strategic budget planning report

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Strategic Budget Planning May 28, 2009

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P E R F O R M A N C E C O N S U L T I N G

OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP

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C O N S U L T I N G

Table of Contents

Workshop Agenda ......................................................................................................3

HLC Accreditation Criteria............................................................................................4

Cost Reduction...........................................................................................................5

Cost Avoidance ..........................................................................................................6

Cost Reduction Opportunities.......................................................................................7

Seven Reasons for Measuring Performance....................................................................8

Cost Reductions: A Systems Perspective ......................................................................9

Cost Reduction Impact..............................................................................................11

Cost Reduction Benefits ............................................................................................12

Suggestion System...................................................................................................13

Cost Reduction Process .............................................................................................15


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Workshop Agenda

8:00 a.m. Welcome and budget outlook (VP Rinker)

Higher Learning Commission: Accreditation Criteria (Dr. Evans)

Cost reduction: Definitions and examples

Activity 1: Brainstorm cost reduction opportunities

Cost reduction: Metrics

Cost reductions: A systems perspective

Activity 2: Identify cost reduction impact

Activity 3: Cost reduction benefits

Tap Your Knowledgebase: Utilizing employee suggestions

Making It Work: Implementing cost reduction strategies

Activity 4: Due diligence example

Questions or concerns

Concluding remarks (VP Rinker)

12:00 p.m. Adjourn and Lunch


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HLC Accreditation Criteria

Dr. Eileen Evans reviewed the five Criteria for Accreditation set

forth by The Higher Learning Commission and discussed how

specific core components and examples of evidence relate to the work of the Office of Budget and Finance.

Criterion Criterion Statement

Mission and

Integrity

The organization operates with integrity to ensure the fulfillment

of its mission through structures and processes that involve the board, administration, faculty, staff, and students.

Preparing for

the Future

The organization’s allocation of resources and its processes for

evaluation and planning demonstrate its capacity to fulfill its

mission, improve the quality of its education, and respond to future challenges and opportunities.

Student

Learning and

Effective Teaching

The organization provides evidence of student learning and

teaching effectiveness that demonstrates it is fulfilling its

educational mission.

Acquisition,

Discovery,

and

Application of Knowledge

The organization promotes a life of learning for its faculty,

administration, staff, and students by fostering and supporting

inquiry, creativity, practice, and social responsibility in ways consistent with its mission.

Engagement

and Service

As called for by its mission, the organization identifies its

constituencies and serves them in ways both value.


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Cost Reduction

While cost reduction efforts have been ongoing for the Office and

Business and Finance, the purpose of this review was to explore

the wide range of cost reduction options and to include a wide range of the OBF leadership in this discussion.

Cost Reduction

Definition Long-term sustainable tangible bottom line cost savings to the

base budget.

Examples � True savings – not cost-shifting

� Direct reduction of expense or a change in

process/technology/policy that directly reduces expenses

� Process improvements that result in real and measurable cost

reductions

� Changes in existing products or services, contractual

agreements, or processes that reduce cost (e.g., moving from paper paychecks to electronic paychecks)

� Net reductions in prices paid for items procured when

compared to prices in place for the prior 12 months or a

change to lower cost alternatives

� Reduction in overhead cost

Revenue

Auxiliary services discussed revenue generation with a focus on

� Sustainability

� Ability to be incorporated into the base budget

Cost Reduction

Cost Avoidance


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Cost Avoidance

Cost Avoidance

Definition A specific instance of cost reductions resulting from expenses that

are lower than expenses would have been had the cost avoidance

not been undertaken.

Examples � Up-front investments reduce overall expenses in one or more

categories over a multi-year initiative.

� An increase in output occurs without increasing resource

expenditure (the cost avoidance savings is the amount that would have been spent to handle the increased output)

� Expenses are higher due to higher demand but overall cost

per unit is lower

� Process improvements or product replacements resulted in a

lower operating cost or cost per unit compared to what the

organization would have spent had it not improved the

process or replaced the product

� Process improvements that do not immediately reduce cost or

assets but provide benefits through improved process

efficiency, employee productivity, improved customer satisfaction, improved competitiveness, etc.

� Resisting or delaying a supplier’s price increase

� Purchase price is lower than the original quoted price

� Value of additional services at no cost, e.g., free training

� Long-term contracts with price-protection provisions

� Product substitution


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Activity 1 Cost Reduction

Opportunities

Participants identified how cost reduction opportunities could help

them continue to provide services in the present climate of

shrinking resources with minimal impact on customers and operations.

Automate processes (e.g., electronic forms)

Bid more items (requires more lead time)

Cell phones versus landlines

Conduct strategic RIFs in crisis mode only

Consolidate backroom operations

Cross boundaries – broaden job classifications

Examine processes

Explore external partnerships

Economy of scale

Cost-sharing

Extend life of hardware and software

From paper communication to electronic communication

(mailings, RFPs, etc.); save paper and postage

Leverage students as work-force, but don’t lose sight of WMU’s mission

Purchasing discounts

Reduce redundancies

Reduce salary to avoid layoffs

Reduce staff and energy cost (close 1 or 1/2 day per week)

Reorganize staff (e.g., via attrition)

Scrutinize travel requests – travel should be benefit-based

Share supplies (office and academic)

Space utilization and consolidation (energy savings)

Standardize equipment and reduce inventories


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Seven Reasons for

Measuring Performance

“If you can’t measure it, you can’t manage it!”

Dr. W. Edwards Deming

1 What gets measured gets

done.

Are we measuring the right

things?

2 If you don’t measure results,

you can’t tell success from failure.

Are we counting activities or

results?

3 If you can’t recognize

success, you can’t reward it.

Are our performance

standards specific enough?

4 If you can’t reward success,

you’re probably rewarding failure.

Are we measuring results and

communicate success?

5 If you can’t recognize

success, you can’t learn from it.

Are we identifying

benchmarks?

6 If you can’t recognize failure,

you can’t correct it.

Can we identify failing

programs, services, or

program components?

7 If you can demonstrate

results, you can win public support.

Do our programs receive and

maintain strong public support and funding?

Based on J. Walters (1998). Measuring Up: Governing's guide to performance measurement

for geniuses and other public managers. Washington, DC: Governing Books.


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Cost Reductions: A Systems Perspective

What is a

system?

A system is a set of elements standing in interrelation among

themselves and with the environment.

Your

Depart-

ment as a System

The two

feedback

loops are

critical

elements

necessary to

adapt and

guide the

organizational system.

The OBF /

WMU as a System

The OBF - and

WMU as a

whole - is a

system that

contains many

departmental subsystems.

(based on Brethower 1972, 1982, 1995)

Mission and Vision

Resources

Process Feedback

Services &

Products

Outcome Feedback

Clients,

Customers,

Stakeholders,

Community

Mission and Vision

Internal

Processes

Resources

Process Feedback

Services &

Products

Outcome Feedback

Clients,

Customers,

Stakeholders, Community


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System Components

Mission and

Vision The major purpose - or reason for the existence - of a system.

The vision provides strategic direction.

Resources Information, technology, people, money, or material that is a

resource for – or initiates – an internal work process.

Internal

Processes Processes that use resources to generate outputs valued by

clients, customers, and stakeholders.

Process

Feedback Internal information about the internal performance (efficiency

and quality) of individuals, work groups, or processes. This

information becomes a resource used for guiding performance.

Services and

Products Outputs produced by the internal processes. Can be tangible

products or intangible services.

Clients

Customers

Stakeholder Community

Anybody receiving or benefitting from the organizations’ services

or products directly or indirectly.

Outcome

Feedback External information about service outcomes and quality from

customers and other external sources. This information becomes

a resource used for guiding performance used to guide

performance.


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Activity 2 Systemic Cost Reduction Impact

In small groups, participants identified the potential positive and

negative impacts of cost reductions and shared their top three

items with the full group.

Positive Impact Negative Impact

Resources

More efficient and streamlined operations

Use new technologies

Reduce energy cost

Reduced services for reduced staff

Reduced morale

Going without supplies or equipment

Internal

processes

Increasing automation (e.g., registration)

More creative ways to get to the end result

Shared services, consolidation

Internal funding – structural disparities

Demoralized workforce

Reduced image and services within the community

Services and

products

Streamline function and increase efficiency

Allows us to look outside the box – flexibility

Opportunity to find a better product or improve service

Decrease in quality

Decreased service to customers

More work for other areas

WMU

customers

(students,

faculty, staff)

Keep “product” affordable – this is critical to organizational survival

More efficiencies of operations

Effectiveness will suffer as efficiency becomes main driver

• Satisfaction levels can impact current and future enrollment

Fairness of impact is critical to employee and student morale

External

customers

(non-WMU)

We are valued as a role

model/resource to external constituents on processes/ practices/policies

We are quicker, more consistent, and more complete in delivering services

Economic driver for community – local and state

Technology/processes become an

obstacle to external constituents from interacting with us

Lose our appeal/ attractiveness/humanity/uniqueness

Service doesn’t meet expectations –

image issues; public perception becomes negative

Long-term

impact for WMU

Cost containment/tuition

Forces efficiency

Public support – accountable for using money wisely.

Staff workload and morale

Impact on services

Asset decline

Perception

Reduced attendance

Negative impact must be planned for and managed very carefully!


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Activity 3 Cost Reduction Benefits

Participants suggested ways for communicating the benefits for

implementing and documenting cost reductions throughout the

organization.

Broader goals than just our department

Creativity energized – not stagnant in our thinking

Focus on efficiency

Focus on the bigger picture

Focus on what you / we have control over

Less dependent on external funding

Long-term survival of the department and WMU

Maintain and increase wages in the long term

Minimized financial burden to students

Opportunity

Promotes team work

Stewardship of university resources

Sustainability of services


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Suggestion System

Purpose • Provide an ongoing opportunity for employees to submit new

and creative cost savings or revenue generating ideas

• Provide an objective review and evaluation of the merits of

employee suggestions

• Provide feedback and recognition to employees for their

suggestions

What are

eligible suggestions?

Any suggestion from an employee or team of employees which is

useful, practical, constructive and is of benefit to the department or the Office of Business and Finance.

Suggestion may address one or more of the following areas:

• Cost reduction

• Cost avoidance

• Productivity improvements

• Process efficiencies (reduction or elimination of bottlenecks,

duplication, waste, etc.)

• Energy resources

• Employee resources or employee morale

What are not

eligible suggestions?

• Anonymous suggestions (to allow follow-up in case of

questions about a suggestion)

• Complaints and grievances

• Changes in salary/classification/benefit

• Enforcement of existing rules, policies, procedures, or

regulations

• Routine maintenance matters

• Routine requests for supplies and services

• Expected as a normal part of an employee's job duties

• Suggestions that are unclear or non-specific

• Violations or contradictions of negotiated agreements

Comments

offered by

participants

• Stewardship of university resources

• Quick implementation of suggestion is key to sustainability

• We are all pieces of the same puzzle


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Suggestion Process

The single most important factor in any employee suggestion

system is the way supervisors and managers treat suggestions.

1 Employees submit suggestions

• Suggestion should meet established criteria

2 Departmental review team reviews suggestion

• Monthly or less frequent as needed

• Team represents cross-section of expertise

3 Review team explores feasibility

• Is it legal? Have we tried this before? What’s the impact?

• How much could we save? Should we do it?

4 Review team posts all go/no-go decisions

• Bulletin board

• Online / Intranet

5 Recognize & reward implemented suggestions

• Within department

• Entire OBF

Don’t forget to ask your customers!


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Cost Reduction Process

Many OBF departments have substantial experience in developing

and implementing cost reductions. It was commented that in

addition to reduced revenue streams and increasing cost of doing

business, new regulations and unfunded mandates continue to

place a burden on already scarce resources.

This proposed process, while simple, is intended to facilitate a

productive cost reduction dialogue across all layers of the

organization.

1

Phase 1 – Due Diligence

• Invite and review cost reduction suggestions from leadership,

staff, and customers

• Define cost savings metrics

• Estimate potential reductions over (1) the next year and (2)

next three years (cost-benefit analysis)

• Identify the potential positive and negative impact on your

department’s operations

• Identify the potential positive and negative impact on your

department’s customers

• After completing due diligence, determine whether the cost reduction should be implemented

2

Phase 2 - Implementation

• Prioritize recommendations for implementation

• VP Rinker approves recommendations

• Communicate and implement approved recommendations

3 Phase 3 – Continuous Improvement

• Track and report actual savings (six months, annually)

• Improve cost saving strategies (ongoing)


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Activity 4 Cost Reduction Example

Using the newly created Facilities Management department as an

example, participants walked through Phase 1 scenarios of the

proposed cost reduction process.

• Invite and review cost reduction suggestions from leadership,

staff, and customers through regular meetings focused on process improvement

Example 1:

Easier project initiation

Example 2:

Product standardization

1 Invite and

review suggestions

• Reduce number of

incorrect work orders that

result from a complicated

project initiation process.

Incorrect work orders are

costly because they have

to be re-issued.

• Reduce number of

different building products

(e.g., ceiling tiles, paint)

or types of university-

owned vehicles. A large

variety of products

increases storage space,

unit cost, order time, and training requirements.

2 Define metrics

• Cost per incorrect work

order

• Facility cost for storage

space

• Unit cost of building

products

• Cost of training

maintenance personnel

3 Estimate

reductions

• Cost avoided due to fewer

incorrect work orders compared to baseline

• Cost avoided through

fewer special orders

• Facility cost savings over

baseline

4 Identify

impact on operations

• Reduced operating cost

• Free up staff time

• Reduced inventory levels

• Free up building space

• Reduced inventory cost

• Reduced staff training cost

5 Identify

impact on customers

• Faster response to service

requests

• Faster response to service

requests (items in stock or

can be ordered more

quickly)

• Less variety in building

materials


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Contact Information

Contact Lowell P. Rinker, Vice President for Business and Finance & CFO

Treasurer for the Board of Trustees

Phone

Fax

(269) 387-2365

(269) 387-2356

Email

Web Site

[email protected]

www.obf.wmich.edu

Address Western Michigan University

3080 Seibert Administration Building

Kalamazoo, Michigan 49008-5203

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Contact Dr. Peter Dams, President

Phone

Fax

(269) 501-3000

(866) 472-0554 toll-free

Email

Web Site

[email protected]

www.damsandassociates.com

Address 8449 35th Street South

Scotts, Michigan 49088

strategic budget planning report

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