Core Council committee finds millions of dollars in cost-savings

August 28, 2011

UNIVERSITY PARK, Pa. -- When Penn State's tuition rates were approved by the Board of Trustees in July, the increase was much lower than expected, given the 19 percent cut to the University's state appropriation. Part of the reason the University was able to keep tuition down was the work done by the Core Council, chaired by Executive Vice President and Provost Rod Erickson, and the Academic and Administrative Services Review Coordinating Committee, led by Al Horvath, senior vice president for Finance and Business.

Mainly through changes in big-ticket items, including employee benefits and energy savings, the committee identified $10 million in permanent cost-savings for the University – and it's not done yet.

Health care costs are a major expense for the University, so it was one of the first areas examined. In January, the University changed the retirement health benefit for new employees. All new employees as of Jan. 1 now have health savings accounts, rather than having the defined benefit plan into which all existing employees were grandfathered. "That change alone, over the next 30 years, will save us an estimated $3 billion," Erickson said.
Health care plans for current employees also changed, including deductibles and co-insurance. For more information about these changes, visit online.
Utilities costs also are a major drain on the University's budget, so the committee has been looking for ways to use less energy. "We've invested in energy-savings projects that over time reduce utility costs. We do simple things such as training. We changed our temperature policy in buildings, setting the thermostats a little higher in the summer and a little lower in the winter to be able to save energy. We've been more aggressive in our procurement strategies with the utility companies. All of those things together have enabled us to really hold the line in terms of utility cost increases," Horvath said.
To see major cost-savings, it's important to look at the big picture. "We are examining how the University as a whole operates. There are processes and functions that aren't contained within a single unit, but rather span the entire University," Horvath said.
"Penn State’s organizational culture in many ways encourages decentralization and respects grass-roots expertise and decision-making, and I think that, in the big picture, definitely has mostly been positive; it allows the smart, productive, responsive use of resources by people who know their jobs," said Mike Dooris, interim executive director of the Office of Planning and Institutional Assessment. "But it can make it challenging to get a handle on activities that are woven across the fabric of the University." In times of diminishing financial resources, such operating practices may not be cost-effective. 
Information technology is one example of this. "Information Technology Services (ITS) is looked at as the home of IT at Penn State, but the reality is that the vast majority of resources dedicated to IT exist outside of the ITS organization," said Horvath. "As needs emerged, people's jobs evolved and departments created units to handle their IT needs. We've gotten to where we are today organically, not by design. The question is, should we still look this way, should we still operate this way, can we afford to operate this way? If not, where are the places we are thinking about making some changes?"
Another example Horvath cited is institutional reporting; that is, information the University provides to outside organizations such as the Integrated Postsecondary Education Data System (IPEDS), the primary federal source for data on colleges, universities, and technical and vocational postsecondary institutions in the United States.
The Budget Office does a lot of institutional reporting. The Office of Planning and Institutional Assessment, the Division of Student Affairs and the Office of Undergraduate Education all undertake institutional research and some reporting. There are other units where similar kinds of activities take place as well. One of the recommendations that came out of the process is to look further at whether or not there are opportunities to do things in a more effective way, to search out potential redundancy, to be sure that multiple units aren't surveying the same populations or responding to the same external requests for information. 
In addition, Dan Heist, director of internal auditing and a member of the administrative committee, said they are looking at the types of information being gathered and reported. "We're looking at what can be consolidated in order to create more efficiency," he said. "We need to go through the process of identifying where we can do things better. If things have developed in a way where things aren't being done efficiently, we have to fix them."
Going beyond efficiency, Horvath said consistency in the level of quality also is an issue when functions grow organically. An example he gave is communications. The University has a need for communicators in specific areas to address the unique communications needs found in diverse academic areas. "A place like Penn State can have a world-class musical theatre program, as well as a world-class materials science program. That's pretty broad in terms of discipline. Some of the things you need to do to support those areas need to be located closer to where the action is," he said. "At the same time, you need to make sure that everyone who is communicating on behalf of the University is operating at the same high level of quality and addressing the overall communications goals of the University." Part of what Horvath's committee is doing is looking at the best way to achieve this level of quality and consistency University-wide.
In addition to its big-picture evaluations, the committee is looking at efficiencies within specific administrative units. In that way, the committee is similar to the other Core Council committees that have been working to make Penn State a more efficient and effective institution. 
"We were fortunate to benefit from seeing what the other committees did when examining the colleges and campuses, and we did some things that we patterned along those lines with respect to how we examined the administrative areas," said Heist.
However, instead of looking at academic programs and departments, this committee has been looking at how the administrative units function, and whether there are more efficient ways to fulfill their missions.  "The focus was to examine what they do, how strategic it is and where process improvements can be made," Heist said. "That meant in some instances changes weren't necessarily going to result in cost savings, but could result in greater efficiency."
"We also looked at whether the changes were sustainable in the longer term," added Kofi Ofori, special assistant to the senior vice president for Finance and Business and a member of the committee. "Is this just something that we're doing for an immediate savings or effect, or is it something we can really follow through for some time to come? That also was an important factor," he said.
Recommendations for those changes are being finalized now, and should be communicated to the units in the next two months.  Unfortunately, Horvath will not be here to see the process to its conclusion, as he has been named the new under secretary for finance and administration and chief financial officer of the Smithsonian, effective Sept. 26.
"We have a very clear road map for what remains. Whenever you take a person out of a small group it has an impact, but the momentum is pretty strong on this committee and all of the remaining tasks are pretty clearly laid out. It's just a matter of seeing it through," Horvath said.
Gary Schultz, senior vice president of finance and business emeritus, who will serve on an interim basis in his former position, will take Horvath’s position on the Core Council and co-chair the administrative services review committee with Dave Richardson, associate vice president for research and director of the Office of Sponsored Programs, as the committee and the Core Council complete their work this fall.



Last Updated September 28, 2011