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04/13/94

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Chief financial officer to reduce unit budget in 1995

STANFORD -- Units reporting to Chief Financial Officer Peter Van Etten will reduce their budgets a total of $2.3 million for 1995.

During a town hall presentation Tuesday, April 12, Van Etten said that his area has made a significant effort identifying next year's contributions toward the university's approximately $6 million reduction. However, more work remains, he said.

Provost Condoleezza Rice last fall launched a project to cut $18 million to $20 million over the next three years to eliminate a chronic budget deficit. That comes on top of cuts and revenue enhancements since 1990 of $65 million.

The nine units under Van Etten currently receive $53.5 million in general funds from the university. Budget reductions for 1995 will range from zero in Government Cost and Rate Studies to 15 percent in Sponsored Projects. Cuts in the Facilities area will total 5 percent, about half of which is expected to come from savings in utilities costs.

The overall $2.3 million reduction is 4 percent of Finance's general-funds base. Van Etten's long-term goal for 1996 and 1997 is to cut an additional $7 million, or 13 percent of base funding, for a total of 17 percent. These cuts are on top of reductions in some areas that have exceeded 30 percent in recent years.

Van Etten's units and their cuts include:

  • Facilities - By far the largest unit under Finance is Facilities, which includes Operations and Maintenance (O&M), Project Management and Purchasing. It receives $33.5 million annually in general funds. A significant part of Project Management is paid for through a surcharge on facilities projects.

For 1995, Facilities will be cut $1.5 million, or 5 percent, approximately $800,000 of which will come from savings in utility costs relating to more effectively managing utility use. Other savings will involve payroll and non-payroll items, and are not yet finalized, Van Etten said in a separate interview.

Long-term, Facilities has a budget-cutting target of $3.3 million, or 10 percent.

Van Etten said he expected additional utility savings to help in future years, but he also is studying other options, such as contracting out for some services.

"No decisions have been made," Van Etten said. "I am concerned that we go through a thoughtful, deliberative process involving many members of the community as we look at that issue."

Van Etten drew from his experience in the hospital world for a possible contracting model: Many hospitals buy out their food services, using a large firm such as Marriott to manage the operation, while keeping food service workers on their payroll.

"The value they bring is that those managers have a great deal of experience in similar operations," Van Etten said. They also have access to their company's procurement, computer systems and methodologies, and they know how to structure work to provide the service at relatively low cost, he said.

Such contracting can save a hospital anywhere from 5 percent to 20 percent on its costs, he said.

"There are many models we're looking at, and that certainly is one of them," Van Etten said.

At the same time Van Etten's managers are working on the $3.3 million budget base cut, they will be planning a threefold increase in annual expenditures on planned maintenance, to $6 million by the end of 1996.

Much of that will be expended using Facilities personnel, Van Etten predicted. "I don't want to leave the impression that there will be significant reductions in the workforce. Indeed, there may be net increases, but they will be in different areas and the work they do will be structured differently."

  • Controller's Office - The Controller's Office, with base funding of $8.3 million, is targeted to cut $414,000, or 5 percent, in 1995 through a variety of means still being developed, Joanne Coville told the audience.

She and her staff also are working on 15 projects to streamline the operation and cut an additional $1.2 million, or 15 percent, in 1996 and 1997. Most of those savings are expected to come through restructuring and reengineering of systems such as that for ordering and paying for goods and services. Long-term, costs relating to research administration and other transaction areas also will be cut, Coville said. A major project to simplify the loan process in the Bursar's Office may produce savings.

  • Business Information Systems Applications - Business Information Systems Applications (BISA) is responsible for the design, development and implementation of information systems and applications for Finance and Human Resources. For 1995, the unit will cut its general funds base of $3.7 million by $186,000, or 5 percent, Van Etten said. This will come from not filling two vacancies and reducing non-salary expenses.

Long-term, the unit has a joint goal with the Data Center to produce $1 million in savings, Van Etten said. The Data Center falls under Libraries and Information Resources, headed by Vice Provost Robert Street.

Complicating matters for BISA and the Data Center is the need to make significant investments in administrative systems, Van Etten said.

A team headed by Internal Audit Director Glen Mueller is in the final stages of developing a plan that will call for millions of dollars in one-time money to vastly upgrade or remake about two dozen of Stanford's key computerized information systems.

Van Etten said he did not expect to have a smaller BISA or Data Center at the end of the project. "Our goal ultimately is to have the same or slightly lower cost but to be able to provide significantly more effective information systems."

  • Government Cost and Rate Studies - Because Stanford is still trying to resolve its disputes with the government over indirect costs, the Government Cost and Rate Studies unit was not able to offer cuts for 1995, Van Etten said.

The unit has a general funds budget of $3.6 million but this year is spending an additional $5 million for consultants and legal expenses. Long-term plans are to cut $822,000, or 22 percent of base funding, on the assumption that the university will move to a predetermined indirect cost rate within two years.

"That will enable us to significantly reduce costs in GCRS," Van Etten said. "It may be that further savings will be possible as well," but that depends on completing audits and moving to the predetermined rate.

  • Internal Audit - Stanford's Internal Audit department will have its $1.7 million budget cut by $179,000 or 10 percent. A vacant position will be eliminated and less work will be sent to outside auditors.

Another 10 percent reduction, yet to be identified, is planned for the future, Van Etten said.

  • Sponsored Projects Office - Cuts for 1995 in the Sponsored Projects Office have not been finalized because decisions are yet to be made on how to reorganize research administration universitywide, but Van Etten said he had a 15 percent goal in mind.

He said he expects future cuts of about $468,000, or 30 percent, on the department's $1.5 million base.

The department is understaffed compared to other large research institutions, but the research administration process is going to be reengineered. Two teams have been studying how to streamline research-related processes. The pre-award team has completed its work, and the post-award team will be done soon, after which detailed implementation plans will be developed.

  • Planning - The Planning Office will trim its $400,000 general funds budget by $3,000, or 1 percent, in 1995 and later will cut $35,000, or 9 percent.

The unit is experiencing a significant increase in workload as the university embarks on a $600 million capital program of earthquake recovery, deferred maintenance and other projects, Van Etten said. To meet the increase, the office will restructure to change staff members' responsibilities and the way work is distributed, he said.

  • Office of Technology Licensing - Operating costs in the Office of Technology Licensing are covered through outside income. In fact, the office contributes to general funds - $3 million this year - from the 15 percent overhead fee it collects on royalties.

Anticipating expiration in four years of the lucrative Cohen-Boyer patent for recombinant DNA, the office is trying to reduce its costs 5 percent per year for the next five years, Van Etten said.

  • Chief Financial Officer - Van Etten's central office, with a budget base of $667,000, will be cut $51,000, or 8 percent, in 1995.

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