UC Berkeley : CSS Funding Model

1. UC Berkeley:CSS Funding Model A New Approach to Campus Shared Services ‘Pricing’ David DeClercq (510) 664-9296 david.declercq@berkeley.edu

2. Preface The CSS Funding Model includes the following: • A comprehensive plan to fund CSS operations. • A new Indirect Cost Recovery Sharing Model. All Divisions are projected to be ‘as-good’ or ‘better-off’ financially.

3. Our Current Situation Our Goal: Simplify and standardize key administrative tasks in order to generate cost savings that will be re-invested in teaching, research, and public service. Our Challenge: Produce an operational plan to fund CSS, given highly variable costs, no reliable data or enterprise-wide systems, hugehistorical funding distortions, and a financial structure with more than 14,000 different ‘flavors’ of money. Our Obstacles to Cost Standardization: • Divisions have achieved different levels of efficiency. • Some Divisions are more complex than others. • Divisions offer different service levels and serve different populations. • Divisions have invested (or not) differently in administrative services. • Divisions pay employees differently.

4. Principles & Objectives Design Principle: Develop a Funding Model Framework that is as follows: • Simple/Transparent: easy to explain, understand, and implement. • Automated: minimize administrative work. • Incentives: build appropriate incentives that drive good decision-making. Objective: Develop a rational financial model that will enable Berkeley to make more strategic financial decisions in support of Access and Excellence by: • Standardizing the cost of service delivery. • Minimizing the distortions of past funding decisions. • Designing a mechanism to distribute savings back to campus. • Creating incentives that align with institutional goals.

5. Our Policy Solution Create policy that incentivizes participation by shifting financial risk to Central Campus and leverage the payment mechanism to reduce distortion. • Academic Units will pay 97% of current cost. • Administrative Units will pay 100% of current cost. • Central Campus bears the financial risk that operating cost is greater than collections during implementation. • Hold Cost Policy fixed for 2 years. • Conduct a ‘Fundamental Review’ of financial performance. • Recommend to campus on the on-going, post implementation Funding Model. Cost Policy Phasing Policy • Cost and Risk Policies • solve • for variable costs, allows time to collect better data through operations, and creates incentives to participate in CSS without excessive financial risk to Campus Divisions. • Mechanism will solve distortion and complexity. Payment Mechanism

6. Mechanism Options ‘Common Goods’ Framework: how to pay for goods and services The framework considers the dollar amount, frequency, current payee, and the marginal cost of service to identify the preferred method. Assessment Charge Direct Charge Incremental Usage Full Cost Allocation • Calculate the cost of a basket of goods or services and fully fund from Central Campus resources. • This is a set aside taken prior to the distribution of revenue. • Flat tax percentage based on revenues or expenses to recover the cost of goods or services. • Often this tax is an administration tax or participation fee. • Allocate costs of the basket of goods or services based on a measureable factor (e.g. headcount). • Charge based on cost per factor, irrespective of actual consumption. • Recover cost based on ‘per unit’ of usage in a time period. • Charge based on actual ‘per-unit’ consumption. ‘Off the Top’ ‘Bill’ ‘Price’ ‘Tax’

7. Our Payment Solution Use the mechanism to standardize cost, reduce historical distortion, provide a means to distribute savings, and allow collection to scale with activity. Campus Shared Services • Departmental Administration • Transfer general allocation budget or a periodic bill for Auxiliary Units. • Departmental Administration • 2% Assessment on all non-contracts and grants expenditure and receive refund for over-collection. • Research Administration • Transfer ‘un-restricted’ Divisional budget used for in-scope work and re-direct existing ICR payments to CSS. Administrative Divisions • CSS Provides • Service Academic Divisions • Central Campus will introduce a new ICR Sharing Model.

8. New ICR Sharing Model Design Principles: • A model based on key principles: simple, transparent, and with clear incentives that support the research mission of the University. • Provides a pool of resources to fund research-related expenses that cannot be billed directly to a contract or grant. • Avoids compliance issues at the Division/PI level. The Executive Vice Chancellor and Provost has formed a work group to decide on key details for the New ICR Sharing Model. Proposed ICR Sharing Model: • Divisions will receive up to 10% of all ICR generated by the Division. • ICR will be distributed to various campus stakeholders by rule. • The ICR Model is funded through the a higher Federal ICR Rate.

9. Impact (1/3) Departmental Administration: • Every Academic Division pays the same rate. • Virtually no additional expense to collect the fee. • Net cost to Academic Divisions will be no more than 97% of current cost during the Implementation Phase. • A single-rate assessment will increase financial flexibility by charging all funds (restricted and un-restricted) in proportion to their use. • Collection will scale automatically as Divisions grow or contract. • Mechanism allows for savings to be distributed back to campus by reducing the assessment rate over time. • Divisions are projected to be financially ‘as-good’ or ‘better-off.’

10. Impact (2/3) Research Administration: • RA services will be available to all Divisions, regardless of current Division-level investment. • PIs already pay ICR and will not pay any additional fee to use RA. • Re-directing ICR and adjusting un-restricted budget helps to minimize distortions in past funding decisions – unwinds the ‘patch-work quilt’ of RA funding. • Standardizes RA cost structure by pooling all staff and allocations into a single budget. • Divisions are projected to be financially ‘as-good’ or ‘better-off.’

11. Impact (3/3) Indirect Cost Recovery Sharing Model: • Sharing of ICR is rational and transparent. • ICR generation is linked directly with payout. • Provides an incentive to maximize allowable cost recovery. • Makes resources available to pay expenses that cannot be billed to a contract or grant. • May reduce compliance risk. • Divisions are projected to be financially ‘as-good’ or ‘better-off.’

12. CSS Financial Operations The CSS Funding Model identifies the method for funding CSS operations; however, CSS will be funded like all other Administrative Divisions. Campus Divisions Central Campus Campus Shared Services • Central Campus will aggregate all CSS Funding Model payments. • Over time, Central Campus will pay out all funds collected. • CSS will participate in the Annual Budget Process to request operational funding. • The Chancellor will approve the annual CSS Budget. • Divisions will pay the 2% Assessment • and make budget contributions to Central Campus. Campus Shared Services will be subject to the same goals and budgetary pressures as all other campus Divisions.

13. Implementation Update As of July 2013, CSS, in collaboration with campus partners, has: • Completed the Early Adopter Implementation. • VC Administration and Finance (March 2013) • College of Natural Resources (April 2013) • L&S Biological Sciences (April 2013) • Engineering Research Support Organization (May 2013) • Research Enterprise Services (May 2013) • Completed the 2.0 Cohort Implementation. • Integrated more than 300 staff and a Leadership Team. • Developed comprehensive functional and service training. • Documented 100+ processes to enable process improvement. • Built-out new office space and satellite locations. • Designed and implemented a funding model. • Conducted numerous change management and outreach activities.

14. Questions? David DeClercq (510) 664-9296 david.declercq@berkeley.edu