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Shared services project to save millions less than originally estimated

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APRIL 24, 2012

recent reportshows that shared services — a project to streamline campus administrative tasks into one location by December 2014 — would save millions less than originally estimated, throwing off overall projections for a campus cost-cutting project.The shared services project is an effort within the larger Operational Excellence initiative, a controversial bid to streamline campus operations and ultimately save $75 million annually starting in fiscal year 2016. In recent months, the campus has claimed that it can save much more than $75 million — estimates ran at as much as $112 million in a report released Jan. 13.

The $112 million estimate has now proved to be unrealistic due to a discrepancy in original savings estimates in an April 2010 report by consulting firm Bain & Company — Operational Excellence spokesperson Bill Reichle now estimates total Operational Excellence savings to be $95.2 million this year.

The report projected shared services would save around $18 million per year after having reached a steady savings rate three years after its implementation, according to Reichle. But the report was based on insufficient data that the company collected.

“The analysis in this report is based on best available data, but there are limitations due to the difficulty of assembling high-quality data from UC Berkeley’s existing systems,” the original Bain report on shared services stated. “This report contains decisionable data … further refinements will be made as needed in the Design stage.”

The campus originally hired Bain & Company at the cost of $7.5 million between October 2009 and December 2010 and charged it with finding savings for the campus.

Reichle said in an email that campus administrators based an “earmark projection for Shared Services savings” on the Bain report.

“The Bain diagnostic wasn’t a hard and fast estimate,” Reichle said. “It was to give a general idea of whether (shared services) was worth it or not.”

A Feb. 27 report sponsored by Vice Chancellor for Administration and Finance John Wilton and Dean of the College of Natural Resources Keith Gilless lowered shared services expectations from $18 million in the Bain report to “hard savings” of $12 million to $15 million per year.

The project’s finalized budget — which was approved March 8 by the initiative’s executive committee — has dropped the projected savings much more dramatically to $6.5 million, which would not occur until 2016. From 2016 to 2020, the savings are expected to rise each year to peak at $14.3 million in 2020.

Overall, the total savings projections of Operational Excellence for this fiscal year have now changed from $75 million originally to $112 million in January, ultimately landing on $95.2 million in the April report.

Clarifications: A previous version of this article incorrectly stated the projected savings for this year could run as high as $75 million. In fact, this figure represents the projected savings per year starting fiscal year 2016.
Afsana Afzal covers academics and administration.

MAY 06, 2012

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