Efficiency And Effectiveness Initiatives
What business leaders should know about higher education’s million-dollar consulting engagements
Learn where the majority of potential savings lie and tactics to pursue them, and more importantly, eliminate the need for an extensive (and expensive) outside audit.
Executive summary
Once unheard of, dozens of colleges and universities have retained external consultants to conduct extensive efficiency audits since 2008. Across the industry, the recent recession triggered state funding cuts, declines in giving and research funding, and increased tuition dependence. The resulting internal and external pressure to shore up costs and operations led some university leaders to seek outside help for the first time, costing institutions millions of dollars.
So far, results are mixed. No doubt, the increased scrutiny and extra effort led to real savings at many institutions that would have otherwise not been realized. Yet savings have also proven much tougher to achieve than consultants expected, and most schools have fallen short of initial goals.
Lesson 1: Consultants’ recommendations highly similar across institutions
Different campuses, different financial circumstances, different consultancies—yet only one playbook. Across dozens of engagements, each of the consultants’ final reports offered highly similar guidance on how much could be saved and where to focus. The vast majority of identified savings at each institution came from the same five administrative functions and one opportunity (organizational redesign) that cuts across all central administration.
Dollar estimates for these areas were also relatively consistent across campuses. As an example, the charts on the facing page highlight three similar-sized universities and identified “base case” savings provided by their respective consultants. While certainly not identical, the dollar figures are surprisingly similar given unique campus conditions and different starting points.
Lesson 2: Savings meaningful, but less than promised
Following consultant-led efficiency and effectiveness audits, all 21 colleges and universities implemented some combination of recommended tactics and realized meaningful savings. Actual dollars saved varied by institution, but most schools reduced costs by approximately 2% of their total operating budget. Taking into account projections for initiatives still underway, most institutions anticipate savings will rise to 2.2% of operating budget— unquestionably a worthwhile goal.
Lesson 3: Labor comprises vast majority of identified savings
Labor is 65% to 70% of the operating budget at most colleges and universities. Not surprisingly, labor comprised an equally large proportion of potential savings identified by external consultants.
Across the institutions analyzed, approximately 60% to 65% of all identified savings opportunities depended on reducing labor costs in some way.
Lesson 4: Savings closest to faculty hardest to achieve
While most institutions have realized close to 70% to 75% of identified savings overall, success rates within individual functions vary much more widely. Somewhat expectedly, initiatives closest to faculty’s day-to-day activities have fared the worst.
Many consultants failed to account for the political realities of shared governance, but faculty resistance has greatly impacted progress so far.
Lesson 5: Organizational redesign offers largest savings, but is unpalatable at most institutions
For almost all of the 21 colleges and universities, consultants identified organizational redesign as the largest savings opportunity. While somewhat broad, these recommendations boiled down to two types of strategies.
Most institutions have not pursued these areas as intensely and, as a result, have realized only a portion of the identified savings.
Lesson 6: Procurement a prime opportunity at nearly all institutions
Likely not news to most college and university business leaders, consulting engagements confirmed that procurement is a ripe opportunity for cost savings.
Procurement accounts for 33% of realized savings, more than any other function or opportunity.
Beyond these specific findings, changes in procurement have only moderate impact on faculty’s day-to-day activities and do not require labor cost reductions. For these reasons, we recommend all business leaders aggressively pursue procurement savings at their institution.
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