At most universities, academic leaders propose strategic plans and projects each year that are not necessarily in sync with the university’s financial realities. It’s no different at New York University (NYU), and, in the past, those projects that aligned with the academic mission would be approved. Then, we would scramble to figure out how to make it all work financially.
But those days are over. Now, with a new strategic financial technology solution in place, leaders can see how their decisions will impact the bottom line. Rather than operating in a reactive culture, the university is more proactive. While proposed projects that meet academic goals are still likely to move forward, everyone is more cognizant of understanding the financial impact before specific projects are officially approved.
As one of the largest private universities in the United States, with an enrollment of more than 57,000 and an FY17 operating budget of $9.4 billion, NYU had long-maintained a financial office that was traditionally managed with Excel spreadsheets. By 2015, we were seeking to enable a more insightful planning process, with a focus on budgeting, long-range planning, and scenario analysis.
In addition, with new campus locations in Abu Dhabi and Shanghai, we wanted to incorporate stress testing to see how various changes would affect our financial situation. (See also “Expanded Office Supports Global Mobility.”)
We knew that new software would be the basis for such a system upgrade. With help from Huron Consulting Group, we implemented Hyperion Strategic Finance, a comprehensive application that consolidates finances and reporting across NYU’s 60 schools and units and provided the university with its first, full three-statement pro forma modeling solution. Since the process went live in May 2015, we’ve cut the timeline for consolidating financial plans across all 60 units from one month to a week or two. We’ve also freed up more time for analytics and strategic decision making.
Planning for a New Solution
As we began to implement our new system, our guiding principle was to maximize operational efficiency and improve accuracy. We wanted to be able to produce pro forma financial statements and key metrics from multiyear financial plans, and to enable live and fully integrated what-if scenario planning and stress testing. Our leaders needed to assess how new initiatives might impact or change key financial metrics
Although we had a 10-year financial plan that was a consolidation of all the individual school and unit plans, we could not operationalize it for use across all financial departments. The treasury and accounting departments could not connect to our financial planning function. Of paramount importance was the breaking down of these silos for this particular project, and the greater goal of better integrating finance around the strategic focus of the university.
The accounting staff was devoted to analyzing results; they did not integrate results with the plan, but rather looked at prior year or year-over-year changes. The treasury group determined how to fund the university’s requirements but never connected the ways in which funding flowed through and interacted with the 10-year plan. We needed to connect short-term and long-range planning with accounting and treasury functions. We also wanted to integrate live scenario development, to see how changes affect our plans; with our new system, we can quickly toggle and do that.
Our department also hoped to replace the decentralized collection of planning models and processes with more standardized, comprehensive, and fully integrated systems. In the past, we spent way too much time collecting and trying to understand data, so we’d end up with what seemed to be about one minute to make decisions. We wanted our new system to collect, consolidate, and present financial data in a way that allowed us to spend more time analyzing and making strategic decisions.
Implementing the System
We chose to work with Huron Consulting Group because the company proposed to sit down with us and actually guide us to build the system out in a way that would meet our needs, rather than building it on their own and delivering a finished product. Led by Wayland Ng, director of higher education enterprise solutions at Huron, a team worked side by side with us for a couple of months to build the tool.
When the tool was ready to implement, the company rolled out a long-range planning process to 12 users on three NYU campuses—in New York City, Abu Dhabi, and Shanghai.
At the same time, the company rolled out a budget process using Hyperion Planning, another Oracle tool, to 50 departmental users in Shanghai. The consulting team focused on providing hands-on training and knowledge transfer, so that we could develop in-house system expertise. They conducted training workshops throughout the implementation to ensure that functional users would be self-sufficient in using and administering the application.
For approximately six weeks, we spent about four hours per day (on average) to learn, build out, and test the system. It’s important to recognize that all the professionals involved in the project had their “day jobs” to contend with as well; so managing everyone’s time effectively and efficiently is crucial in order to create a culture where there’s buy-in from all of the affected departments.
In addition to working with and training our people, the implementation also focused on process. Huron integrated a budget system and long-range planning models for new campuses in Abu Dhabi and Shanghai. The new process allows our budget office to spend less time aggregating data and more time on value-added financial analysis to improve strategic decision making.
When the implementation process was complete on May 1, 2015, we had replaced Excel with Hyperion Strategic Finance, for New York, Abu Dhabi, and Shanghai.
Realizing the Benefits
We went live with the new application just weeks before a key financial meeting of the board of trustees, so we spent the next few weeks preparing to present financial plans at that meeting. In the past, we would have spent weeks trying to determine whether the financial plans had changed for each of our 60 units, how the plans had changed, and how that would affect overall budgets. Then we’d have to quickly make strategic decisions about how to deal with those changes.
But with all the data available in the new system, we were able to cut down the financial consolidation timeline. We used to spend so much time—a month or more—gathering information from all units and consolidating it; but suddenly, we had all the information that we needed in one system—within a week. That allowed us much more time to strategically plan for all the various departmental plans and decide how to make decisions and move forward. For example, we were quickly able to determine whether or not accelerating a planned debt issuance would cause any stress on our key performance indicators, which could ultimately impact our credit rating.
We’ve realized a number of other benefits, such as:
Scenario planning. With the new system, each location can work on its own financial plan and leaders can provide different scenarios, using their own models. For instance, the Shanghai campus might provide an upside model assuming an enrollment increase, and a downside model assuming an enrollment decrease. Because they have access to consolidated data, they can see all the financial ramifications of either scenario. And when we have the financial plans from each location, we can select which model we want to use to consolidate them.
Not only do we spend less time on clerical tasks and have more time for strategic analysis and decision making, but the new application allows us to easily construct “what-if” scenarios and see the potential results. For instance, if a vice president asks how the financial plan would be affected if we made a specific change, we can enter that change into the system and have an answer in minutes.
Easy forecasting. Rather than just taking data from all the schools and units, we wanted to be able to flex that data and turn it into driver-based forecasting. For instance, in this era of tuition volatility, we can say, “What if the rate of tuition-based revenue needs to decline?” Then we can go into the tool and change a driver—such as freezing tuition increases or decreasing enrollment—and we can instantly see how that change would affect everything else.
Detailed reporting. The tool comes out of the box with basic financial statements, but you can pivot them into numerous other reports that you may want to build. We were able to crosswalk our Generally Accepted Accounting Principles (GAAP) income statement (statement of activities) back to the budget view. For example, we can convert a principal payment on debt into an operating expense, or we might not consider depreciation to be an operating expense for a cash budget view because it’s noncash. With all the reporting tools available, we can look at the numbers from various perspectives.
Drill-down capabilities. With the new platform, we can drill down into any report and see exactly what is adding, subtracting, or multiplying to create the numbers we see. For instance, in a GAAP Statement of Activities, we can drill down to see how many heads in a classroom multiplied by “what” tuition rate is giving us a specific number. The technology makes it easy to drill down, so we no longer spend time chasing down data inputs or other details.
Stress testing. We can pick up a scenario from our baseline, such as last year’s approved financial plan, and then see how various stressors would affect it. For instance, if we want to stress tuition rate, we can go in and create a downside scenario, such as having to reduce tuition rates because of an external pressure. We’ll go in, change an account value, and quickly see how it impacts all of our ratios.
The ability to assess ratios and other metrics in an easy-to-understand format has allowed all the areas of finance to better communicate with each other and with leaders on the academic side of the house. Because everyone has a better common understanding of the financial impacts of potential plans and programs, decisions can be analyzed more carefully and plans can be approved, delayed, or rejected more promptly. This solution has made it easy for all stakeholders to collaborate and understand the financial implications of their work.
DAN FEELEY is associate director, debt planning and capital markets, at New York University, New York City.