Contract Management or Self-Operation: A Decision-Making Guide for Higher Education Copyright 1993 CAUSE From _CAUSE/EFFECT_ Volume 16, Number 3, Fall 1993. Permission to copy or disseminate all or part of this material is granted provided that the copies are not made or distributed for commercial advantage, the CAUSE copyright and its date appear,and notice is given that copying is by permission of CAUSE, the association for managing and using information resources in higher education. To disseminate otherwise, or to republish, requires written permission. For further information, contact CAUSE, 4840 Pearl East Circle, Suite 302E, Boulder, CO 80301, 303-449-4430, e-mail info@CAUSE.colorado.edu CONTRACT MANAGEMENT OR SELF-OPERATION: A DECISION-MAKING GUIDE FOR HIGHER EDUCATION CAUSE was one of fourteen members of the Council of Higher Education Management Associations (CHEMA) who initiated a study last year by Coopers & Lybrand to develop an objective guide to making decisions about self-operating or contracting out various campus services, including computing. Little unbiased information to guide such decisions is available, and too often administrators make these decisions without weighing all of the critical factors. This article provides an executive summary of the publication that resulted from the study commissioned by CHEMA. The college or university of today is expected to provide far more to its students than an education. Schools, both large and small, create entire communities for their students, faculty, and staff offering everything from housing to mail services. As the infrastructure of institutions has grown, so too have support organizations such as computing centers, campus police forces, and facilities management organizations. In fact, it is not uncommon for the campus of today to find itself simultaneously operating a large police force, several dining halls and catering businesses, a multi-million-dollar retail operation, a child-care center, and other business enterprises in support of its educational mission. The economic pressures of the 1990s are forcing many colleges and universities to fundamentally reassess both the mix and method of offering these services to the campus community. Central to this assessment is the question of whether to self-operate or to contract for the provision of one or more of these services. Traditionally, institutions have considered the contract management/self-operation question in response to an operational, managerial, or fiscal crisis. More recently, institutions have sought to change their management approach as a way to raise the level and quality of customer service, to improve financial performance, or as the result of a strategic decision to refocus the institution's management resources on those areas that are directly related to institutional mission. Is contract management or "privatization" good for higher education? Contract Management or Self-Operation does not seek to offer an answer to this question. In fact, the question is best answered on a case-by-case, campus-by-campus, and function-by-function basis. Instead, the guide offers an objective framework for deciding how to best operate any function on campus. The emphasis is on the questions, stakeholders, and analysis that go into determining whether self-operation, contract management, or some combination of the two will offer the best opportunities for meeting the goals and objectives set out for a functional area. In the past, institutions have had mixed success at making the contract management or self-operation decision. In many cases, the decision has been made unilaterally without consulting with or "selling" the decision to internal and external constituent groups. Still other institutions have changed management approaches without addressing the reasons that the prior management approach failed. The blueprint of the decision process presented in the guide offers institutions an opportunity to take a different approach to the contract management or self-operation decision. This approach is designed to yield a consensus-based, customer-driven choice that reflects the cultural, ethical, and operational priorities of the institution. Conceptual decision process Regardless of the specific function, service, or activity, there is a core set of issues and questions that management needs to consider in every contract management and/or self-operation decision. These core "decision factors" can be grouped into six categories: * Financial--the direct and indirect cost to the institution of providing a service through each of the operational alternatives available. * Human Resources--the effect on employees both within and outside the functional area being considered, including the impact on employee compensation, staffing levels, performance evaluation, and compliance with AA/EEO policies. * Mission and Culture--the impact on the institution's mission and culture and the implications of choosing an alternative that is not consistent with the institution's historical mission and culture. * Management Control and Efficiency--the likely impact that each option will have on the institution's ability to control the overall direction and operational priorities of the functional area and the implications of choosing a management philosophy that features decreased or increased control. Does the institution have the necessary management infrastructure (people, systems, facilities) in place to provide a particular service? Can these capabilities be acquired cost-effectively? * Service Quality--the effect each option will have on meeting the needs of its primary customers (students, faculty, and staff). * Legal and Ethical Considerations--the level of risk and potential liability posed by each option, potential conflicts of interest, tax ramifications, and the potential pitfalls and power of the contract. The relative importance that each of these decision factors has in selecting an operating model will vary from institution to institution and between functional areas. For instance, legal considerations may weigh more heavily in a decision to operate a child-care center than they would for dining services, while human resources considerations may play a more important role in selecting the operating method for a rural campus than an urban one. Identifying, researching, and assessing the impact of these diverse factors is the central focus of the decision process outlined in the guide. Regardless of the size, location, or affiliation of the institution, and no matter what functional area is under consideration, in order to be successful, campus decision-makers need to employ a structured methodology that supports efficient and effective decision-making and that can withstand the scrutiny of the many members of the campus community who are likely to have strong opinions on the topic. While no approach can be foolproof, we believe that the process described in the guide provides a useful vehicle for: * assessing the strengths and weaknesses of the current operation, * building consensus through the decision process, * identifying the operating alternatives available to the institution, and * choosing an operating approach that maximizes benefits and minimizes disruptions. As presented in Figure 1, the decision process comprises ten phases. The objective of each phase is described briefly in Exhibit I. ************************************************************************ Figure 1: Structural Decision Process Phase 1: IdentifyKey Participants Phase 2: Develop Analytical Framework Phases 3 & 4: Assess the Current Environment Identify Customer Requirements Phases 5, 6, & 7: Review Legal, Ethical, and Community Considerations Develop Operational Design Identify Operating Alternatives Phase 8: Compare & Contrast Proposed Operating Alternatives Phases 9 & 10 Select Preferred Alternative Establish Continuous Assessment Process ************************************************************************ Exhibit 1: Ten Phases of the Decision Process 1. Identify Key Participants To assemble a multi-disciplinary team of individuals from around the institution to perform the analysis of alternative operating models, participate in the selection of the preferred alternative, and lead the effort to build a consensus for the chosen alternative. 2. Develop Analytical Framework To develop a framework within which each solution alternative will be assessed to provide a structure for evaluating each option and to ensure that the ultimate decision will withstand close scrutiny. 3. Assess the Current Environment To perform an objective assessment of the strengths and weaknesses of the current functional area and relevant institutional attributes, including strength of its management and operating systems, the condition of its infrastructure, and the degree to which it is meeting the needs of the institution and its customers. 4. Identify Customer Requirements To understand who the functional area's customers are and what their expectations are for the breadth, depth, and quality of services to be provided. 5. Develop Operational Design To issue a statement of requirements that defines the institution's expectations and needs for the operation of the functional area, which can be used by vendors as well as internal management to prepare proposals for operating the function. 6. Identify Operating Alternatives To identify the range of operating alternatives available to the institution, including self-operation, contract management, or a hybrid solution, and to identify specific vendors that provide contract services in the functional area under consideration. 7. Review Legal, Ethical, and Community Considerations To bring to the decision process an understanding ofand a sensitivity to the impact each operating alternative would have on the institution's community (both internal and external) and to understand the levels of liability that each alternative introduces. 8. Compare and Contrast Proposed Operating Alternative To assess each proposed alternative in terms of the evaluation criteria, to identify the likely trade-offs among alternatives, and to understand the likely impact each alternative would have on the institutional mission and culture, human resources, finances, management control and efficiency, and service quality. 9. Select Preferred Alternative To select and plan for the implementation of the alternative that best meets the needs of the institution. 10. Establish Continuous Improvement and Assessment Process To put in place an ongoing process to assess the functional area's performance, to promote accountability, and to identify opportunities to continuously improve the functional area. ************************************************************************ Functional decision process The approach outlined briefly here and presented in detail in the guide provides a framework for the self-operation/contract management decision that can be tailored for any function or service. While each functional area introduces its own unique considerations and emphases, the underlying process remains the same. To illustrate this, the guide demonstrates how the decision process can be applied to six functional areas: facilities, bookstore, dining services, administrative computing, child care, and security. For each functional area, a decision matrix is provided that presents on a single page the phases of the decision process, the decision factors, and the unique issues and considerations that characterize the decision process for the functional area under consideration. The matrix links the data collection phases of the decision process to the decision factors, by pointing out the unique aspects of each functional area. A sample decision matrix for administrative computing is pictured in Exhibit II. Exhibit II: Decision Matrix [FIGURE 2 NOT AVAILABLE IN ASCII TEXT VERSION] The discussion of each of the six functions also draws attention to the fact that choosing an operating approach is not limited to either contract management or self-operation. In fact, each of the six functional areas present a number of hybrid options that combine aspects of both self-operation and contract management. The evaluation and assessment of these alternatives can be accomplished the same way as an alternative that is solely self-operation or solely contract management. Also included as an appendix to the guide is a sample contract that can be used as a starting point, should the institution select contract management. It should be noted that this is only a starting point. It is strongly suggested that an institution seek the advice of internal or external legal counsel throughout the decision process. Epilogue To contract or not to contract--that is not the question. The starting point of the decision process is not to determine whether it would be better to self-operate or to contract, but to select the best operating and management approach from the array of appropriate alternatives. Focusing first on understanding how the functional area is currently operated--its strengths, weaknesses, challenges, and opportunities, and the met and unmet needs of its customers--enables the institution to make a more informed choice than if the primary focus is on predicting the impact of contract management or self- operation at the outset of the process. A prominent governor has said that government's responsibility is not to provide services to its citizens, but rather to see that needed services are provided. The same can be said of a college or university. Management needs the flexibility to employ whatever operational approach best offers cost-efficient, high-quality service in a manner that is consistent with the institution's strategy, mission, and culture. However, in considering contract management, institutions must keep in mind that only the provision of a service can be contracted for, not the responsibility for it. In the eyes of the customer, the ultimate accountability will always rest with the institution. ************************************************************************ Commentary by CAUSE President Jane N. Ryland: Contract management, privatization--in the information technology environment we're more likely to call it outsourcing, but all the terms have essentially the same meaning--entrusting to external organizations the operation of traditional campus functions or services. With outsourcing an increasingly considered option for IT functions, CAUSE was active in the initiation of a project last year by CHEMA to develop a guide to making the decision to self-operate or contract out selected services. The participating associations shared a common primary objective, that the guide be free of bias and suggest a comprehensive set of objective criteria on which to base any decision, helping institutions avoid decisions which place an undue emphasis on a single factor--such as direct cost savings. Financial pressures are causing colleges and universities to consider a broad spectrum of possible strategies for better fulfilling institutional missions and managing campus resources, among them outsourcing. Rather than avoiding consideration of this potentially threatening alternative, information technology managers need to provide leadership in promoting an objective consideration of outsourcing; if we don't, we may find ourselves the victims of decisions from which we were excluded. Information technology has tremendous potential for helping to transform and reengineer virtually every aspect of the higher education enterprise. Our IT organizations can no longer function as service provider islands, but must broaden our perspectives to a fuller understanding of institutional missions and the role of IT in supporting and advancing those missions by empowering faculty, student, staff, and administrative users. We must become effective spokespersons for the importance of enterprise-wide information management and the crucial role information can and should play in decision-making and strategic planning to administer and deliver higher education more effectively and efficiently. As an integral part of the institution's infrastructure and management, we are then much less likely to be viewed as simply a deliverer of compute power, easily sliced off for outsourcing. But to achieve that status, we must be prepared to put aside self-interest for the larger good of the institution as a whole. IT organizations are by no means immune from the need to enhance productivity and justify expenditures. Alternatives for contract management, self-operation, or hybrid solutions should be objectively evaluated, and the CHEMA guide can help information technology managers take a leadership role in doing just that. ************************************************************************ About CHEMA: The Council of Higher Education Management Associations (CHEMA) is dedicated to the ideal of maximizing the resources of its twenty-seven member organizations for the greater benefit of higher education. Through a cooperative exchange of information, CHEMA members seek opportunities for collaborative endeavors and develop a better understanding of the roles of the respective associations in relation to the colleges and universities they serve. Fourteen CHEMA members participated in the development and supported the publication of Contract Management or Self-Operation : A Decision-Making Guide for Higher Education. Association of Collegiate Licensing Administrators (ACLA) Association of College and University Housing Officers-International (ACUHO-I) Association of College and University Telecommunications Administrators (ACUTA) Association of Higher Education Facilities Officers (APPA) Canadian Association of University Business Officers (CAUBO) CAUSE College and University Personnel Association (CUPA) EDUCOM National Association of College Auxiliary Services (NACAS) National Association of College Stores (NACS) National Association of College and University Business Officers (NACUBO) National Association of College & University Food Services (NACUFS) National Association of Educational Buyers, Inc. (NAEB) Society for College and University Planning (SCUP) ************************************************************************ "Contract Management or Self-Operation: A Decision-Making Guide for Higher Education" is available to CAUSE and EDUCOM members at $25 per copy ($50 to non-members). Send E-mail to orders@cause.colorado.edu or call 303-449-4430. ************************************************************************