The webinar discusses the methods for creating a Profit & Loss (P&L) statement for the research enterprise.

1. Understanding the Financial Performance of the
Research Enterprise
April 17, 2013

2.  Matt Faris – Senior Director
 Zach Belton – Director
 Jen Ohlman – Associate
Presenters
1

3. Today’s Objectives
 Discuss the methods for creating Profit & Loss (P&L) statements for
the research enterprise
 Review research-related revenue and expense data
− How to use this data to analyze performance
− Understand potential impact to the bottom line
 Introduce methods to analyze and improve the bottom-line operating
results for the research enterprise
− Dive deeper to identify ways to measure performance of the
individual research administration units
− Understand strategies to improve the operating results of these
units
2

4. Why is creating a Research P&L important?

5. Why is a Research P&L Important?
 Research is generally one of the top sources of revenue and
expenses for many institutions
 Research revenues rarely cover the expenses incurred, often falling
short by 10% to 20% or more.
 Accordingly, it is important to understand and actively manage the
research enterprise through the monitoring of current financial
performance and key performance indicators
 In addition, the financial impact of future investments in research
should be determined prior to committing institutional resources
0%
20%
40%
60%
80%
100%
Ratio of Research Expenditures to Total Expenditures
Top 300 Universities by total Research Expenditures - IPEDS|-------- 1 – 50 -----------|--------- 50 – 100 -------|----------- 100+--------------------------------------->
4

6. Economic Impact & Current Environment
 Total postsecondary enrollment experienced first decline in 15
years, enrollment pressures are expected to continue
Enrollment Pressures
 Decreased 7.5% between 2011-12, and 0.4% between 2012-13State Appropriations
 1/3 of institutions expect a net decline or increase less than
inflation in 2013
Tuition & Discounts
 Gifts increased 2.3% in 2012, favoring current operations over
capital investments
Fundraising
 FY2012 endowments were flat, returning an average of -0.3%
 57% of institutions increased expenditures on campus operations
Endowment
Spend/Distributions
 Increase in median age of physical plant from 10.5 to 11.5 from
2003 to 2010, decrease in capital spending
Deferred Maintenance
 Cuts of up to 5% for NIH and NSF. Impact on universities is
still unclear
Sequestration
The economic landscape for university investment emphasizes the need
to understand the cost of research
5

7. Decision Support
Invest Reduce
How can these analyses support management decisions?
6
Support strategic investments at the
institutional or college level
 Evaluating the decision to invest in a
new research building
 Adding a new research program with
capital intensive requirements, e.g., a
nanotechnology center with new
building, equipment and startup
packages
 Evaluating the overall mission to
expand the research enterprise
Identify and manage costs to address
budget constraints
 Determining sources of inefficiency in
order to maximize cost recovery, e.g.,
under-utilized space, excessive cost
sharing
 Evaluate the investment the
institution is making to support the
research enterprise

8. Key Analysis for Understanding Performance

9. The Research P&L Lifecycle
 Determine the financial performance of the research enterprise by
creating a Profit & Loss (P&L) financial model using Facilities &
Administrative (F&A) cost rate data
 Monitor Bottom-Line Performance using Key Performance Indicators
(KPIs) created from sponsored project data
 Improve Bottom-Line Performance and the level of efficiency and
effectiveness of the research enterprise
Determine
Monitor
Improve
8

10. Using the F&A Cost Proposal to create a P&L
Determine
Monitor
Improve
9
High-Level Action Steps
Gather Available Data
 F&A Schedules and Supporting Cost Accounting Data
Create P&L Statement Structure
 Identify the different research types for the bottom line
analysis, such as Departmental Research & Clinical Trials
Identify Direct Cost Objective Expenditures
 Identify additional costs that may not be neatly contained
within cost centers
Revise Facilities & Administrative Cost Distributions
 Redistribute F&A Costs based on the creation of the revised
cost pools
Identify Revenue Related to Direct Cost Objectives
 Identify the direct and indirect funding sources related to the
direct cost objectives
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2
3
4
5

11. Gather Available Data –
Sample Summary Stepdown Schedule
Determine
Monitor
Improve
10
1
A-21 F&A Cost Groupings
Final Cost
Bldg
Deprec
Equip
Deprec
Interest
Operations
& Maint
General
Admin
Dept
Admin
Spons
Proj Admin
Library
Student
Services
Totals
F&A Cost Groups (USD Millions)
Bldg Deprec 24.68 (24.68) -
Equip Deprec 36.64 - (36.64) -
Interest 7.97 - - (7.97) -
Operations & Maint 111.64 2.19 1.31 .35 (115.48) -
General Admin 198.65 .98 2.3 .1 9.32 (211.35) -
Department Admin 42.75 .49 .33 .19 3.29 4.97 (52.02) -
Spon Proj Admin 8.08 .12 .07 .005 .66 .58 - (9.52) -
Library 6.16 .23 .6 .02 2.86 .44 - - (10.32) -
Student Services 6.26 .1 .1 .007 .99 .55 - - - (8.02) -
Direct Cost Groups (USD Millions)
Instruction 231.36 4.52 3.36 1 22.05 25.88 36.97 1.65 7.62 8.02 342.44
Organized Res 95.33 4.24 5.18 2.41 21.67 10.54 12.62 7.23 1.52 - 160.76
Other Spon Act 10.57 .21 .47 .04 1.36 1.01 .87 .62 .006 - 15.25
Other Inst Activity 26.26 3.22 4.59 3.4 16.16 2.02 .49 - .68 - 56.8
Hospitals & Clinics 705.4 8.4 18.33 .45 37.13 165.3 1.07 - .44 - 936.53
Total 1,511.78 - - - - - - - - - 1,511.78

12. Base Year Rate Calculation Summary by Major Function (USD)
Instruction Organized Research OSA
FACILITIES GROUP
Depreciation/Use Allowance
Buildings/Improvements $ 4,518,300 2.0% $ 4,243,167 4.5% $ 207,650 2.2%
Equipment $ 3,362,450 1.5% $ 5,182,396 5.5% $ 465,044 5.0%
Interest Expense $ 1,004,046 0.4% $ 2,408,350 2.5% $ 36,693 0.4%
Operation and Maintenance $ 22,053,612 9.5% $ 21,665,514 22.9% $ 1,360,739 14.7%
Utility Cost Adjustment $ - 0.0% $ - 1.3% $ - 0.0%
Library $ 7,621,286 3.3% $ 1,519,201 1.6% $ 58,091 0.6%
TOTAL FACILITIES $ 38,559,695 16.7% $ 35,018,627 38.3% $ 2,128,217 23.0%
ADMINISTRATIVE GROUP
General $ 25,879,485 11.2% $ 10,538,650 11.1% $ 1,056,441 10.0%
Departmental $ 36,965,008 16.0% $ 12,617,292 13.2% $ 874,634 8.3%
Sponsored Projects $ 1,646,496 8.2% $ 7,251,359 8.2% $ 617,508 8.2%
Student Services $ 8,022,310 3.5% $ - 0.0% $ - 0.0%
TOTAL ADMIN $ 72,513,299 38.8% $ 30,407,300 32.5% $ 2,548,584 26.4%
Adjustment for 26% Limitation -12.8% -6.5% -0.4%
MODIFIED TOTAL DIRECT COST AND F&A RATES
On-Campus Base/Rate $ 231,364,650 42.7% $ 94,524,780 64.3% $ 9,236,575 49.0%
Off-Campus Base/Rate $ - 26.0% $ 809,085 26.0% $ 1,331,797 26.0%
Total On/Off (All Campus) $ 231,364,650 $ 95,333,865 $ 10,568,372
Sponsored Base $ 20,192,699 $ 88,930,969 $ 7,573,146
COMPOSITION OF RATE BASE
Federal Awards
On-Campus (full rate) $ - $ 63,047,557 $ -
Off-Campus (full rate) $ - $ 520,948 $ -
Research Training Awards $ 131,220 $ 4,994,943 $ 518,024
Other Federal Awards $ 4,065,129 $ 11,653,454 $ 5,434,510
Non-Federal Sources $ 227,168,301 $ 15,116,963 $ 4,615,839
Total $ 231,364,650 $ 95,333,865 $ 10,568,372
MISCELLANEOUS STATISTICS
Cost Sharing in Rate Base $ - $ 7,091,650 $ 263,782
ASF by Major Function 432,941 409,501 66,387
Percent of ASF Financed 17.1% 25.8% 3.1%
11
Determine
Monitor
Improve
Gather Available Data –
Sample F&A Rate Schedule
1

13. 12
Determine
Monitor
Improve
Sponsored Research Other Sponsored Activities Departmental and Gift Funded Research
Sponsored
Research Cost Sharing Total
Other
Sponsored
Activities
Industry
Clinical
Trials Total Instruction
Sponsored
Instruction
Department
Research Total Grand Total
Direct Operating Revenue
Grants and Other Restricted Income Used for Program Purposes
Direct Revenue 90,567,172 4,766,693 95,333,865 10,039,954 581,260 10,621,214 - 4,627,293 - 4,627,293 110,582,372
Indirect Revenue 56,151,646 - 56,151,646 1,003,995 132,105 1,136,100 - 370,183 - 370,183 57,657,930
Total Grants and Other Restricted
Income 146,718,818 4,766,693 151,485,511 11,043,949 713,365 11,757,314 - 4,997,476 - 4,997,476 168,240,302
Other Revenue
Tuition and Fees - - - - - - 310,244,000 - - 310,244,000 310,244,000
Other Sources - - - - - - - - - - -
Total Other Revenue - - - - - - 310,244,000 - - 310,244,000 310,244,000
Total Operating Revenue 146,718,818 4,766,693 151,485,511 11,043,949 713,365 11,757,314 310,244,000 4,997,476 - 315,241,476 478,484,302
Direct Operating Expenses
Total Direct Operating Expense 90,567,172 4,766,693 95,333,865 10,039,954 528,419 10,568,372 215,169,125 4,627,293 11,568,233 231,364,650 337,266,887
Net Income from Direct Operations 56,151,646 - 56,151,646 1,003,995 184,947 1,188,942 95,074,875 370,183 (11,568,233) 83,876,826 141,217,415
Overhead Expense
Facilities Related 31,824,455 1,674,971 33,499,426 1,966,619 103,506 2,070,126 28,772,720 618,768 1,546,920 30,938,409 66,507,960
General and Administrative 30,330,176 1,596,325 31,926,501 2,476,341 130,334 2,606,675 74,525,164 1,602,692 4,006,729 80,134,585 114,667,761
Total Overhead Expense 62,154,631 3,271,296 65,425,927 4,442,960 233,840 4,676,800 103,297,884 2,221,460 5,553,650 111,072,993 181,175,721
Net Income from Operations (6,002,985) (3,271,296) (9,274,281) (3,438,965) (48,894) (3,487,858) (8,223,008) (1,851,276) (17,121,882) (27,196,167) (39,958,306)
Create P&L Statement Structure –
Sample Research P&L
2

14. Determine
Monitor
Improve
13
Identify Direct Cost Objective Expenditures3
 Identify additional costs that may not be neatly contained within cost
centers
− Analyze faculty compensation and effort data to determine voluntary cost
sharing amount
 Sponsored Research
− Create additional cost objectives that would allow for the further analysis
of bottom-line results
− For example, create cost pools for laboratory and non-laboratory based
research
 Specialized Service and Recharge Centers
− Reclassify cost centers/accounts from Other Institutional and Instructional
Cost Pools to this category
− Reclassify related overhead allocations from other cost pools
− Considerations will need to be made based on the accounting for related
revenues

15. Determine
Monitor
Improve
14
Revise Facilities & Administrative Cost Distributions4
 Redistribute F&A Costs based on the creation of the revised cost
pools
 General and Administrative Costs
− Further refine distribution of general and administrative costs
− For example, perform refined distribution of legal expense
 Departmental Administration
− Reverse calculation per the proposal and calculate per more refined
methodology
− For example, replace 3.6% Faculty Allowance with effort gathered via
special survey existing effort reporting data or special survey
 Sponsored Projects Administration
− Create additional sub-pools based on various functional activities
− The sub-pools could include proposal review, proposal negotiation,
financial report preparation, etc.

16. Determine
Monitor
Improve
15
Identify Revenue Related to Direct Cost Objectives5
 Different award types determine how revenue is to be recognized
− Cost reimbursable awards, direct and indirect costs can be equated to the
related expense
− Fixed awards, revenues can be equated to cash receipts
− Determine if there are funds designated to support Departmental
Research activity
 Determine what sources of revenue supporting research should be
included in the presentation which could include
− Endowment Income
− Gifts in general support of research programs
− Royalty Income

17. Key Performance Indicators Used to
Monitor Financial Performance

18. 17
Key Performance Indicator:
Top Line Revenue Growth
BOTTOM LINE IMPACT
 Large decrease in sponsored award revenues, particularly of a localized nature, are
indicative of a stagnant research enterprise
Determine
Monitor
Improve
BUDGETARY / MANAGEMENT ACTION
 Proposal development!
 Target institutional strengths and invest
 Diversify sponsor funding mix through increased targeting of industry and foundation
sponsors
DESIRED TREND
HIGH
Key Performance Indicator:
Top Line Revenue Growth

19. 18
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from when the F&A overhead recovery designated
by the sponsoring agency does not cover the associated costs incurred
BUDGETARY / MANAGEMENT ACTION
 Refine policy to limit the acceptance or these awards – F&A Rate Waiver
 Establish dollar density metrics and have management actions as a result of not achieving
the targeted metric
 Revenue Enhancement Opportunity
DESIRED TREND
HIGH
Key Performance Indicator:
Effective Rate of Return on Awards

20. 19
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from when the F&A overhead recovery does not
cover the costs incurred
BUDGETARY / MANAGEMENT ACTION
 Evaluate and refined F&A rate calculation if the associated cost (effort) justifies the
anticipated return
 Develop policy that allows institution to direct charge non-federal sponsors for costs
typically included as overhead
 Revenue Enhancement Opportunity
DESIRED TREND
HIGH
Key Performance Indicator:
F&A Cost Recovery

21. 20
Analyzing the Unrecovered Cost after revenue distribution at the Cost Pool level can support
university management when making decisions related to the return of overhead to the various
organizational units of the institution
Determine
Monitor
Improve
Cost Pool
Allocated
Cost
Submitted
Rate
Less:
Cap
Impact
Submitted
Rate
Less:
Negotiation
Impact
Negotiated
Rate
Negotiated
Rate as %
of Total
Distribution
of F&A
Revenue
Unrecovered
Cost
General Administration 6,445,389 9.84% 2.88% 6.96% 6.96% 12.43% 4,352,136 2,093,253
Departmental Administration 10,170,655 15.53% 4.54% 10.99% 10.99% 19.62% 6,867,557 3,303,099
Faculty Administration 2,357,654 3.60% 3.60% 3.60% 6.43% 2,250,000 107,654
Sponsored Projects Administration 4,117,556 6.29% 1.84% 4.45% 4.45% 7.94% 2,780,307 1,337,249
Subtotal 23,091,254 35.25% 9.25% 26.00% 0.00% 26.00% 46.43% 16,250,000 6,841,254
Building 3,253,765 5.49% 5.49% 0.88% 4.62% 8.24% 2,884,691 369,074
Equipment 1,267,436 2.14% 2.14% 0.34% 1.80% 3.21% 1,123,671 143,765
Interest 1,525,531 2.58% 2.58% 0.41% 2.16% 3.86% 1,352,490 173,041
Operations and Maintenance 12,472,473 21.06% 21.06% 3.37% 17.69% 31.59% 11,057,721 1,414,752
Utility Allowance 1.30% 1.30% 1.30% 2.32% 812,500 (812,500)
Library 1,713,262 2.89% 2.89% 0.46% 2.43% 4.34% 1,518,927 194,335
Subtotal 20,232,467 27.83% 0.00% 35.46% 5.46% 30.00% 53.57% 18,750,000 1,482,467
Total $43,323,721 63.08% 9.25% 61.46% 5.46% 56.00% 100.00% $35,000,000 $8,323,721
MTDC - Admin $65,501,390
MTDC - Facilities $59,228,045
DA split 15.53% 81%
DA 3.60% 19%
Faculty 19.13% 100%
Key Performance Indicator Example:
F&A Cost Recovery

22. 21
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from the inefficient use of research space
BUDGETARY / MANAGEMENT ACTION
 Develop space management policy that specifies implications of not meeting targeted
research dollar density metrics
− Reassignment of research space
− Retain F&A Recovery to cover shortfall
DESIRED TREND
HIGH
Key Performance Indicator:
Space Usage

23. P&L Category Value External Funding All Funding
Chemistry
Research Expenditures $ 2,670,962 $ 3,546,757
Space (sq ft) 14,703 14,703
Dollar Density ($/sq ft) 182 241
Biostatistics
Research Expenditures $ 1,164,685 $ 1,391,827
Space (sq ft) 1,110 1,110
Dollar Density ($/sq ft) 1,049 1,254
Biomedical
Engineering
Research Expenditures $ 3,722,537 $ 4,641,035
Space (sq ft) 14,034 14,034
Dollar Density ($/sq ft) 265 331
Dermatology
Research Expenditures $ 2,757,349 $ 3,362,019
Space (sq ft) 9,761 9,761
Dollar Density ($/sq ft) 282 344
Neurology
Research Expenditures $ 1,029,482 $ 1,479,436
Space (sq ft) 8,533 8,533
Dollar Density ($/sq ft) 121 173
Microbiology
Research Expenditures $ 1,822,631 $ 2,668,284
Space (sq ft) 7,981 7,981
Dollar Density ($/sq ft) 228 334
Research
Enterprise
Research Expenditures $ 13,365,608 $ 17,287,321
Space (sq ft) 56,907 56,907
Dollar Density ($/sq ft) 235 304
22
 Principal Investigators,
Academic and Clinical
Departments and
Designated Research
Programs already
calculate this KPI
 Multiple PIs associated
with one project and
shared laboratories and
support facilities create
challenges for this KPI
Space Usage, or Dollar Density, is the amount of research funding conducted in a
defined space
Determine
Monitor
Improve
Key Performance Indicator Example:
Space Usage

24. 23
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from when the pricing structure and/or facility
volume does not generate enough revenue to cover the direct and or indirect facility
expenditures
BUDGETARY / MANAGEMENT ACTION
 Change service pricing structure
 Seek additional internal or external users
 Consolidate or eliminate certain facilities
 Designate institutional funds to cover deficits
DESIRED TREND
LOW
Key Performance Indicator:
Specialized Service Facility & Recharge Center Operating Results

25. 24
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from the direct and overhead costs associated with
research are being covered by institutional funds
BUDGETARY / MANAGEMENT ACTION
 Establish policy to request institutional funds for “bridge” support
 Designate institutional funds to cover deficits
DESIRED TREND
LOW
Key Performance Indicator:
Unfunded Research

26. 25
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact when faculty members are not reaching their targeted
external support salary coverage percentage
BUDGETARY / MANAGEMENT ACTION
 Create policy that defines implications of not meeting target which could include measures
such as reduction in lab space, etc.
 Reassign available effort to instructional or administrative mission
 Designate institutional funds to cover deficits
DESIRED TREND
LOW
Key Performance Indicator:
Faculty Unfunded Research Salary

27. 26
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact when established research programs do not meet financial
and/or programmatic goals
BUDGETARY / MANAGEMENT ACTION
 Create process to evaluate programs and determine if program resources should be
reassigned to more successful research programs.
DESIRED TREND
LOW
Key Performance Indicator:
Underperforming Research Programs

28. 27
Determine
Monitor
Improve
BOTTOM LINE IMPACT
 Negative bottom-line impact resulting from the commitment of institutional funds to
support external research projects
BUDGETARY / MANAGEMENT ACTION
 Refine policy to restrict the commitment of institutional funds on external projects
 Reduction in the use of institutional funds in the support research
 Pray that the elimination of VCCS stays in the revised OMB circular
DESIRED TREND
LOW
Key Performance Indicator:
Mandatory / Voluntary Committed Cost Sharing on Sponsored Projects

29.  Spend more time in the “Determine” stage planning and structuring
the P&L
− The Research P&L is only as good as the data used to create it
 The Research P&L Lifecycle is a continual feedback process that can
be updated in real-time with sponsored project data
 The KPI dashboard should be customized to include the metrics that
align with the research mission priorities
 Establish thresholds for acceptable operating losses and goals for
aspirational performance
28
Closing Thoughts

30. Matt Faris | mfaris@huronconsultinggroup.com | 312.880.3023
Zach Belton | zbelton@huronconsultinggroup.com | 312.583.8787
Jen Ohlman | johlman@huronconsultinggroup.com | 312.880.3072
Questions?
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