Download APPENDIX A: EXPLANATION OF PRODUCTIVITY

APPENDIX A: EXPLANATION OF PRODUCTIVITY INDEX AND ADMINISTRATIVE COST RATIO We all agree that strategic alignment, administrative efficiency, and productivity enhancement of research, teaching and outreach are desirable. Alignment is a highly qualitative term not immediately reducible to quantitative measures. Achievement and progress in alignment require a coherent logic about how a unit’s activities contribute to alignment. We would recommend that the Dean and Directors must ultimately make this judgment based on an articulated strategic plan by each unit. However, both productivity and administrative efficiency have a long managerial history of being quantifiable. The critical issue is always defining useful measures that capture effective components of productivity and administrative efficiency, and establish the proper incentives to achieve them. We recommend that the productivity index and the administrative cost ratio as defined herein meet these criteria. Productivity Index The productivity index defined here is a summary measure of productivity across the college’s traditional missions. Its components are expressed in dollars in order to create a standard unit of measure for summing and comparing. There is no attempt to suggest that this is the only measure of productivity for each mission or activity of the college and its units. Section 4 of the main document provides other measures that are necessary to form a complete view of a unit’s productivity. In searching for a summary productivity measure, we wanted a measure that could quantify contributions to all three missions of our work—research, teaching and outreach—while allowing units a substantial degree of freedom to determine how in particular they would meet the measure. Our intention is to quantify outcomes and not dictate specific strategies for creating them. We chose a measure that would provide an expression of each mission in dollars and productivity as a ratio or index of mission dollars generated to some base of allocated resources or investment. The productivity index is defined as follows: Unit productivity index = total unit program funds divided by unit base budget The Base The scarcest resource dollars today and in the future will be base budget dollars. These dollars most especially reflect the large investment in tenure stream faculty. Base budget is thus the denominator of the index. Intuitively, productivity is most effectively measured by how a unit multiplies its base budget through non‐base budget activities that result in dollars of revenue for mission‐relevant programs. Total Program Funds The numerator of the index is total program funds as defined as follows: Total program funds = base budget + 3‐year average C&G expenditures + revenue from auxiliary enterprises + net tuition revenue from teaching With base budget in the numerator and denominator of the index, no unit will ever have a productivity index less than one. The other three components of total program funds are explained below. 3‐year average contract and grant expenditures. Contract and grant activity has become a significant measure of research productivity and it is thus included in the measure. It would also include any contract and grant activity generated from extension and teaching activities. These additional dollars count in the measure with equal weight to research dollars. Three‐year average expenditures are used because this number has significantly less annual volatility than award dollars which are most often for multiple year work in any event. Revenue from auxiliary enterprises. Non‐recurring funds and revenues from unit level revolving accounts represent dollars received to support mission‐relevant programs. GREEEN funds, animal initiative funds, base dollars for centers and institutes, fee‐generating activities and significant dollars from other relevant enterprises all flow through these fund sources. We will be expected to develop more of these funding sources in the future. These funds are more heavily weighted to stakeholder programs and extension. Also experimentation in fund development often flows through these accounts. Net tuition revenue. The committee wanted a dollar expression of teaching productivity to add teaching impact directly in the measure. The Provost tracks a related ratio across all the university’s colleges: (Student Credit Hours x tuition per SCH) divided by college general fund budget We took this ratio as our primary guide to creating net tuition revenue which is as follows: Net Tuition Revenue = (Unit SCH x tuition per SCH) minus unit general fund base budget Net tuition revenue is a monetized indicator of teaching productivity of a unit. It is based on student credit hours generated by service courses as well as by those courses that are required in the major(s). While these funds are not directly managed and in most instances not directly spendable by a unit, this indicator allows us to compute overall unit productivity and administrative cost ratio. We believe as we move towards programs that are managed by multiple units, this measure will distribute teaching productivity of contributing units in an equitable manner. The use of net tuition normalizes the measure for unit differences in base budget funding and keeps this measure from overwhelming the other components of the index. Every tuition dollar from future increases in SCHs will increase a unit’s productivity index. Managerial Implications of the Productivity Index The objective for any unit will be achieving a productivity index of at least 3 and continuing to increase the index over time. The index increases through any of the following changes:  An increase in contract and grant expenditures  An increase in auxiliary revenues  An increase in net tuition revenues driven by increases in SCH  A decrease in base budget Units are heavily incented to do any of the first three while the fourth one will likely be imposed by other budgetary realities. The unit is free to choose its strategy for increasing productivity subject to limitations imposed by alignment and other performance measures beyond this one. It is important to note that teaching productivity measured in this way does not necessarily equate to increasing numbers of unit‐based majors. Increasing unit‐based majors may be an effective strategy but increasing service offerings and joint majors across units also count equally dollar wise. One other direct implication of the measure is that units seeking increases in base budget will need to show that the requested increase will not dilute the unit’s productivity over time. New base budget dollars need to be productive in the broadest sense. There would be a new level of accountability for getting an increase in base budget. Administrative Cost Ratio The measure is more easily explained than the productive index and is defined as follows: Unit Administrative Cost Ratio = unit administrative costs divided by total program funds Total program funds are as defined for the productivity index. Administrative cost is made up of three components:  Salaries of unit leadership (chair, associate chair)  Salaries of staff supporting the administration of a unit (chair’s executive assistant, business manager, accountants, etc.)  Direct dollars of expense spent for administration (supplies, IT, etc.) Should this ratio become the measure of administrative efficiency, a full study of these costs unit by unit needs to be pursued as part of implementation. The committee was only able to do a preliminary estimate of these costs. Managerial Implication of the Administrative Cost Ratio The objective for any unit will be reducing the ratio to 5% and maintaining it at or below that number. The ratio decreases through any of the following changes:  An decrease in administrative cost  An increase in total program funds Strategies to do either of these things are straight forward and need no additional explanation. It is important to note that any increase in productivity will result in a decrease in the administrative cost ratio. The two measures work together in this sense and do not provide contradictory performance incentives. Productivity Index and Administrative Cost Ratio Targets The committee did preliminary fact finding in regard to the two performance measures. We believe that the target of 3 for the productivity index and the target of 5% for the administrative cost ratio are reasonable in terms of their face validity (they make good common sense) and based on the range of existing unit performance estimates.