Costs of Central Services

1. University Financial Model Dollars from Heaven Actual Tuition Revenue Direct Expenditures Personnel Costs Costs of Central Services School Planning View Costs of Financial Aid Endowment Income Private Gifts The Past: Trying to look through deeply tinted glass

2. University Financial Model Base and Strategic Operating Support Actual Tuition Revenue Complete Strategic Perspective Direct Expenditures Personnel Costs Innovation and Entrepreneurship School Planning View Costs of Central Services Responsibility & Accountability Endowment Income Private Gifts Costs of Financial Aid The Future: A complete financial picture

3. University Financial Model Uses Sources University Undergrad Financial Aid State Funds Private Gifts /Endow. Inc. Central Services Base Operating Support Additional Strategic Support Tuition Allocated Costs Research Funds School Direct Expenditures Portion of undergrad tuition that goes to undergrad financial aid Toward a more transparent financial system

4. UNIVERSITY FINANCIALMODEL TERMS CENTRAL SERVICES COST CATEGORIES REVENUE CENTERS  ACTIVITY CLUSTERS COST CENTERS 

5. University Financial Model Current Status: • Discussion of initial school scenarios between Provost, COO, and individual school deans concluded in late January • Focus has now shifted to parallel processes: • Budget building for FY14-15 • Scenario and reporting refinement • Improvement of accuracy and precision in underlying data • Move of modeling platform from Excel to Hyperion “cost of education” with transparency of allocation methods and drill-down capabilities • Parallel processes will converge near beginning of FY14-15 with translation of 14-15 budget into UFM terms and organization and new means of tracking

6. University Financial Model Next Steps: • Continue to refine technical implementation of UFM allocation methodologies • Develop automated system for extracting UFM data, developing scenarios, generating targets • 2014-15 budget development will proceed as in years past: • 2013-14 targets used to set 2014-15 targets • Adjustments made to reflect unavoidable cost increases, salary increases, enrollment growth, and revenue assumptions related to graduate tuition • Once targets are established, UFM methodology will predict levels of base and strategic operating support needed for schools, and allocations for administrative units. • These methodologies will be revisited and refined in 2014-15.

7. University Financial Model How Do We Allocate Central Service Costs? • Step 1: Define Service Categories that are not metered and/or directly recovered • Facilities Services • IT Services • Employee Services • Development/Alumni-Engagement Services • Central Library Services • Research Support Services • Student Support Services • Undergraduate Admissions Services • Academic Support Services • General Services (executive/managerial)

8. University Financial Model How Do We Allocate Central Service Costs? • Step 2: Verify Cost Data (are we counting the right dollars?) • Historical Operating Costs (including personnel) net of any recoveries • Is there a need to cover recurring costs that do not occur on an annual cycle (i.e., every two or three years)? • How consistent are your regular expenditures year to year? • In the University Financial Model, do you understand how you will finance major one-time expenditures? • Note Darden and Law requirement to accumulate funding for maintenance • Reserves (we do not count them in the model, but good sense requires that you have them (potential policy matter)), and are we accounting for transactions related to them properly?

9. University Financial Model How Do We Allocate Central Service Costs? • Step 2: Verify Cost Data (are we counting the right dollars?) • Is model dealing properly with cross-funding, transfers, and MOUs for services in your area? Requires detailed review. • Various opportunities to review data and discuss these issues will occur in the next six months.

10. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Each central-cost category has its own • Developed by planning committees over years prior to 2013 • Proposed by University Financial Model steering committee to President, EVP/COO and EVP/Provost in December 2012; adopted in spring 2013

11. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Facilities Services: • Total cost is allocated by proportion of square feet occupied by all entities (includes proportional share of “general” space in shared buildings) • Note that utilities will be directly billed to units/schools for space they occupy (currently viewable as “memo” bills)

12. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • IT Services: • Total costs allocated by this formula: weighted 0.75 x proportion of FTE employees (excludes Facilities and IT employees in step-down methodology) + weighted 0.25 x proportion of annual FTE students • Excludes Communication Services costs, which are recovered through billing.

13. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Employee Services: • Total costs allocated by proportion of FTE employees

14. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Development (all University entities receiving gifts): • 41.5 percent of total central costs allocated by this formula: proportion of school/unit-specific gifts greater than $100K for last four years • 58.5 percent of total central costs temporarily covered by University grant • Alumni Engagement (schools only): • 41.5 percent of total central costs allocated by this formula: proportion of living alumni for all schools • 58.5 percent of total central costs temporarily covered by University grant

15. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Central Library Services: • Total costs not covered by other funding sources allocated by this formula: proportion of sum of annual FTE students + annual number of doctoral degrees + FTE instructional/research faculty

16. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Research Support Services: • Total costs not covered by other funding sources allocated by this formula: weighted 0.5 x proportion of total research dollars + weighted 0.5 x proportion of total awards

17. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Student Services: • Total costs not covered by other funding sources allocated by proportion of annual FTE students

18. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • Academic Support Services: • Total costs not covered by other funding sources allocated by this formula: proportion of (annual FTE Faculty + annual FTE students)

19. University Financial Model How Do We Allocate Central Service Costs? • Step 3: Apply Allocation (Usage Approximation) Algorithms • General Services (executive/managerial): • Total costs not covered by other funding sources allocated by proportion of annual direct school expenditures

20. University Financial Model How Do We Allocate Revenues? • Important issue for Central Service Providers: Are you affected by changes in allocations of revenue? • Undergraduate tuition(net of financial aid and blind to in-state vs. out-of-state proportions) will be allocated via a blended formula that considers includes the credit hours students take within a school (75%) and the schools with which students are affiliated (25%). Those undergraduate schools with differential tuitions or school-specific fees will receive that tuition (net of financial aid) or fee revenue directly, not through an allocation formula. Tuition revenues fees from summer session will be allocated directly to schools through a methodology currently in development.

21. University Financial Model How Do We Allocate Central Service Costs? • Important issue for Central Service Providers: Are you affected by changes in allocations of revenue? • Graduate tuitionwill be allocated directly to the schools of enrollment (and includes both financial aid and any out-of-state differential); implemented for 2013-14. Graduate tuition revenues and school-specific fees from summer session will be allocated directly to schools through a methodology currently in development. • Grants and contractswill be allocated to the unit holding the grant or contract. • Facilities and administrative cost recoverieswill be allocated to the unit holding the research grant. • Restricted endowment distribution will be allocated according to the donor’s wishes.

22. University Financial Model How Do We Allocate Revenues? • Important issue for Central Service Providers: Are you affected by changes in allocations of revenue? • The 50-basis point endowment administration feewill be allocated to the endowment owner. • Foundation supportin cash and other forms (including in-kind) must be reported as a source by each school. • Other revenue (gifts, sales, services, transfers, etc.) is allocated to the school that receives it. • ETF credits equal to direct expenditures in the same category are included in school revenue totals.

23. University Financial Model How Do We Allocate Revenues? • Important issue for Central Service Providers: Are you affected by changes in allocations of revenue? • Unrestricted state funding, unrestricted gifts and unrestricted endowment distributionwill be retained by the President and deployed in ways that include the following: • To maintain a program that will provide supplemental funding in such forms as short-term strategic support or longer-term base operating support from a central pool to ensure that all schools sustain excellence. • To invest in the University’s highest priorities as identified by the strategic planning process.

25. University Financial Model Total Academic Division Operating Expenditure Budget 2012-13 $1.36 Billion Dollars

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27. Uses