Wednesday, March 20, 2013

Nice Work If You Can Get It

You're going to spend half a million dollars more to tell you something you should already know?

Rep. Gene Pelowski (chair of the House higher education committee) in the March 9, 2013 Star Tribune report (emphasis added).

The U of M administration recently announced that it will pay $495,000 to Huron Consulting of Chicago to compare the costs and operations of the University to other public and private organizations.

In 2008 and 2009 the consulting firm Bain & Co. (yes, that Bain) examined the costs of administration at UC Berkeley, Cornell University, and the University of North Carolina. In a report in July 2012 Bain observed that the operating principle for universities has been the Law of More:

Many institutions [of higher education] have operated on the assumption that the more they build, spend, diversify and expand, the more they will persist and prosper. But instead the opposite has happened: institutions have become overleveraged. Their long-term debt is increasing at an average rate of approximately 12% per year, and their average annual interest expense is growing at almost twice the rate of their instruction-related expense (see Figure 5). In addition to growing debt, administrative and student services costs are growing faster than instructional costs. And fixed costs and overhead consume a growing share of the pie (see Figure 6).

See p. 3 of The Financially Sustainable University.

So it will not be a saving grace if a report from Huron shows that the U of M costs of administration are comparable to those at other large universities. Until recently no one has been watching the store anywhere. See State (and) University Part II. We should not spend half a million dollars simply to confirm that the U of M administration is no worse than its profligate counterparts in Big Education.

Instead we should compile the information we already have and then review the increase in administration over the past 40 years. For each campus we should determine any increase in the number of students, in the number of administrators (and administrative staff), in the level of research, and in the compensation of administrators (in constant dollars). If there has been an increase in the number of administrators that is disproportionate to any increase in the number of students or in the level of research, we should ask why. If there has been a substantial increase in the compensation of any administrator, we should ask why.

This historical analysis could be prepared at no additional cost to the University. A couple of administrators in the Office of Budget & Finance with the assistance of a couple of students from the business school (who would receive credit) could complete such a project in 30 to 60 days.

The results could then be used together with the recommendation developed by Bain from its evaluations in 2008 and 2009. Bain reported that:

Berkeley had average spans of control (the number of employees reporting directly to a manager) of around four compared with more than six for average companies and closer to 10 for best practice companies.

See p. 5 of the July 2012 Bain report.

Sibson Consulting is in the process of conducting a "spans and layers" analysis at the U of M. Its initial report covers four administrative offices at the University. Two of the offices had a span control of less than four and one had a span control of five. So three of the first four offices examined have a failing grade according to the Bain standard (also used by Sibson). See the March 9, 2013 Pioneer Press report.

But the issue is about more than simply counting the number of levels of management and the number of persons reporting to a manager. It is at least as much about counting the compensation of the scores of senior administrators at the top. See On The Cost of Administration and On The Cost of Administration Part III

After we finish counting we must act:

Boards of trustees and presidents need to put their collective foot down on the growth of support and administrative costs. Those costs have grown faster than the cost of instruction across most campuses. In no other industry would overhead costs be allowed to grow at this rate--executives would lose their jobs.  
As colleges and universities look to areas where they can make cuts and achieve efficiencies, they should start farthest from the core of teaching and research. Cut from the outside in, and build from the inside out.

See p. 5 of the July 2012 Bain report (emphasis added).


To the best of my knowledge, no great scientific discoveries, no insightful social service tracts, and no novels have been produced in Morrill Hall. No classes are taught in Morrill Hall. No patients are made well in Morrill Hall. . . . Without authority invested where the real work of this University is done, the light of excellence will only grow dimmer.

Inauguration address of U of M President Mark Yudof (1997). See Tenth Anniversary of Inauguration.

Michael W. McNabb

University of Minnesota B.A. 1971; J.D. 1974

University of Minnesota Alumni Association life member

1 comment:

Anonymous said...

have you seen the Spans and Layers report?

sure looks like money well spent (eye roll).