These minutes reflect
discussion and debate at a meeting of a committee of the
Minutes
Senate Committee on Finance and Planning
238A Morrill Hall
Present:
Charles Campbell (chair), Calvin Alexander, Brittny
McCarthy Barnes, Stanley Bonnema, David Brown, Daniel Feeney, Thomas Klein,
Joseph Konstan, Yi Li, Kathleen O'Brien, Richard Pfutzenreuter, Terry Roe, Rose
Samuel, Charles Speaks, Alfred Sullivan, Susan Van Voorhis, Warren Warwick,
Susan Carlson Weinberg
Absent:
David Chapman, Michael Frankosky, Michael Korth, Timothy
Nantell, Thomas Stinson, Michael Volna
Guests:
Associate Vice President Michael Perkins (Capital
Planning and Project Management)
[In these minutes: (1) capital planning and project
management; (2) the six-year capital plan; (3) service and productivity
initiative]
1. Capital Planning and Project Management
Professor
Campbell convened the meeting at
Vice
President O'Brien began by introducing Associate Vice President Perkins,
recently hired by the University, and reviewed his background and role and
responsibilities in University Services.
Mr. Perkins brings experience in capital planning and projects at
American Express, Medtronic, and
Until
last year, Capital Planning and Project Management (CPPM) was a division of
Facilities Management. When she reorganized
University Services last year, Vice President O'Brien related, she pulled CPPM
out of Facilities Management in order that it could focus more effectively on
capital project planning and development.
She envisions bringing Space Management into CPPM as well; it is at
present distributed throughout the organization. Now, however, the focus is on improving the
ability of the University to manage and deliver construction projects.
Her
objectives, in reorganizing University Services, were to control costs, to
build healthy business partnerships, to install leaders with the knowledge and
experience to get the job done well, and
"to continuously improve what we do."
It is a tall order and the University is fortunate to have recruited Mr.
Perkins to help, Ms. O'Brien concluded.
Mr.
Perkins said it was a pleasure to be at the University, the school where he
obtained his degree and where he participated on the swimming team. He said he hoped to be able to speak with
this Committee many times in both the short and the longer term.
Over
the next two months he intends to develop a work plan for the next three years,
including the issues to be tackled, the goals, and how to reach best
practices. There will be changes; CPPM
exists in a complex environment with complex facilities. There will be a need to assemble several work
teams to implement the envisioned change and achieve CPPM goals.
In
order to provide some context, Mr. Perkins distributed a handout with brief
statistical summaries. For the period 1997-2003:
Projects closed 3,504
Project value $815
million
Value range $75
- $71.5 million
Large projects 108
(over $1 million)
Small projects 3,396
(under $1 million)
For fiscal year 2003, there were 406 projects closed, at
a value of $279 million. There were 29
large projects (> $1 million) and 377 small ones (< $1 million).
The projects for fiscal year 2004 show somewhat smaller
numbers: 58 projects, with a value of
$101 million, of which 16 will be over $1 million and 42 less. The smaller numbers reflect the times and the
fact that the University is coming off one of the largest capital project
phases of any university anywhere.
What defines a project close, Professor Speaks
asked? The financial and accounting
system is closed, the bills are paid, and no one can attach the project. Not closing project accounts has been a
problem at the University, Mr. Perkins said, and he will try to change
that. It will be a task to revamp the
accounting system and give clients a complete financial account each month of
what has been done with the money. But
it is absolutely required, he said. He
added that he was pleased that the trend line in capital projects was down or
the problems would be overwhelming.
Is there a list of projects currently open, Professor
Alexander asked? There is, Mr. Perkins
said, but it is difficult to assemble because it comes from different
databases, which is also a problem.
Mr. Perkins summarized the 2004 capital request in the
same way he presented previous years' information: There are 130 projects valued at $188.7
million, of which 117 are traditional HEAPR (Higher Education Asset
Preservation and Replacement, projects on which the University does not pay
one-third of the debt service), 8 are HEAPR projects that include building
renewal, and 5 new construction projects.
He gave to the Board of Regents a report on projects for
the last quarter of fiscal year 2003 (i.e., April to June, 2003), Mr. Perkins told
the Committee, and is trying to improve the reporting system. He would like to give Vice President O'Brien
and the Board regular reports on all the projects that are open, that are old,
and that are over or under budget.
Will the tracking of projects include content issues with
contractors, such as specs not filled, Professor Brown asked, and will projects
not be closed until they are resolved?
Mr. Perkins said that projects will be kept open when construction has
failed in some way (whether it was the contractor's fault or not) so the
University will have a record in case litigation becomes necessary.
What is the minimum size of a project that it is worth
having go through the CPPM process, Professor Konstan
asked? Not $75; that is petty cash. Is $15,000 efficient? (No, said Mr. Perkins.) Can the process be split so that some
projects go into a "lightweight" process? (Yes, said Mr. Perkins.) Mr. Perkins said his preliminary thoughts,
which will not pre-empt the process of considering the issue, are that he wants
to involve everyone so there is buy-in and so they put their equity in the CPPM
process. From the outside the University
is viewed with suspicion because it is a different environment; there are
differences but also similarities. He
would like to lay out the process and get support for it. The CPPM group was taken out of Facilities
Management and will now be run as a facilities development organization rather
than as a facilities management organization.
How does his office relate to the finance office,
Professor Roe asked? University Services
has about 2500 employees, Vice President O'Brien said, and about a $290 million
budget. Before this year, each unit had
its own finance staff and her office did not.
She created a finance office that reports to her and that is responsible
for financial strategy and budget throughout University Services. The office was established through
reallocation, she pointed out.
About two-thirds of the problems are problems contractors
have with the University and about one-third are problems the University has
with contractors, Professor Alexander said.
Has there been any progress in looking at patterns of what went wrong or
right so they can be prevented? Not up
to now, Mr. Perkins replied. He is
trying to diagnose problems and collect documentation. He will bring a plan to benchmark and measure
the University's performance as well as that of contractors, through a project,
and evaluate performance at the end.
They will keep report cards, both on the University and key vendors, that they can use in a low-bid environment.
Mr. Perkins turned next to another set of slides and
reviewed his vision for CPPM, which includes re-establishing its credibility in
the eyes of the customers (i.e., those at the University who use its services),
the administration, the Regents, the public, and the vendor community. He said he would like to keep the process as
simple as possible, such as when to do revisions, guidelines, and so on, but
retain enough to do the job. He has
found that so many people are involved and there is so much process that it is
easy to disappear and for no one to take responsibility. The process must focus on those who manage
projects. CPPM has had a variable record
on projects; he would like to turn that around.
He said he wanted CPPM to be the vendor of choice for units. He said they must have good relations with
vendors because they rely on the vendors to get the job done.
Mr. Perkins reviewed briefly what must be done to improve
CPPM. The elements of improvement
include ensuring they have the right organizational structure (which they
largely have), they have the right leadership within the structure (some
changes need to be made, slowly and over time, because they affect a lot of
people), resources need adjustment (the quantity is adequate but the quality
needs adjustment), the business processes need improvement (the University has
done a good job in putting a lot of real estate in place over the last five
years, but it could have been done better, and they need to improve the
elegance of the delivery process, including its simplification). All of this will "be like changing the
tires and tuning up a car without interrupting the trip."
At present CPPM is spending little time on future
planning; Mr. Perkins said he wants to change that. They are making progress and he feels good
about a lot of what is happening. They
have not changed a lot of processes or people but they are changing attitudes
and making people responsible and accountable.
They
are also building a three-year work plan in consultation with customers, the
administration, the staff, vendors, experts, other universities, and
others. The work plan will emulate that
of
Mr.
Perkins then described how they will measure the success of their efforts. They will:
-- Meet or exceed expected scope commitments
-- Meet or improve upon budget
-- Meet or improve upon schedule
-- Exceed
University quality expectations (in the past, the University has looked at
projects a year after they were occupied to assess how much additional work was
needed in order to get the project to where everyone expected it to be to meet
all scope requirements)
-- Give
customers a process they understand and are satisfied with
-- Close
projects on a timely basis without claims or lawsuits.
He will provide more information in the future on the
planning process, Mr. Perkins said. Much
of the work now being done in CPPM is from past projects so they are not out of
the woods yet.
Professor Konstan commented that a one-year look-back is
not sufficient to ascertain quality; problems with quality can sometimes be
discovered three or more years later. He
suggested an additional 5-year look-back.
Professor
Konstan also posed a question: Where in
the process do University academic priorities come in? Everyone can agree with what Mr. Perkins has
suggested, but the processes seem to have little to do with a university. Vice President O'Brien said that there is an academic
planning and decision-making process that comes to them; her job is to execute
those plans, not make decisions about them.
Even in the execution, however, there is a need to be in alignment with
the needs of academic programs, she agreed.
They exist to fulfill the needs and aspirations of the academic
enterprise.
That
should be visible in the process, Professor Konstan responded. As a "trivial"
example, he pointed out that all construction at Harvard is invisible during
commencement and reunions. There is a central decision there to create an
atmosphere that meets a higher university goal, even if that adds to the
expense or delay in project execution. At
Vice
President O'Brien said she hoped to return to the Committee later when the CPPM
work plan was developed.
Professor
Campbell thanked Mr. Perkins and Vice President O'Brien for their presentation.
2. The
Six-Year Capital Plan
Professor Campbell turned next to Associate Vice
President Pfutzenreuter to review the six-year capital plan.
The capital plan is consistent with the 2004 capital
request, Mr. Pfutzenreuter said; it aims to take care of what the University
has, but there is some new construction in the 2006 request. The six-year plan consists of two parts: the Capital Improvement BUDGET for 2003-04
and the Capital Improvement PLAN for 2004-05 to 2008-09. In the case of items on the former, they have
gone through the process of predesign, raised the money, and will be completed. The PLAN includes the next five years of
projects, and is comprised of the 2004 capital request, the 2006 and 2008
capital requests, and University-funded projects 2004-09.
Mr. Pfutzenreuter described how a project goes from
"concept through occupancy."
Potential projects, proposed by chancellors, vice presidents, deans,
departments, faculty, and business units, are on a list that is over $2
billion; there is no shortage of ideas for new facilities. Academic and finance staff review and analyze
the proposals and make recommendations to the President and the Executive Vice
President and Provost based on academic priorities, facility conditions, legal
issues, logistics, and so on. (With respect to logistics, for example, renovating Pillsbury Hall
for English waits on a new facility for Geology. In many cases, a lot of dominoes have to fall
because the University does not have much swing space.) The President ultimately makes the decision
on priorities; he is influence by what the Board of Regents tells him, by the
compact process, by the strategic directions of units, and so on. Kolthoff Hall, for example, was on a longer
list, but the condition of the building made it apparent that it had to have
major renovation soon.
Once an item has gone through the analysis and review and
is approved by the President and recommended to (and approved by) the Board of
Regents, it is moved on to the six-year capital plan. The unit is then allowed to do a predesign;
the predesign must be completed before fund-raising can begin and the item
becomes part of a capital request. The
University gets in trouble when units start fund-raising before the cost of a
project is known, where it will be located is not identified, and whether it is
a University priority has not been determined.
Once a project has gone through predesign and funds have been raised, it
becomes part of the capital budget.
The all-funds Capital Improvement Plan (2004-09) totals
approximately $735 million, 86% of which consists of state-requested funds
($637 million). About $98 million will
come from the University, mostly through fund-raising. Of those non-state capital plans, $69 million
will come from fund-raising and the rest from general obligation debt,
auxiliary debt, and short-term bridge financing. Of the $637 in requests to the state, $507
will come from the state, and the remainder from University debt, fund-raising,
bridge financing, and a small portion from public-private partnerships. The latter elements (beyond the $507 million
from the state) make up the University's obligation to pay for one-third of the
cost of state capital projects.
The average capital request to the state (2004, 06, 08)
is $169.3 million; the average University obligation for those three years is
$43.1 million. The University's portion
is not one-third because any HEAPR funding does not carry the requirement of a
one-third contribution from the University.
The intent of the Six-Year Capital Plan is to improve
what the University has; 73% of the funds are for renovation and renewal and
only 27% for new construction. Mr.
Pfutzenreuter identified some of the items in the six-year plan and how they
would meet goals that the President will set out for the Regents.
Finally, Mr. Pfutzenreuter explained a graph showing when
the University's debt obligation (current and expected) would decline to the
point it would not exist (about 2035).
Professor Konstan said the graph was wishful thinking and unrealistic,
because new debt would certainly be added, even though the graph shows none
after 2008. Mr. Pfutzenreuter agreed
that there would be more debt and the line will never go down as it does on the
graph. But one should start to ask
questions if the line begins to go up. It
was suggested that in order to avoid a reaction that the graph is foolish, it
should be marked to indicate that the slope of the line after a certain point
will depend on decisions made in the future.
The question is where is the steady
state, Professor Roe said. Mr.
Pfutzenreuter said he is providing that information in an asset management
report to the Board of Regents. The
report shows the University has more debt capacity that would not endanger its
ratings, but his policy is not to drive the debt amounts up and instead to hold
it steady. Whether or not that will
happen depends on two big projects: the
stadium and clinics.
Mr.
Klein said he would like to see a chart to be sure that the line is not going
up, which would preclude future flexibility.
As well as information about what in recent decades led the line to go up,
Professor Alexander added. In 1995-96
the University had about $300 million in debt, Mr. Pfutzenreuter said; what
drove it up to the current level (over $700 million) was the massive capital
building effort under President Yudof. About one-half of the principal was paid by
auxiliary units, about one-half by central allocation.
Professor
Brown said he would also like to see information about building operating
costs, historically and what is projected for the future, perhaps broken down
by classification (e.g., auxiliary, indirect costs, etc.).
Professor
Brown also inquired if the requirement of the one-third debt service was the
same for educational and research space (it is). Since the University goes to the legislature
to fund the costs of education, the University should take the position that
the one-third requirement for classrooms--part of the educational mission--is
wrong. The decision about the one-third,
Mr. Pfutzenreuter responded, was based on the need for money rather than a
policy decision. The legislature should
reconsider it, Professor Brown asserted; if a facility is built only for
educational purposes, the legislature should pay for it.
Mr.
Pfutzenreuter said he would return to the Committee later with the annual debt
management report. Professor Campbell
thanked him for his report.
3. Service
and Productivity Initiative
Professor Campbell next welcomed Vice Presidents Carol
Carrier and Charles Muscoplat to the meeting to discuss the President's Service
and Productivity Initiative. Committee
members were provided copies of the presentation made to the Board of Regents
last March, which Dr. Muscoplat said remained timely for the Committee.
Vice President Carrier began by noting that she and Vice
President Muscoplat were asked to lead the effort, launched by the President
last fall, but many people have been involved.
It is an effort by faculty, staff, and students to recommit the
University to the highest levels of service and productivity and to achieve at
least $5 million in revenue increases and cost reductions.
Vice President Muscoplat said the initiative is aimed at
trying to improve service and do things in a more cost-effective way. They are looking at changing business
practices to be more efficient--for example, how can the University do email so
it better serves students? Service and
productivity is related to return on investment; some initiatives will need a
start-up investment but will have a positive return. Whatever is done must be rational and
generate a return for the institution.
Certain things a university must have--for instance, it cannot compete
without a first-class email system and the hospital needs the best MRI
equipment.
The factors driving the initiative are these: declining levels of state support for higher
education, increasing tuition rates and student expectations, greater calls for
accountability, increasing competition for top students, faculty, and staff,
and continued momentum of the University's cost-containment efforts. With respect to accountability, Dr. Muscoplat
said, there appears to be an inverse correlation between the amount of money
states provide to higher education and state demands for accountability.
Dr. Muscoplat noted a graph with data on tuition revenues
as a percentage of expenditures for instruction at the University. The percentage has risen (quite steadily)
from slightly over 30% in 1982 to about 65% in 2003. Instructional costs do not cover things that
do not have an instructional component, such as the Minnesota Extension
Service, he observed; the state is in essence telling the University that its most reliable source of increased income is
tuition.
The goals of the initiative, Dr. Carrier explained, are
four-fold and they need deliverables.
One, improve service and service culture for students, faculty, and
staff. Two, identify and implement ways
to generate revenue and contain/reduce costs.
Three, leverage enterprise technology systems to
enhance service and reduce costs (e.g., paperless student financial aid
system). Four, provide for the
regular assessment of service-and-support units across the University. Four groups studied the four areas
intensively and there are many proposal coming from
their work; there are hopeful signs, she said, both for the long-term and the
short-term. (The four groups and chairs
were: service, Wayne Sigler and Tim
Delmont; financial modeling, Charles Muscoplat; bolstering the internal economy,
Sandra Gardebring and Mary Nichols; assessment of service and support units,
Kathleen O'Brien and Tom Clayton.)
Vice President Muscoplat described some of the efforts
underway, such as web-based service enhancements. Ms. Samuels expressed a concern about
non-traditional students; many are not computer-proficient and may not be able
to check email. Is the goal to bring
them on board and help them be technologically proficient? Dr. Carrier said they have interviewed a lot
of students; many use technology but want help from people, so they are working
with staff on dealing with "customers." Ms. VanVoorhis said that since much is done
on the web, staff can spend more time with students who come into offices. Professor Alexander commented that often the
University uses a one-size-fits-all approach when students come with a variety
of talents.
Where are there true savings and where is the workload just
being redistributed, Professor Konstan asked?
Some of these efforts will result in true savings but others will just
move the work elsewhere. E-tickets are
savings. But the administration has a
history of pushing tasks down to departments.
It is easy to find things to push on departments; it is more difficult
to identify things that can be pushed onto students. That is an excellent question, Dr. Muscoplat
said; someone must analyze what happens to the cost. Is it being shifted with unintended
consequences?
The challenges to the effort include the need (perhaps)
to change the existing University culture, policy barriers and implications,
budget constraints, the capacity of existing staff levels to drive these
efforts, and collaboration and cooperation between support and service
units. They have discovered a wealth of
talent at the University during this process, however, and did not need to use
consultants. They are proposing an
internal team of outstanding individuals to rank proposals/process ideas (that
will save thousands of dollars) that are big and small, fast and longer-term,
expensive and cheap.
Where do savings reside, Dr. Muscoplat asked? They could be at the department level, in the
college, or in central administration.
There could be a formula devised to share the savings. And to provide great service, Dr. Carrier
said, staff have to be prepared to give it and units
have to understand their role. They have
looked at the training of staff; the quality of people is tremendous. There are also a range of ideas to bolster
the University's internal economy (e.g., making it easier to have meetings at a
University facility without having to call 20 places to get things arranged).
Professor
Konstan made several points. There must be policies that deal with
conflicting incentives. There is the central-versus-autonomy issue:
it is easier to get a person in the department to waive an email disk quota,
and units will not want to see those decisions centrally-imposed. If this
is to succeed in the long term, there needs to be a mechanism to redistribute
the money (if a meeting on campus costs 20% more than off campus, but campus
units receive enough money as a result to make it worthwhile to the University
as a whole, then the unit holding the meeting should receive money back so the
price is the same). It would be wonderful to have a huge initiative to
make small things cheap and easy (e.g., so one does not have to have approval for a $5 expenditure). There should be a rule that
when the price of the paperwork is ten times the cost of the transaction, the
paperwork is optional. It is important to identify bottlenecks (e.g.,
read files in parallel so that graduate admissions can be completed quickly
enough to be competitive). Dr. Muscoplat agreed. But when one gets
into discussions, people do not want to change their email. The University will not tell someone they
cannot buy an Apple or a PC. But the University needs to save money
somewhere, and all must make incremental choices.
Dr. Carrier said they learned one primary lesson: When one can make a change without harm, one
learns there are a lot of definitions of "harm."
Professor Campbell thanked Drs. Carrier and Muscoplat for
joining the Committee and adjourned the meeting at
--
Gary Engstrand