Administrative Re-engineering

To: The NYU Community	Date: 05/20/2009
From: Michael C. Alfano
Re: Follow-up to John Sexton memo — Re-engineering II

Background

I am writing to follow-up on President Sexton's memo from last week with additional details about the impact of what many are calling "the great recession" on the finances of the University, and to share our plans to ensure the University's continued momentum and financial stability.

At its core, NYU is about the teaching, learning, and research interactions and successes of our faculty and students; everything else we do is in support of this core mission. Therefore, in March 2008 we launched a re-engineering program to create a large pool of funds to support this core mission and to sustain academic progress by lowering the cost of the University administration. This re-engineering program is nearing completion having exceeded its $25 million annual target by $13 million. This success was achieved through the dedicated work of NYU administrators and without asking for savings by NYU's schools (and without layoffs).

Since Re-engineering I was launched, however, the economy has turned down precipitously with serious adverse impact on the University's finances, as I will explain in some detail. Thus, while Provost McLaughlin already has committed some of the re-engineering savings to selected high priority academic programs, we are temporarily reserving the balance of these funds to help mitigate the current economic crisis. It is our hope that ultimately the remainder of the funds will be available to support the academic initiatives as approved by the Provost.

Since we have seen that the re-engineering process produces excellent results at NYU, we will be launching an expanded program, called Re-engineering II, which will help us to meet the new economic challenges that have materialized. In this phase the schools will be full partners in seeking to increase their own administrative efficiencies even as we continue to seek additional savings from the University-wide administration. This program also differs from the previous one in that it will include the possibilities of administrative job eliminations and non-essential service reductions as well as structural changes in certain components of our administration. Knowing the dedication of our employees and the potential effect on the spirit of the community, we will work hard in every case to minimize the impact of these changes on our faculty, students, staff and administrators. Equally important, we will treat everyone affected by the changes we implement with respect and appreciation for their service to the University.

The Impact of the Recession on NYU = $120+ million

Although Re-engineering I exceeded even our most optimistic savings projections, these funds can only blunt the impact of the current economic maelstrom on the University. Moreover, the economic downturn has had enormous negative consequences on the families of many of our students: thus, we must increase significantly our commitment to financial aid, even as we reduce significantly the rate of tuition increase.

Taking these adjustments into consideration, the following specific changes are required in the FY'10 operating budget:

*Revenue Shortfalls:*
Reduced tuition increase vs. original target	$ 8.1
Increased financial aid vs. original target	8.0
Reduced room/board increase vs. plan	5.1
Lower return on working capital	6.6
Lower endowment income	33.2
Lower philanthropy	17.6
Decline in other revenue	2.3

Total Revenue Shortfalls	$80.9 million

*Additional costs:*
Personnel costs: new MTA tax; higher defined benefit contributions; reserve for severance	$ 9.9
International student loans and direct lending costs	4.0
University investments in the schools' academic programs and in University-wide ITS	11.6
Capital expenses: New classrooms; wireless expansion; zoning costs	13.6

Total Additional Costs	$39.1 million

These numbers reveal a budget gap of $120 million at NYU in FY'10, creating the need for a combination of additional expense reductions and revenue enhancements. Moreover, we project that in the years that follow, the impact of reduced tuition increases and lower endowment spending compared to our prior financial plans, combined with the need to generate funds for new academic initiatives, will cause a continual - or structural - gap unless we take further action. We are very confident that this shortfall will be closed both short and long term; and targets have been set for schools and the University administration to ensure that we secure our financial future, even as we maintain our considerable academic momentum.

Savings Targets

Although the precise mixture of the required savings and increased revenue goals and the means by which we will achieve these goals have not been finalized, we have set reasonable financial targets by which our academic goals can be met. In addition, we will develop a list of possible tools that will be available to schools and general support units to assist in achieving the targets.

*Savings Targets by Category*
Salary action: zero percent salary increases for non-contract employees	$23.0
University level administrative savings ($38 million achieved to date plus $15 million in additional savings)	53.0
School level administrative savings	38.0
Spendable endowment fund balances (Primarily expendable funds built-up in school accounts from prior years)	6.0

Total	$120.0 million

While the school-level expense reduction targets amount to about 3.4% of the operating budgets in FY'10, as pointed out in President Sexton's memo, the compounding impact of these structural shortfalls rises to almost 6.5% in FY'13. Since possible year-over-year reductions have the potential to impact morale negatively and decrease momentum as savings are sought in each year, all schools and administrative units are strongly urged to meet the out-year targets which have been assigned to them in the first year, so that we can quickly reach a stable situation for all.

The idea which guided Re-engineering I — that we should re-direct savings from administration to academics — remains very much in the forefront of our thoughts. So, should the economy recover sooner or more robustly than anticipated, the Re-engineering II process will allow the schools to retain any excess funds generated for reallocation to academic programs upon approval of the Provost. Similarly, any extra funds created within the general administration of NYU will be directed to the Provost for redeployment to high priority academic programs - in the schools and University-wide. Such an outcome will accelerate academic momentum, increase financial security, and reaffirm our commitment to be good stewards of NYU's current resources and its future well-being. Finally, while these targets may seem high to some, the fact that many peer institutions have reduced their budgets by percentages that are two to three times more than NYU, should ensure that NYU remains in a strong relative position. I should add that we are thankful for the great work of our administrators in reducing operating costs to date, and to our trustees for their guidance in building a strong financial base.

Re-engineering II and Restructuring: The Specifics

Final Reprise of Re-engineering I

In my fall memo on Re-engineering I, I announced many successes of the program; the achievements have continued. For example, last month we secured savings of $1.4 million by consolidating our copy machine services, and an additional $750,000 by mandating the use of recycled toner cartridges, making NYU both more efficient and "greener." A new Administrative Human Resources Services Unit has been launched successfully, and it is already providing better service at lower cost by consolidating almost all of the HR units that previously existed within the various units of the EVP, the Provost and the President. Also, improved planning has allowed us to significantly reduce overtime expenditures in some key service areas. Moreover, last week, a plan to consolidate Campus Housing and Residential Education, which will improve coordination of important student services and reduce costs, was announced. We will build on these and the prior successes as we launch Re-engineering II to expand savings well beyond the $38 million achieved to date.

The final phase of Re-engineering I will be to review the reports of the five re-engineering taskforces. These taskforces have been active for the past 15 months, and represent a broad spectrum of University processes and policies including:

Construction and Facilities Management — Dean Lapiner, Chair
Human Resource Policies — Dean Bertolami, Chair
Information Technology — Dean Revesz, Chair
Revenue Programs — Senior Vice Provost Rekow, Chair
University Finance Systems — Dean Cooley, Chair

Re-engineering II: Scope and Goals

Re-engineering II is broader in scope than the first phase of the process. Specifically, additional tools will be used and/or constraints removed. Importantly, the schools will participate in this process. Administration should be as lean as we can make it, whether it is located centrally or in the schools.

All administrative savings within a school, or an appropriate cluster of schools that might elect to share resources and savings, will be retained first within the school(s) to support any internal budget gap. Once the budget gap of a given school is closed, additional funds generated will go to meet the needs of other schools and the University's academic momentum fund; and finally, any remaining savings will be retained by the school generating the funds to support its highest academic priorities as approved by the Provost. All additional general University administrative savings achieved (that is savings produced outside of the schools) will be used first to close the financial gap, and then to increase the size of the academic investment fund for redeployment to schools at the discretion of the Provost.

Each school has been assigned Re-engineering II goals and every school will be expected to save at least 3.4% of its budget in FY'10. In addition to the school targets, individual departments of the University general administration have been assigned savings targets equal to 4% of budget; these savings will be coupled with savings from interdepartmental restructuring activities and outsourcing efforts to bring the total general administration expense reduction to an additional 6.5% over the savings achieved in Re-engineering I.

Re-engineering II: Broad Strategies

All methods originally employed in the first phase of re-engineering will continue to be available in the second phase. These techniques, which include consolidation of business units, outsourcing, and energy savings are described at: www.nyu.edu/oevp/news/memo.030708.html. In addition, we are modifying key aspects of the allowable impact of the Re-engineering II changes. Specifically, schools are now included in the exercise; limited reductions in non-essential student and faculty services may be allowed subject to prior approval; and selective personnel reductions may be allowed with prior approval. The Provost, the EVP and the Deputy to the President must approve all service reductions, job eliminations (except attrition) and external hiring.

New tools that can be employed in the second phase of re-engineering include but are not limited to:

Freezing most external hiring (students and faculty are excepted)
Implementing voluntary 3 or 4 day work weeks at pro-rata salaries for appropriate positions (health insurance and other benefits which are not salary linked will be retained at full value; salary-based benefits to be prorated)
Implementing mandatory 9, 10 and 11 month contracts at pro-rata salaries for appropriate positions (benefits managed same as #2)
Eliminating jobs (with prior approval)
Reducing non-essential service (with prior approval)
Freezing use of most temporary help (students are excepted)
Freezing all non-promotional administrative salary adjustments
Eliminating use of all non-student casual employees
Markedly reducing the use of consultants
Implementing the broad strategies of Re-engineering I Taskforces
Markedly reduce travel, entertainment, and car service spending
Book required travel with volume discounts whenever possible
Markedly reduce food service at internal meetings
Markedly reduce printed vs. web distributed material
Canceling/deferring all non-essential construction and rehab projects
Other ideas as suggested by individuals in our community

Re-engineering II: Specific Strategies

While the methods listed above are applicable virtually "across the board," other approaches will either require collaboration of multiple schools or units, or can have significant impact on other components of the University. Thus, these restructuring techniques will require careful, more centralized review before implementation; and it is likely that all of them will not be implemented. Moreover, sometimes a review using one approach can lead to efficiencies using a different one. A portfolio of techniques might save substantial resources and potentially enhance services, and therefore merits a thoughtful, open-minded review. Thus, we will study the following approaches among others:

Outsourcing e-mail services
Outsourcing components of advertising and publications
Outsourcing components of payroll services
Outsourcing administration of defined benefit plans
Consolidating Provostial and EVP Budget Offices
Consolidating Office of Academic Appointments and HR
Consolidating Institutional Research and Strategic Assessment
Consolidating Environmental Services and Operations
Reconfiguring hard-wired phone services in student housing
Creating school and/or unit service clusters in HR, IT & Finance with appropriate sharing of the savings achieved
Replacing computer labs with wireless lounges & collaboration software
Renegotiating most service and supply contracts
Reducing future benefits costs for new employees (retirement; retiree health; tuition remission etc.)
Increasing options for benefits self-service
Implementing specific suggestions of the Re-engineering I Taskforces that affect individual units and processes of the University
Authorizing the Purchasing Office to exercise greater control over commodity purchases
Implementing other approaches as suggested by individuals

Timetable

The Re-engineering II planning process will begin on June 1, 2009 in order to take advantage of the recommendations that will be forthcoming from the five Re-engineering I Taskforces (groups of deans, faculty and administrators appointed last March to identify savings and process improvements throughout the University). These taskforces are scheduled to issue their reports this month, and the planning process will continue through August of 2009. The Budget Office will assign specific structural savings targets to the schools and University administrative units, and these targets should be achieved by June of 2010 or sooner.

Advice from the NYU Community

Similar to NYU's development of the Framework 2031 and NYU Plans Space 2031 each phase of the re-engineering process has been open to the NYU community. Discussions have been held with the Faculty Senators Council (FSC), the Administrative Management Council (AMC), the Deans Council, the Senate Financial Affairs Committee and the University Leadership Team, and updates have been provided to the full Senate and the NYU Board of Trustees. In addition all relevant memos to the community have been widely distributed via e-mail and have also been posted on the web. Each of the five re-engineering taskforces includes representatives appointed by the FSC, and the AMC, as well as from the Deans Council. A section on Re-engineering was opened within the EVP website, which can be found at: http://www.nyu.edu/oevp/ and within that section there is a button to provide direct feedback to the re-engineering taskforces available to anyone in our community. Finally, the principles and priorities governing our choices were laid out carefully in Framework 2031 after a yearlong process within the University community; Framework 2031 was approved by the NYU Board of Trustees at its meeting of June 24th, 2008.

Since job eliminations and non-essential service reductions are now likely to be necessary to achieve the financial targets, Re-engineering II requires even greater input from the NYU community to ensure that the proper value judgments are made as we close our budget gap. Therefore, we will charge a Re-engineering II Advisory Committee (RAC) that will consist of representatives nominated by the FSC, the AMC, and the Student Senators Council. This committee also will include a dean, a trustee and faculty representatives who will be appointed for their special expertise in matters of this type. The charge to the RAC, which will hold its first meeting in June, will be to review ideas, approaches and processes which are promulgated by the five taskforces, the University administration and individuals from within the community. To ensure that we get as many ideas as possible, we will ask the RAC to review approaches that we might use to incentivize members of the NYU community to participate in the process.

Re-engineering and the University's Future

It would be an unfortunate error to think of re-engineering efforts as a one-time event, or a temporary bridge over a challenging economic chasm until we can go back to the way things were. It would be an error because things are very unlikely to return to the way they were previously, and unfortunate because we would forgo setting NYU on a path more likely to ensure its future success. We need to imagine a future for the University administrative functions that is very different from the past, and so we intend to embrace the outcome of our re-engineering effort in our day-to-day administrative operations in an ongoing way. This will: ensure conscientious stewardship of the university resources; ensure that administrative structures effectively and efficiently support the academic goals of the University; and, reinforce the long-term strategic planning efforts we have started - such as Framework 2031 and NYU Plans Space 2031 - thereby better positioning the University for those who come after us.

In Appreciation

NYU has historically demonstrated great resilience in times of economic duress; the current situation will be no exception. We were ahead of the curve on these problems last year and we intend to stay there. The great work of our deans, faculty and administrators, especially the budget and planning officers throughout the University, is gratefully acknowledged in assisting us to understand the dimensions of the recession's impact. Once again, we thank our administrators for always stepping up to build a better workplace and being conscientious stewards of the University's resources. Finally, we look for enhanced input from faculty and students as we endeavor to make wise choices in providing important services at greatly reduced costs. Thank you.