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Strategic Budget Planning May 28, 2009
& A s s o c i a t e s , I n c .
S T R A T E G I C
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
2 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
3 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
4 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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.
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
5 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
6 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
7 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
8 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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.
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
9 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
10 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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.
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
11 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
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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!
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
12 & A s s o c i a t e s , I n c .
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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
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
13 & A s s o c i a t e s , I n c .
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P E R F O R M A N C E
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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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
14 & A s s o c i a t e s , I n c .
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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
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!
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
15 & A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E
C O N S U L T I N G
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)
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
16 & A s s o c i a t e s , I n c .
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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
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
OFFICE OF BUDGET AND FINANCE STRATEGIC BUDGET PLANNING WORKSHOP
17 & A s s o c i a t e s , I n c .
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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
Web Site
lowell.rinker@wmich.edu
www.obf.wmich.edu
Address Western Michigan University
3080 Seibert Administration Building
Kalamazoo, Michigan 49008-5203
& A s s o c i a t e s , I n c .
S T R A T E G I C
P E R F O R M A N C E C O N S U L T I N G
Contact Dr. Peter Dams, President
Phone
Fax
(269) 501-3000
(866) 472-0554 toll-free
Web Site
pdams@damsandassociates.com
www.damsandassociates.com
Address 8449 35th Street South
Scotts, Michigan 49088
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