; increased the use of open source software; and developed requirements for server co-location.
Reorganized human resources. Actions included campus-by-campus consolidation and streamlining of personnel functions related to nonfaculty who are exempt from and nonfaculty who are subject to North Carolina’s State Personnel Act.
In addition to organizing the systemwide working groups and compiling the groups’ individual reports into a cohesive document, members of the project team spearheaded the cost-savings initiatives within the general administration office itself. Unlike his charge to the chancellors of the individual campuses, the president charged his own office with identifying a specific amount—10 percent—in hard savings.
To meet that aggressive goal, the internal team at general administration employed a methodology commonplace in the private sector known as mission–activity–end-product analysis. This requires employees to attribute their work time to concrete activities and to link these activities to end products, similar to the way managers across the system had estimated employee time allocation. The resulting analysis provides the organization with a clear picture of administrative costs, the drivers of those costs, and the departments where the costs are concentrated (or dispersed). This tool permits the organization to understand how these activities and end products support (or do not support) the overall mission.
Finance took the lead on this exercise, which essentially asks employees to tell the story of how they spend their time, describe what they have to show for their efforts at the end of the day, and explain how the result supports the organization’s mission. Based on the templates filled out by employees, the general administration office discovered that some positions overlapped and others produced end products that did not justify their staffing expense. As a result, several positions were either eliminated or reconfigured; for example, an office no longer devotes staff time to producing certain internal reports that did not have a clear link to its mission.
Consolidate More, Duplicate Less
Like the general administration office, each campus conducted a review of its own operations and spending. All campuses identified opportunities for administrative savings that could then be redeployed, in some cases using the original metrics as catalysts for further analysis. In other cases, financial managers worked to correct the oddities they had identified.
“On my small campus, most of my managers already wear multiple hats,” admits George Burnette, chief operating officer at the University of North Carolina School of the Arts, Winston-Salem. “So it is very challenging for us to give PACE the time and energy it deserves while attending to those everyday tasks that are vital to our operations.” Despite such challenges, campus managers have engaged in low- to mid-level reorganization strategies to eliminate duplication of effort and consolidate common functions (such as advancement activities) that had become too dispersed.
In the information technology area, some campuses have made greater use of thin-client computer technology, in lieu of widespread use of desktop personal computers; improved PC life-cycle management; and—in at least one instance—outsourced student e-mail. In the business affairs arena, common strategies have included mandatory direct deposits for employee and student payrolls and expense reimbursements as well as greater use of purchasing cards. At least seven campuses engaged in print management strategies designed to save money through consolidation; they reduced the number of fleet printers by networking equipment and using competitive sourcing where appropriate.
Each campus continues to report its progress on a regular basis to the president. Campus efforts have identified more than $32 million in savings plus additional cost-avoidance strategies—and the work is ongoing. The identification of savings and reallocation of resources has enabled the university to more tightly focus and prioritize its budget request for new spending. PACE results also contributed to holding down tuition increases—a key feature of the university’s four-year tuition plan.
The working groups, too, have continued their efforts to identify broader systemic changes. These include active consideration of a systemwide e-commerce initiative and employment of energy-performance contracting with the goal of cutting utility costs. Those focused on human resources have launched a study of middle management for the purpose of aligning funding with priorities and rightsizing staffs.
The PACE project continues to evolve, responding not only to the directives of the original report but also to the real operating environment of the university. In other words, it is not just another document on the shelf gathering dust, but a way to do business.
On a Roll
Maintaining this momentum beyond the initial PACE report calls for each campus to create an environment that seeks and welcomes improvements in business processes. “One of the huge challenges to higher education is having enough managers equipped with skills to engage in effective process improvement,” confirms Beth Hardin, vice chancellor for business and finance at UNC–Charlotte. “To date, my campus has trained an additional 30 managers with the skill sets that they need.”
For budgeting and cost-containment purposes, UNC has continued to use the PACE protocol of separating core activities from enabling functions wherever the costs of the enabling functions occur across the organizational structure. This unique look at the university system provides a true sense of costs by examining what employees are actually doing, not assuming what their titles imply. The process also underscores the overall importance of leveraging the strength of a university system by using the heft of the larger universities to benefit the smaller ones.
This combined approach increases both the efficiency and the effectiveness of the UNC system at a time when legislators are casting critical looks at budget requests and voicing displeasure over tuition increases. “The PACE project,” observes Jeff Davies, Bowles’s chief of staff, “has positioned the university well as we enter a period of funding uncertainty related to the slowing economy.”
JAMES SMITH is associate vice president for finance, the University of North Carolina, Chapel Hill; KRISTA TILLMAN, PACE committee chair, is dean, Hayworth College, Queens University of Charlotte; and HILARY COMAN, PACE project manager, is president, the Coman Company, Charlotte, North Carolina
- NACUBO Expresses Concerns with ED Proposal to Expand Federal Financial Responsibility Rules
- IRS Proposes Modifications to 1098-T Reporting
- ED Policy to Require Annual Student Aid Compliance Audits Beginning FY17
- 2016 Planning and Budgeting Forum
September 19-20, 2016
- 2016 Big Opportunities for Small Institutions
September 20-21, 2016
- 2016 Tax Forum
September 25-27, 2016
- ON-DEMAND: The CBO's Role in Diversity and Inclusion on Campus
- ON-DEMAND: The Clery Act: Strategic Planning to Mitigate Institutional Risk
- ON-DEMAND: Title IX: Key Issues Surrounding Institutional Compliance
- ON-DEMAND: NACUBO Live! Higher Education Accounting Forum
- ON-DEMAND: Responsibility Center Management: Two Different Perspectives