Practical Cost Savings Strategies

Transcription

1 Practical Cost Savings Strategies Eileen G. McLoughlin, Assistant Vice President of Finance and Budgeting Kelli Perry, Assistant Vice President for Finance and Controller Ron Moraski, Director of Procurement Services Rensselaer Polytechnic Institute 2014 Managerial Accounting and Decision Support Charlotte, NC November 13 14, 2014 Agenda Overview of cost savings strategies Focus on labor costs Benefits of centralizing and controlling spend Managed Travel Program Strategic Sourcing Program 1

2 Context Budget resources are not growing Resources to fund administrative or overhead budgets are shrinking Constraints exist in reducing budgets High labor, facility, and I.T. costs, more fixed than variable Tenure, labor unions Resistance to consolidation of functions and sun setting programs Strategies born out of necessity What are Examples of Practical Cost Savings Strategies? Developing Partnerships to 1. Manage Labor Costs Partnering with Human Resources and the Provost Review and negotiate benefit costs Control centrally staff and faculty vacancies 2. Develop a Managed Travel Program Travel office with the Traveler and Budget Officers 3. Transform Transactional Purchasing to Strategic Procurement Entire campus outreach and collaboration 2

3 Potential Barriers Senior Management Support (more centralized oversight Unions System limitations; initial investment Employee dissatisfaction as a result of change Remaining competitive for employees and faculty in the Higher Education Market Managing Labor Costs Health benefits in Higher Education are generally better than the average and therefore there is room to manage. 3

4 Managing Labor Costs Manage Health Benefit costs with increases in: Employee deductibles Out of pocket maximums Coinsurance/ copays, or move to coinsurance (%, not a fixed dollar amount) Premiums Introduce high deductible plans, incent use Consolidate or reduce the number of plans and vendors, reduce administrative costs Health care for retirees, eliminate or reduce Institutional premium contributions Managing Labor Costs Plan design adjustments does manage costs, simultaneously can be targeted to incent behavior change Tobacco surcharge 4

5 Managing Labor Costs Spouse, domestic partner, dependent care coverage Surcharge spouse or domestic partner coverage if eligibility elsewhere exists Provide incentives pay outs to utilize eligibility elsewhere Mandate not covered if there is eligibility elsewhere Premium share greater for other than individual coverage Audit dependents for eligibility Managing Labor Costs Cost Savings most Institutions are using these strategies to manage costs, report cost avoidance not actual reduction Rensselaer s Focus - Managed and reduced vendors and plans - Shifted costs to employees through plan redesign premium and co pay increases, introducing deductibles - Average health care cost increases over a five year period is 1.8% 5

6 Managing Labor Costs Review of Fringe Benefits PTO rollover, eliminate or reduce Rensselaer did reduce the number of hours that can be rolled into the next fiscal year and eliminated cash payout Reduction of hours reduced the vacation accrual expense $ 2 million Elimination of cash pay out saved about $300k Managing Labor Costs Reduce tuition reimbursement benefit Rensselaer does require a 20% copay for employees, spouses and dependents enrolled at the Institution Reduction in costs over five years is $2 million Modest scholarship for dependents enrolled at another Institution 6

7 Managing Labor Costs Employee Headcount Savings Hiring freeze and/or vacancy management Hold positions open or vacant for a period of time 3 to 6 months Each vacant position is reviewed for its necessity prior to refilling Review process creates a natural hold period Managing Labor Costs Rensselaer has a process called Staff Attrition Management. Basically hold positions open and have a review of necessity, positions open between 3 to 6 months Savings have ranged from $4 million to $7 million annually Early retirement, voluntary severance program - Need to be cautious cannot back fill to capture savings, programs can add cost - Risk of losing high performers 7

8 Managing Labor Costs Rensselaer also manages faculty vacancies Vacated tenure faculty positions go back into the Provost s budget Tenured positions are then reallocated based on workload or strategic direction Dollars generated from the vacated tenure faculty positions are used to fund adjunct faculty positions or one year teaching appointments Rensselaer saves $2 million annually from vacated tenured faculty positions, net of additive teaching costs Gain the ability to reallocate tenured faculty lines to need or strategic purpose Managing Labor Costs Reduction in Force Last Resort - Maintaining full employment preferable - Flip side retain high performers preferable 8

9 Compensation Managing Labor Costs Freeze pay increases Lower merit pools, eliminate merit for low performers Lump sum payments Delay annual raises Rensselaer has done all of the above. Savings $1M to $1.5M annually and off your base Managing Labor Costs Outsourcing functions have allowed Institutions to improve and expand services without added costs, provide scaling capability Others? 9

10 Managed Travel Program at Rensselaer 19 Context Compelling Event Execution Leadership Buy in Barriers Encountered Savings Achieved 20 10

11 Compelling Event at Rensselaer Event: Credit Card Fraud Action: Cancellation of campus wide P card program overnight. This not only effected travel but obviously Procurement and Disbursements as well. P Cards No P Cards Number of Cards Number of PO s Processed 5,700 22,000+ Number of Direct Pays 8,800 26,000+ Rebate $$ $100K $0 21 Other Compelling Events in Higher Education Fraud / Misuse Severe lack of visibility Increasing T&E costs Paper/process gone wild Budget/funding cuts Duty of Care 22 11

12 Execution Crisis Management How do I travel without a credit card? Consultants To organize and launch program Formed S.M.A.R.T Conducted Needs Assessment Throughout Campus Best Practice Benchmarking Issued RFP 23 Journey to Leadership Approval After benchmarking best practices, then established project objectives: 1. Mitigate Risk 2. Provide Robust Controls 3. Streamline and Automate Processes 4. Become State of Art in Industry 5. And save money 24 12

13 Leadership Presentation 25 Partnerships Formed Original Internal Staffing 2 Data Entry Clerks Current Internal Staffing Travel Manager Travel Specialist Travel Analyst 26 13

14 Barriers Encountered Implement a managed travel program without a Barriers Encountered credit card? How to implement a travel program using Concur, a system where one of the control elements is based on the use of a credit card? How to pay for employees travel? How to get faculty to accept they can t use there own travel agent anymore? How to get faculty to do their own expense reports? 27 Savings Achieved 10,000 8,000 6,000 4,000 2,000 Baseline (2,000) Total Travel Expenses 6,789 7,030 6,997 7,400 Increase assuming inflation of 2.5% 7,969 7,775 7,585 Savings with Inflation (1,180) (745) (588) 28 14

15 Savings Achieved Number of and Average Price per Flight 4,000 3,500 3,000 2,500 2,000 1,500 1, Projected # of Flights 3,676 3,540 3,347 Average domestic airfare Average International 1, , , Savings Achieved 12,000 Number of and Average Price per Hotel Nightly Stay 10,000 8,000 6,000 4,000 2, Projected # of Hotel Nights 9,994 9,970 9,060 Average Hotel Stay

16 Savings Achieved 4,000 Number of and Average Price per Daily Car Rental 3,500 3,000 2,500 2,000 1,500 1, Projected # of Car Rentals Days 3,628 3,463 2,933 Average Car Rental Real Dollar Savings (000 s) 2015 Projected Total Gross Savings ,088 Costs Net Savings

17 Strategic Sourcing at Rensselaer 33 Procurement Teams & Maturity Many manual processes PR, PO, AP focused Few negotiations, if any Limited recognition Reacting Use of technology and automation Efficient tactical processes Sourcing teams in place Bottom line focus, but begin to look at top line Total Cost of Ownership Broader business has visibility into objectives & performance Utilize a variety of tools Low cost tactical procurement Use clean sheets and should cost models Source beyond cost supplier capabilities, innovation, knowledge mgmt. Sourcing involved in early product designs Trusted Advisor status with business partners C Level Execs promote the use of the sourcing organization Know and use the best tools for the job Best in class tactical procurement processes Supply base has become competitive advantage Viewed as business leaders, not sourcing Strategies transform the business Optimize the entire supply chain, not just categories Embedded in product design and development Stint in sourcing is a requirement for advancement to C Level Anticipating Collaborating Orchestrating 34 17

18 Procurement Teams & Maturity Value to the Institution Time to Implement 35 Strategic Sourcing Project Foundational Building Blocks: 1. Organizational Assessment and Transformation 2. Spend Analytics 3. Reviewing e Procurement Systems and Capabilities 4. Supplier Content Enablements 5. Developing and Implementing a Strategic Sourcing Plan 36 18

19 Process Details 1. Organizational Assessment and Transformation Developed new Job Descriptions: Director of Procurement Services Associate Director of Procurement Services Strategic Sourcing Managers Systems Manager Systems Support Analyst Support Staff Developed a process for: Performance & Staff Development Plan Procurement Department and Individual Scorecards 37 Process Details 2. Spend Analytics Collected, analyzed, and categorized full Rensselaer spend Performed pricing analysis on key category and supplier specific spend along with Institutional Price Reviews Utilized this information to aid in the development of a Strategic Sourcing Plan created a focus and a starting point 3. Review of e Procurement Systems and Capabilities Cycle times Automation, ease of use, campus adoption Tools Sourcing Events, Management of Contracts, e Invoicing Supplier Portal 38 19

20 Process Details 4. Supplier Catalog Content Enablement Contracts negotiated or adopted and enabled on the Rensselaer Marketplace Announcements with Contract information released to campus community 5. Developed and Executed a Sourcing Strategy Plan Combined strategies (>$17M opportunity): a combination of RFPs, negotiated contracts, co op contract adoptions and reverse auctions for new contracts Stick with the priorities, watch the developments 39 Challenges Too many to list! 40 20

21 Challenges Change Management (internal and external) People/ Personnel Development Suppliers on Board System Implementations / Adoption Communications / Meetings / Visibility 41 Concurrent Themes and Deliverables 1. Project Planning & Management 2. Policy & Procedure Review 3. Training Documentation 4. Mentoring of Campus (and suppliers) 5. Campus Communications, Visibility, Follow up 6. Focus on the Metrics (Scorecard) 42 21

22 Successes So Far Total through June 2014: Documented Cost Savings approaching $5M Purchasing Revenue > $200k 43 22