A Penny Saved …

Making all those dollars stretch as far as possible is the job of Penn’s executive vice president, Craig Carnaroli W’85. The University’s chief administrative and financial officer, he manages the areas of finance, public safety, human resources, information systems and computing, audit and compliance, investments, and business services.

The divisions reporting to Carnaroli have garnered a number of external accolades in recent years—as one of the Best Places to Work in IT by Computerworld magazine, and for innovations in electronic commerce, for example—but he takes special pride in a recent citation from Charity Navigator (www.charitynavigator.org), which describes itself as “America’s premier independent charity evaluator.” It gave Penn a score of 67.40 out of a possible 70 in terms of fundraising and operational efficiency.

Savings and cost-avoidance through management efficiencies is one way that Penn competes with its better-endowed peers. “It’s not sexy stuff, it’s blocking and tackling,” says Carnaroli.

For example, to secure lower interest rates Penn has restructured $869 million of the health system and University long term debt of $1.4 billion, for gross savings of $75 million.

Penn also takes advantage of its clout as the city’s largest employer to squeeze deeper discounts from health-care providers and vendors of other services, and uses electronic technology to reduce paper consumption and speed transactions in areas from student services to regulatory compliance.

A number of measures have aimed to control employee-benefits costs, a major concern in an institution where about half of all expenses are people-related. This has included introducing wellness programs, seeking deeper discounts with health providers (like a $1.7 million cut in administrative fees), and performing regular audits of Penn’s retirement population (to ensure eligibility for benefits received) and of payroll to confirm that employees are not getting extra compensation, Carnaroli says. Cost savings related to prescription drug programs for retirees and current employee health-plan participants are projected to save about $15 million annually, for example.

Since FY 1997, the University’s electronic procurement system has generated an estimated $79.6 million in savings, while also reducing the average time it takes to create a purchase order and get it to a supplier from 18 days to less than one. Now used for 70 percent of purchase-order transactions, it recently won an award from the Aberdeen Group for “best practices in e-procurement”—the only award winner from higher education.

(These savings have been gained without compromising Penn’s commitment to buy from West Philadelphia and minority suppliers, Carnaroli emphasizes. In FY2005, Penn spent $70.1 million with West Philadelphia suppliers, and purchased $49.3 million from minority-owned companies.)

Penn has been an early and enthusiastic adopter of various web-based self-service systems for students, faculty and staff. For students, the Penn Portal provides services like course registration and drop/add, dining and housing choices, and financial transactions, while faculty and staff use a site called U@Penn to access benefits information, update personal information, find human resources policies and health and wellness information, and make changes in their benefits. Recruiting and departmental requests to hire new staff are also handled almost entirely online, saving paper and staff time, while speeding the time to fill jobs by about five days.

A system called PennERA (for Electronic Research Administration) has helped reduce the time it takes to establish an account to draw on grant funds by 2-4 days and shortened the protocol approval process from 46 days in 2003 to 22 days. The University is also implementing a new advancement system, called ATLAS, in order to “improve the interface with the alumni community,” says Carnaroli. The system will replace “disparate and aging systems that did not talk well with each other” and improve things like address updating and recordkeeping, as well as coordinate the operations of the treasurer’s office and development and alumni relations with regard to gift information.

The Chronicle of Higher Education recently highlighted Penn’s measures to control energy costs, which save about $5 million annually by closely monitoring usage and taking action—like turning off lights and turning down air-conditioning in the summer—when it rises beyond a certain level. “We have a very successful but unpopular energy-conservation program where we very much try to control peak demand,” which determines rates under the University’s contract with PECO, its energy-provider, Carnaroli says.

Various “strategic outsourcing” initiatives have also added revenues while providing professional service, he adds. These include the Barnes&Noble-managed Penn Book Store, a contract with the food-service giant Aramark to manage Penn’s dining services, and the University City Sheraton and Hilton Inn at Penn hotels. These and other “auxiliary services” accounted for $298 million in FY2005 revenues.

Penn has also partnered with private developers on various construction and renovation projects, limiting the University’s exposure to risk while still encouraging the addition of new retail and residential opportunities in the neighborhood. The first project of this type was the Left Bank at 31st Street between Walnut and Chestnut, in which the one-time GE building was redeveloped into luxury apartments by local developer Carl Dranoff in exchange for a long-term lease on the property. Similar arrangements were used for the new WXPN studios and World Café Live, and for the $71 million retail and high-end residential “Domus” project now under construction by the Houston-based Hanover Company on the former parking lot at 34th and Chestnut streets, as well as another mixed-use development further up Chestnut at 40th Street.

“This came out of a recognition that the University has limited debt capacity, and it needs to preserve it for academic priorities,” says Carnaroli. “So to the degree we are able to do that for some of the support activities that enable the University to grow and be a vibrant place, it’s a very shrewd strategy,” for which he credits Penn’s trustees, former EVP John Fry, and current Vice President for Facilities and Real Estate Omar Blaik.

Agreements of this type might also be a part of plans to redevelop the postal lands east of campus now being acquired by the University, but it’s too early in the process to say for sure, Carnaroli adds.

Another recent partnership is with the computer company Lenovo, which has agreed to offer IBM laptops at a discount to students, faculty, staff—and alumni—through Computer Connection in the Penn Book Store. Any money raised will be directed into financial aid, says Carnaroli.

That’s the end purpose of all the penny-pinching, he adds—to make more funds available to meet the University’s academic priorities. It’s also why endowment funds are so important. Because “so many of the dollars that come into the University are restricted in what they can be used for, unrestricted dollars are the most valuable commodity,” he explains. “So to the degree that you can endow an activity you are able to free up more unrestricted dollars to use for academic purposes.”

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©2006 The Pennsylvania Gazette
Last modified 03/01/06

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FEATURE: Whence the Money
By John Prendergast

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