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The Re-engineering of MIT -- Long term efforts aims to reduce deficit and to streamline processes

$9.17 million - is cause for worry, and President Charles M. Vest emphasized re-engineering as the only solution to the Institute's huge budget deficit.

"We will succeed," Vest said in the beginning of last year. "We have not talked about what to do if we do not succeed. We do not have Plan B in our hip pocket."

According to Director of Finance John A. Currie '57, the Institute has already spent $10.6 million on the re-engineering project and is expected to put in $20 million more. Since re-engineering is still in the implementation stage, the promised savings of $40 million each year - the driving force behind the re-engineering project - have yet to be fully realized.

Re-engineering prompted by deficit

In a letter written to the community, Vest described the budget gap as "a serious problem regarding MIT's finances that is growing rapidly."

Multiple factors have contributed to the deficit, among them MIT's attempt to reduce the rate of growth of tuition, the increasing need for financial aid, federal research funding and changes in reimbursement rules, and expensive new services like information technology used in education and research.

Operating expenses need to be reduced by $25 million "in order to keep our expenditures matched to our resources," Vest said.

Most of MIT's operating budget is used to pay salaries, wages, and staff benefits, so this is where most of the cuts need to be made, he said.

Vest announced in late 1993 that 400 employees will be cut from the payroll, and the faculty will be reduced through attrition over the next 10 years.

But as re-engineering has progressed, that number has risen. "If you find at the end you can provide better service and in the long term you find that you may be able to do that with 500 to 600 less people, we're certainly not going to stop" cutting at 400 people, said Senior Vice-President William R. Dickson '56.

"We expect a lot of people will choose to retire," Dickson said. "Our fondest hope is that people would leave because they wanted to leave," he said. "I'm not naive enough to think that we'll be able to do this without laying somebody off, but I want to minimize that as much as possible."

Teams to take the task

An initial core team, sponsored by Dickson and led by Vice President for Information Systems James D. Bruce ScD '60, looked at the Institute and decided to concentrate their work in five areas. (see sidebar) The team also chose CSC Index, Inc., an outside re-engineering consulting firm known for its radical and thorough approach to restructuring, to advise MIT on its re-engineering effort.

Re-engineering teams, released in waves and composed of interdepartmental personnel, split up into two groups - assessment and redesign. The assessment team is responsible for identifying faulty processes that can be changed while the redesign team creates models for specific administrative processes, Bruce said.

Each redesign team completes its work in about 12 weeks, then reports to the steering committee, composed of MIT's vice presidents. The steering committee is responsible for making all the final decisions in the re-engineering project, Bruce said.

Once a redesign plan is approved, it is turned over to an implementation team, which will set up pilot tests.

Early initiatives include OLS, mail

Re-engineering efforts in mail and supplies sought to reduce wasteful expenses.

The supplier consolidation team, charged with examining the way the Institute purchases everything from copy paper to temporary help, was the first real re-engineering team. It was charged both with revising MIT's supply chain and getting people excited about the possibilities of the project.

We were "coming up with initiatives that would put money on the table quickly," in three to six months, said Diane M. Devlin, the director of office computing and the captain of the team.

MIThopes to reduce costs by purchasing items in bulk to get volume discounts. Looking at temporary services was a good way to start because, collectively, MIT used almost every temporary agency in the area, Devlin said. Saving money by trimming down to just a few companies "seemed very much like a no-brainer," she said.

MIT departments will save $180,000 a year by routing temporary services through one vendor and negotiating lower markup rates in exchange for volume, said Audit Manager Robert N. Clark Jr., who is coordinating the benefits measurement analysis of the re-engineering effort.

More sweeping changes in materials acquisition were met with opposition, culminating in a protest across from Lobby 7. "We knew this was going to be very difficult, and it was," Devlin said.

The team decided to close the Office of Laboratory Supplies, after looking at trends in the industry and the cost of maintaining a vendor internal to MIT. Instead, the Institute began to route all purchasing operations through a few large vendors.

"It's been inconvenient, but it hasn't exactly shut us down," said Ann Sacra G, who works in the lab of Associate Professor of Chemistry Moungi G. Bawendi. "It's slowed things down a little bit, and things you should be able to get the same day you now can get in a day or two."

Devlin attributed some problems to communication issues, noting that usage of the new system was much higher than initially forecasted.

The Institute seems to be saving money through the arrangement. Clark said that initial estimates of savings are around 13 percent on laboratory supplies, although that number does not include more complex issues like space saved, personnel costs, and infrastructure changes.

The mail team, which was already deep into the planning stage when the re-engineering effort kicked off, was also incorporated into the project.

Peggy Guyer, the new manager of mail services, was charged to reorganize the system that the Institute uses to deliver and sort mail. "We are probably two-thirds to three-quarters of the way through [getting] the distributed mail centers [running]," she said. The new mail centers are "the first stage of the redesign and probably the most controversial one."

The mail center provoked complaints from faculty. "They replaced those efficient people who hustled mail to all of the offices. Now what happens is everyone must go to the mail room to get his or her mail," said Professor of Electrical Engineering and Computer Science James L. Kirtley Jr '67 in the MIT Faculty Newsletter.

Kirtley said that the new process of mail delivery, while it may save money on the books, actually requires more people hours to send staff to retrieve mail. He also said that having a public mail room is a potential security hazard.

The tradeoff is between using available manpower to deliver mail or sort outgoing mail. "The Institute will save a lot of money" by removing the 140 independent - and expensive - postage meters on campus and metering mail at a central facility, Guyer said.

Services use teams for efficiency

But evaluating the supplies process is only part of the solution. There has been a movement toward changing the way that the Institute handles service work. Two areas, custodial services and mail, have embraced the concept of working in teams.

Teams are typically groups of workers who draw up their own plans for how to complete a specified body of work, with the goal of using time more efficiently.

The custodial services redesign group began running a team-based pilot program in January which ran for eight weeks. "At the conclusion of the pilot we had learned a lot. We saw where we needed work, and we also saw the benefits," said Karen A. Nilsson, the assistant director of the Campus Activities Complex and the leader of the custodial services team.

The new team-based custodial process transfers cleaning responsibilities from "custodians doing individual work to custodians working in teams of eight to 10 working in clusters of buildings," Nilsson said. Right now, the custodians are divided into 26 teams.

"In the past we had supervisors who supervised. Now supervisors are a resource for the team," Nilson said. "It's really a shift of the role of the supervisor."

The teams are working well, said Operations Supervisor for Building Services Austin H. Petzke. "There was an adjustment period but that was really minor."

Mail services also began to implement work teams. Shifts of mail workers were put in teams to deliver and sort.

Core team looks to automate functions

After putting in place a basic infrastructure for the Institute, the core team went on to revise the way the administration works. Central to this was the automation of a lot of the Institute's functions and the creation of a computerized data warehouse that will hold much of the Institute's transaction data. Centralizing data into one efficient and accessible system will hopefully cut redundant information and transition time between different departments.

The work of re-engineering teams may increase the number of MITNet users by up to 2,000, said Marilyn A. McMillan, director of Information Systems Planning and leader of the information technology transformation team.

One manifestation of this drive is the revised appointments processing system. Stephen D. Scarano, assistant to the vice president for information systems and leader of the the appointments process team, is working on a new program to reduce the time needed to put a person in a job, which currently can take up to several weeks.

With the new system, "literally, as long as the information is available, you can bring [the time needed to make an appointment] down to a matter of a few days, if not hours if you wanted to rush one through," Scarano said.

Although the appointments system still acts primarily as an interface to MIT's older mainframe computers, the system will connect to the new data warehouse. "On a nightly basis we take data updated in the central personnel database and send it to the data warehouse," Scarano said.

The data warehouse will directly interface with transaction systems like the registrar's office or the bursar's office, said Susan Minai-Azary, director of information technology integration and head of the infrastructure readiness team, which is responsible for planning and implementing the software needed to create and access the warehouse.

"There is an expense in that the Institute was supporting five database technologies," said Minai-Azary. With the Oracle-based data warehouse and the movement of most other transaction systems to Oracle, the Institute will save money in support costs and there will be less need for competing systems.

In flux, teams unclear of final goals

While the present status of re-engineering is fairly easy to ascertain, the future actions of the effort remain somewhat hazy. Some teams, like the information technology infrastructure team and the mail team are still implementing their projects.

The student services re-engineering teams could make far ranging changes in the way the Institute handles student affairs. Started in late January, the teams have gotten off to a slow start. The current goals of the team are aimed at renovating outdated procedures and consolidating many student services under one roof - or at least making them accessible with one-stop access.

Student services re-engineering teams began organizing in September, with some preliminary work done in 1994 and earlier in 1995, said Rosalind H. Williams, dean for undergraduate education and a member of the re-engineering steering committee. Williams, who was appointed dean only on June 12, needed some time to get up to speed on the re-engineering effort.

Although the student services teams are still catching up, other teams are now in the midst of implementing and evaluating their re-engineering efforts.

The appointments system is still being built. While its current state is "more than a pilot," the new system is "a pre-general community release," Scarano said.

What we have now is just "the first step in implementing a total appointments process solution," he said. "The next steps would be to extend the functionality to other types of positions" like clerical positions, research associateships, and teaching assistantships.

The mail system also has more work to do as well. The central mail facility which handles all outbound mail is scheduled to open March 1, and all distributed mail centers by April 30, Guyer said.

The information technology infrastructure team is also proceeding with its work. "Originally we thought we would be in effect for a year, pick [products for the new MIT information infrastructure], and go away," Minai-Azary said. "At this point as I look upon the other re-engineering projects I wonder, When is a good point for us to end?' I don't know; it's a good question," she said.

Where's the savings?

The $1 billion-plus budget of the Institute sometimes makes it a challenge to evaluate the cost of some items. The thorough implementation of something as far- reaching as re-engineering has made it even more difficult. Evaluating savings not only requires a quantification of savings in labor and space, but also an intensive look at how Institute dollars are being spent.

The project is made even more complex by the fact that some of the original estimates of re-engineering savings did not pan out for a variety of reasons. A 1993 estimate that the Institute would have a budget surplus of $2.7 million dollars next year - after a string of years with deficits - did not occur.

"We shall most likely have another deficit next year," said Provost Joel Moses PhD '67. "One reason why the projection in 1993 was too optimistic is the continuing downward pressure on what the government auditors have allowed us to charge in various overhead categories," he said.

While "it is too early in the process for me to throw out specific numbers or even estimates there is sufficient evidence that many of the redesigns, in principle, are going to end up saving MIT money, and there is no question from my analysis that the redesign processes are certainly going to save MIT money," Clark said.

In buying a cheaper beaker for his department, for example, "that is just a savings to the MIT customer," Clark said. "That is just looking at the one element of price; that is not encompassing everything," he said.

"There is still an infrastructure that MIT has to support. There were some people who were being supported by the prices that OLS was charging," he said. Those individuals have been placed on the administrative budget. "Issues of freed up space have not been quantified here either," he said.

While the cost of the space that OLS occupied was not charged to MIT customers through the prices of products, there was still a cost for maintaining the OLS facility. The fact that this space is now freed up for other uses show that we need to establish a clear methodology for recognizing the value of space, Clark said.

"I don't think we'll ever be able to put our arms around all" of the issues involved, Clark said. "It's going to be a new way of thinking."

"We are establishing some templates so at any point in the future we will be able to take a snapshot and measure the effectiveness, savings, and quality of service of the redesigns," Clark said.

"Even though some of the numbers are not yet totally clear, I am encouraged that some of the changes that might appear radical are very positive steps," Clark said. "Doing business in the old ways is not going to cut it if MIT is going to stay in the forefront of education, research, and technology."