administrative services transformation at the university of michigan

Administrative Services Transformation at the University of Michigan

March 14, 2013

Presentation to the Higher Education and Workforce Development Committee of the Minnesota Senate

Rowan A. Miranda, Ph.D.

AVP for Finance University of Michigan ([email protected])

mailto:[email protected]

Agenda

2

Benchmarking Administrative Services 2

Background and Context 1

Shared Services Design and Implementation 4

Assessing the Business Case for Shared Services 3

Q & A Session 6

Tips and Traps 5

Profile

3

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), Moody’s (Aaa)

3

4

State Appropriations Funding Gap

Core Financial Principles

Disciplined operating budget strategy

Continue to diversify revenue streams

Adherence to long-range capital investment strategy, with emphasis on infrastructure renewal

Conservative utilization of debt

Preservation and growth of endowment funds (spending rule)

Sustained focus on cost containment

5

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)

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

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

6

Major Cost Containment Efforts

Assessment of Academic Programs/Centers & Institutes

Health Benefits

Facilities Maintenance Improvements & Efficiency

IT Rationalization

Strategic Sourcing in Procurement

Administrative Shared Services

7

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 University’s library collection Expanding centrally awarded undergraduate financial aid now totals $100

million, an increase of 10.1% over FY 2012 Note: The Department of Education’s recent report on College Affordability

and Transparency shows that U-M’s net price increase was lower than 567 of 650 institutions in the public four-year category

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Agenda

9





Q&A Session 6

Tips and Traps 5

10

Challenges Delivering Administrative Services in Higher Education

Administrative activities are often replicated by line units (schools, departments, auxiliaries): Finance, HR, Procurement, & Information Technology

Student Services, Research Administration, Communications/Marketing, and Development/Fundraising

Business processes lack standardization and aren’t focused on outcomes

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

Administrative functions are staffed to support peak demand periods

Inability to achieve an optimum scale of service in some units

Administrative services aren’t “core” to what the school or unit does

Poor compliance and weak internal controls environment

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

10

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

Campus Academic and Business Units University of Michigan Health System (UMHS) Flint, Dearborn campuses were not included in most of the study

Functional Scope Finance – Communications Procurement – Student Services Administration HR/Payroll – Research Administration (Pre & Post Award) Information Technology – Development/Fundraising

Key Events 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

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

Benchmarking Process

Summary Data

11

Hackett Group Benchmarking Approach

12

Benchmark Comparisons • U-M “Peer Group”

• Cross Industry Medians

• “World Class” Performance

13

Preliminary Results

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

0%

6%6%

88%

LaborOutsourcingTechnologyOther

8%

1%10%

81%

LaborOutsourcingTechnologyOther

Total Cost =$22.62 MTotal Cost =$22.62 M

22%

42%

36%

ManagerProfessionalClerical

Staff Mix

16%

5% 3%

76%

TransactionProcessingControl & RiskManagementPlanning and Strategy

Mgmt & Admin

Resource Allocation

FTEs = 244.9FTEs = 244.9

Central

Local

Total Cost Allocation

Total Cost =$44.78 MTotal Cost =$44.78 M

23%

34%

43% ManagerProfessionalClerical

1%

21%

1%

77%

TransactionProcessingControl & RiskManagementPlanning and Strategy

Mgmt & Admin

FTEs = 533.2FTEs = 533.2*Based on subset of UM-Campus benchmark locations 13

General Findings from Benchmarking

14

The 66% Rule – about 1/3 of the costs are centrally located & 2/3’s are local/unit level The 75% Rule – about 75% of the work done at the unit level is transactional rather than

strategic/analytical 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 Underutilization of ERP/Financial Systems – organic growth of shadow systems at the

local/unit level that replicate what the central systems often do better Outsourcing – minimal use or appetite for outsourcing, even in areas such as IT where the

outsourcing market is mature

Area of Opportunity Annual Savings Estimate (ranges)

Finance Up to $22 M Procurement (Administration) Up to $3 M Human Resources Up to $5M Strategic Sourcing $10M – 20 M Information Technology $25M-$30M

Total Up to $80M 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.

What is the size of the savings opportunity?

Identification and Prioritization of Initiatives

15

Agenda

16





Q&A Session 6

Tips and Traps 5

Finance process areas include: Accounts Payable Accounting (Reconciliations and Journal Entries) Billing & Accounts Receivable (non-patient related) Travel & Expense Reimbursement Human Resources process areas include: Onboarding Administration, Exit Management and Relocation

and Immigration Benefits & Savings Administration Time & Leave Administration HR Data Management & Reporting

Administrative Services In Scope for “Shared Services 1.0”

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18

College / Unit-Driven Model “Administrative Service by Unit”

Service-Driven Model “Administrative Service by Region”

Client-Driven Model “Administrative Shared Services”

Unit

HR Fin

Proc Other Admin Svcs

Regional Center

Unit Unit Unit Unit Unit

HR Fin Procurement

Other Admin Svcs

Shared Service Center

HR Finance Procurement

Other Admin Services

Regional Hub

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces

Regional Hub

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces

Regional Hub

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces

Spec

ializ

ed S

ervi

ces


Cent

ral A

dmin

istr

atio

n

Uni

vers

ity-w

ide

Stra

tegy

and

Pol

icy

Unit

HR Fin


Unit

HR Fin


Unit

HR Fin


Unit

HR Fin


Unit

HR Fin


Regional Center


HR Fin Procurement

Other Admin Svcs

Regional Center


HR Fin Procurement

Other Admin Svcs

Central Administration

HR Finance Procurement

Other Admin Svcs

Cent

ral A

dmin

istr

atio

n

Uni

vers

ity-w

ide

Stra

tegy

and

Pol

icy

Key: Strategic Services Commoditized Services

The Many “Shades” of Shared Services

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Cost Savings through Shared Services

The integrated actions include:

Span of Control Adjustment Process Standardization Reduction of “Non-Value Added” Work Salaries Aligned to Market

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

Demographics of planned retirements help minimize negative impact on the workforce

The $17M-$20M in annual benefits is achieved through three integrated actions deployed through a Shared Services model.

19

Agenda

20





Q&A Session 6

Tips and Traps 5

UM’s Shared Services Overview

Shared Services Center Design

Benchmarking and Opportunity Identification

Business Case Analysis

Shared Services Implementation

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Adm

inis

trat

ive

Serv

ices

Tra

nsfo

rmat

ion

FY 2012 FY 2013 FY 2014

HR Shared Services Wave 1

Advanced HR Capabilities Wave 1

University-Wide Time Reporting

Finance Shared Services Wave 1

Finance Shared Services Wave 2

HR Shared Services Wave 2

SPG Refresh

Service Management & Contact Center

Creative Staffing & Shared Services Task Force

Timeline (36-48 months)

Decision Gates

1a

1b 2 3 4

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Administrative Services Center 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 University’s 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 growth-oriented 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

22

Implementation Timeline for Shared Services 1.0

2013 2014

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

Plan

Deployment Planning

Finance Process/Policy Build

HR Process/Policy Build

SSC Org Design / Sizing Unit Org Design

Staffing Approach / Transition Planning

Facility Build-out Facility Selection

Technology Build-out

Call Center Build-out

Governance Model

Change Management and Communications Activities

Tech Req

FIN Go-Live

Training

Testing and Transition

23

Design and Implementation Challenges

24

Funding for Project Investment

Sponsorship Across the Organization

Minimizing the Impact on Faculty Teaching & Research

Impact on the Workforce

Communications and Change Management

“Fractional FTE” Issue and Getting to Scale

“Can Shared Services even work in higher ed.?”

Agenda

25





Q&A Session 6

Tips and Traps 5

26

Tip Don’t propose a solution before defining the problem

Trap Ignoring the role of governance – define it up front

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

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

Tip Be honest in assessing your needs for outside consulting support

Trap Diluting the solution’s impact by compromising on the key causal drivers that deliver the value

Tip Utilize site visits to increase confidence that “it can really be done!” Trap Implementing big, when capacity & support to do so is small

Tips and Traps

Agenda

27





Q&A Session 6

Tips and Traps 5

28

Q &A

administrative services transformation at the university of michigan

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