Administrative Services Transformation at the University of Michigan

Presentation to the Higher Education and Workforce Development Committee of the Minnesota Senate
Rowan A. Miranda, Ph.D. AVP for Finance University of Michigan (rowanm@umich.edu)

March 14, 2013

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q & A Session

Profile
Organization 3 campuses (Ann Arbor, Dearborn, & Flint) 19 Schools & Colleges in Ann Arbor 42,000 faculty and staff Students 59,000 students Academic and Research Excellence Academic Programs Ranked in Top 10: 95 Times World University World Reputation Rankings: 12 out of 100 (2013) Research Spending: $1.2B Financial Strength Operating Revenue - $6.4B (includes health system) (FY2013) Endowment Size - $7.8B Bond Ratings S&P (AAA), Moodys (Aaa)
3 3

State Appropriations Funding Gap

Core Financial Principles

Disciplined operating budget strategy Conservative utilization of debt Continue to diversify revenue streams

Adherence to long-range capital investment strategy, with emphasis on infrastructure renewal Preservation and growth of endowment funds (spending rule) Sustained focus on cost containment

Cost Containment as a Financial Principle

To enable us to make investments in our highest priorities, we have implemented a very aggressive cost containment program. Phase I: FY03-FY09: $135M (recurring funds) Phase II: FY10-FY12: $100M (recurring funds)

For the past ten years, all our new investments have been funded through re-allocation of savings.
6

Phase III: FY13-FY17: $120M (recurring funds)

 Assessment of Academic Programs/Centers & Institutes Health Benefits Facilities Maintenance Improvements & Efficiency IT Rationalization Strategic Sourcing in Procurement Administrative Shared Services

Major Cost Containment Efforts

Cost Containment Supports Investments in Academic Excellence

Key investments in recent budgets focus on: Recruiting and retaining outstanding faculty Enhancing our students academic experience through continued focus on student/faculty ratio and innovative uses of technology to assist learning Planning for the renewal of key academic facilities and save money by avoiding piecemeal renovations and repairs Maintaining the value and distinction of the Universitys library collection

Note: The Department of Educations recent report on College Affordability and Transparency shows that U-Ms net price increase was lower than 567 of 650 institutions in the public four-year category
8

Expanding centrally awarded undergraduate financial aid now totals $100 million, an increase of 10.1% over FY 2012

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q&A Session

Challenges Delivering Administrative Services in Higher Education

Administrative activities are often replicated by line units (schools, departments, auxiliaries): Business processes lack standardization and arent focused on outcomes
Finance, HR, Procurement, & Information Technology Student Services, Research Administration, Communications/Marketing, and Development/Fundraising

Administrative services are often delivered in a decentralized manner & mix policy and transactional activities which reduces efficiency & effectiveness

Processes based on incremental decisions made in the past rather than leading business practices Suboptimal use of enterprise systems, excessive reliance on standalone/shadow systems Transactional activities crowd out strategic/analytical work Poor compliance and weak internal controls environment
10 10

Administrative functions are staffed to support peak demand periods Inability to achieve an optimum scale of service in some units Administrative services arent core to what the school or unit does

Summary Data

University engaged The Hackett Group in August 2009 Hackett is the leading firm in benchmarking administrative functions Jointly sponsored by CFO, Provost & EVP of Health System Organizations in Benchmarking Efforts Ann Arbor campus Functional Scope Key Events
Campus Academic and Business Units University of Michigan Health System (UMHS) Flint, Dearborn campuses were not included in most of the study Finance Procurement HR/Payroll Information Technology Communications Student Services Administration Research Administration (Pre & Post Award) Development/Fundraising

Benchmarking Process

Participation was very high (more than 90% of the campus is covered by the data collection)
11

September 2009 Project was kicked off with focus on organizing for data collection October 2009 Data collection began and ran through the end of December (12 weeks) January 2010 Data validation/scrub to explain outliers and complete missing data February 2010 Hackett Group conducted statistical analysis Spring 2010 Findings discussed with UM leadership Summer 2010 Communication of results across campus

Hackett Group Benchmarking Approach

Benchmark Comparisons

U-M Peer Group

Cross Industry Medians

World Class Performance

12

Nearly 2/3 of the cost and staffing for Finance occurs in the schools & units; much of the local work is transactional rather than strategic in nature
Total Cost Allocation
10% 1% 8% 16%

Preliminary Results

Resource Allocation
5% 3%

Staff Mix
22%

Central
81%

Labor Outsourcing Technology Other

76%

Transaction Processing Control & Risk Management Planning and Strategy Mgmt & Admin

36% Manager Professional Clerical

Total Cost =$22.62 M Total Cost =$22.62 M

6% 0% 6%

FTEs = 244.9 FTEs = 244.9

1% 21%

42%

23%

Local
88%

Labor Outsourcing Technology Other

1%

Transaction Processing Control & Risk Management Planning and Strategy Mgmt & Admin

43%

Manager Professional Clerical

77%

34%

Total Cost =$44.78 M Total Cost =$44.78 M

*Based on subset of UM-Campus benchmark locations

FTEs = 533.2 FTEs = 533.2

13

13

The 66% Rule about 1/3 of the costs are centrally located & 2/3s are local/unit level Process Fragmentation while processes were standardized within central functions, processes varied greatly at the local/unit level. Many improvement opportunities especially as it relates to better use of workflow Misplaced Professionals Rule a greater mix of managers & professionals do transactional work compared to similar sized private sector companies Low Span of Control most managers oversee the work of a few people (e.g., 1 to 4) compared to private sector companies

General Findings from Benchmarking

The 75% Rule about 75% of the work done at the unit level is transactional rather than strategic/analytical

Underutilization of ERP/Financial Systems organic growth of shadow systems at the local/unit level that replicate what the central systems often do better
14

Outsourcing minimal use or appetite for outsourcing, even in areas such as IT where the outsourcing market is mature

Identification and Prioritization of Initiatives

What is the size of the savings opportunity?

Finance Area of Opportunity Annual Savings Estimate (ranges) Up to $22 M Up to $3 M Up to $5M

Strategic Sourcing

Procurement (Administration) Human Resources Information Technology Total

$10M 20 M Up to $80M $25M-$30M

Note: (1) Estimates of savings are based on benchmark results and industry experience. (2) Each area of opportunity requires a business case before savings estimates can be finalized for budgetary purposes. (3) To achieve savings estimates requires one-time and on-going investments as specified in a business case.

15

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q&A Session

16

Finance process areas include:

Human Resources process areas include:

Onboarding Administration, Exit Management and Relocation and Immigration Benefits & Savings Administration Time & Leave Administration HR Data Management & Reporting
17

Accounts Payable Accounting (Reconciliations and Journal Entries) Billing & Accounts Receivable (non-patient related) Travel & Expense Reimbursement

Administrative Services In Scope for Shared Services 1.0

The Many Shades of Shared Services

College / Unit-Driven Model Administrative Service by Unit
Central Administration
HR Finance Procure ment Other Admin Svcs HR

Service-Driven Model Administrative Service by Region

Regional Center
Fin Procur ement Other Admin Svcs Unit

Client-Driven Model Administrative Shared Services

Shared Service Center
HR Finance Procurement

Unit
HR Fin Other Admin Svcs HR

Unit University-wide Strategy and Policy

Fin

Unit

Unit

Unit

Unit

Other Admin Services

Central Administration

Proc

Proc

Central Administration

Other Admin Svcs

Regional Center
HR Fin Procur ement Other Admin Svcs Unit

University-wide Strategy and Policy

Regional Hub

Regional Hub

Regional Hub

Unit
HR Fin Other Admin Svcs HR

Unit
Fin Other Admin Svcs

Specialized Services

Specialized Services

Specialized Services

Specialized Services

Specialized Services

Specialized Services

Specialized Services
Unit

Specialized Services

Unit

Unit

Unit

Unit

Proc

Proc

Regional Center
HR Fin Procur ement Other Admin Svcs Unit

Unit
HR Fin Other Admin Svcs HR

Unit
Fin Other Admin Svcs

Proc

Proc

Unit

Unit

Unit

Unit

Unit

Unit

Unit

Unit

Key:

Strategic Services

18 18

Commoditized Services

Specialized Services

The $17M-$20M in annual benefits is achieved through three integrated actions deployed through a Shared Services model.
The integrated actions include: Span of Control Adjustment Process Standardization Reduction of Non-Value Added Work Salaries Aligned to Market

Cost Savings through Shared Services

Benefit estimates come from a detailed process design that is created with insights and feedback from U-M schools and units Approximately 2,700 people at U-M currently spend some level of time on the in-scope administrative services Some positions will be reduced thru attrition, workforce reduction, and reassignment over the implementation period
19

Demographics of planned retirements help minimize negative impact on the workforce

19

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q&A Session

20

UMs Shared Services Overview

Timeline (36-48 months)
Decision Gates

Benchmarking and Opportunity Identification

Business Case Analysis

Shared Services Center Design

Shared Services Implementation

Administrative Services Transformation

1a
Creative Staffing & Shared Services Task Force

FY 2012
Q1 Q2 Q3 Q4 Q1 Q2

FY 2013
Q3 Q4 Q1 Q2

FY 2014
Q3 Q4

SPG Refresh Service Management & Contact Center HR Shared Services Wave 1 University-Wide Time Reporting HR Shared Services Wave 2 Finance Shared Services Wave 1 Finance Shared Services Wave 2 Advanced HR Capabilities Wave 1

1b

21

Mission, Vision and Guiding Principles

(a work in progress)
MISSION STATEMENT The Administrative Services Center is a customer focused service organization focused on providing user-friendly, cost effective and expert administrative services to support the Universitys missions of teaching, research and public service. VISION STATEMENT U-M Administrative Services Center will be the go to, most trusted University resource for all administrative services, while also providing growthoriented and creative employment opportunities for our workforce. GUIDING PRINCIPLES 1. Operate efficiently. 2. Provide the best customer service. 3. Be the experts. 4. Provide a creative, growth-oriented staff environment. 5. Deliver services reliably. 6. Ensure sustained continuous improvement efforts. 7. Tailor some services to customer needs and price accordingly. 8. Operate with a partnership mindset. 9. Work is done right the first time. 10. Minimize work shifts on the faculty

Administrative Services Center

22

Implementation Timeline for Shared Services 1.0

2013
Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Jan Comms Plan

2014
Feb Mar Apr

Change Management and Communications Activities

FIN Go-Live

Finance Process/Policy Build HR Process/Policy Build SSC Org Design / Sizing Staffing Approach / Transition Planning Governance Model Call Center Build-out Deployment Planning Facility Selection Tech Req Facility Build-out Technology Build-out
23

Unit Org Design Training

Testing and Transition

Design and Implementation Challenges

Funding for Project Investment Impact on the Workforce Sponsorship Across the Organization

Minimizing the Impact on Faculty Teaching & Research Communications and Change Management Fractional FTE Issue and Getting to Scale Can Shared Services even work in higher ed.?

24

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q&A Session

25

Tips and Traps

Tip Trap Tip Trap Tip Trap Tip Trap Ignoring the role of governance define it up front Dont propose a solution before defining the problem

Be honest in assessing your needs for outside consulting support Implementing big, when capacity & support to do so is small
26

Diluting the solutions impact by compromising on the key causal drivers that deliver the value

Top down approach without sufficient collaboration from administrative with academic/auxiliary units

Approach the project as a comprehensive strategy rather than an incremental look at operations

Utilize site visits to increase confidence that it can really be done!

Agenda
1 2 3 4 5 6 Background and Context Benchmarking Administrative Services Assessing the Business Case for Shared Services Shared Services Design and Implementation Tips and Traps Q&A Session

27

Q &A

28