{ Cost Containment }


The University of Michigan has long been engaged in a disciplined program of strategic cost containment. These successful initiatives are central to U-M’s ability to remain accessible to students from all economic backgrounds while maintaining the breadth and quality of the programs it offers. Sound financial management has helped U-M avoid the across-the-board cuts being made at other universities today.

In 2003, faced with steadily declining support from the state and rapidly rising costs in such areas as energy and health care, the university stepped up efforts to control costs. Over the next six years, U-M aggressively cut more than $135 million in recurring costs from the general fund budget—the budget that supports our core educational operation—and reallocated savings to the university’s highest priorities.

Today, strategic cost containment is more necessary than ever, and U-M is ramping up efforts to meet this challenge.

Energy efficiency

U-M has invested in large systems such as regional chillers and in energy-saving measures at the building level, including more efficient windows and laboratory fume hoods. It has also encouraged behavioral changes among community members by installing room occupancy sensors to shut off lights, low-flow faucets, and water-saving toilets.

As a result, despite growth in U-M’s building square footage and the number of people who work, study, and live on the Ann Arbor campus, total energy use for buildings and transportation in FY 2008 decreased 7.5 percent from its record high in FY 2006.

Energy Use Chart

* Energy use calculations do not reflect inefficiencies related to off-campus production of electricity that was purchased for the Ann Arbor campus.

Health insurance benefits strategies

Health benefits are a major cost driver for large employers, with annual costs increasing 8 percent to 10 percent nationally in recent years.

To address rising costs, U-M adopted new strategies for medical plan co-premium sharing that are more in line with peers. Reducing the U-M-paid portion of health insurance
premiums saves the university an estimated $24 million annually.

U-M also encouraged employees to use generic prescription drugs rather than brand names, established a separate prescription drug plan for employees, and negotiated a new single pharmacy benefit manager contract.

Because of these steps, U-M’s increase in general fund expenditures for health insurance benefits has been about half the national average, 5.1 percent annually since 2002.

Purchasing practices

A streamlined procurement system and more favorable rates with preferred vendors through its Strategic Supplier Program and university-wide contracts have resulted in millions of dollars in savings for computer equipment, food, materials, repairs, and supplies.

IT-enhanced innovations

Units across campus have leveraged technology to reduce costs and improve performance. Here are a few examples:

  • Undergraduate Admissions saves nearly 300,000 pieces of paper annually with online enrollment applications.
  • Students now are matched electronically with scholarship award criteria, and student grades are posted online, replacing more costly paper-based, staff-intensive systems.
  • Many units use web-based technology to reduce print and mailing costs. For example, more than 80 percent of U-M employees who use direct deposit choose to forgo paper pay stubs, saving $340,000 in postage and $70,000 on pre-printed forms annually.

Increased staff productivity plus quality improvements

Units have consolidated job responsibilities and are working more productively while enhancing quality. The total number of general fund full-time equivalent employees has increased only 3 percent over the past six years while student enrollment has increased by more than 5 percent. U-M’s volume of research expenditures has expanded by some 34 percent since FY 2003 to a record high of $1 billion in FY 2009.

In addition, between FY 2003 and FY 2008:

  • General fund expenditures per student credit hour grew at a slower rate than the Consumer Price Index.
  • Student credit hours per faculty/staff full-time equivalent increased 5.3 percent.
  • U-M’s six-year graduation rate increased from 85.2 percent to 88 percent.

More efficient use of space and facilities

In 2007, U-M launched a comprehensive Space Utilization Initiative to improve the use of classroom, research, and office space, thereby minimizing the expansion of facilities that are operated using tuition and taxpayer dollars (i.e., excluding facilities operated by the Health System, housing, and intercollegiate athletics, and the property formerly owned by Pfizer). The ultimate goal of the initiative is to contain general fund operating costs and reduce the environmental impact of campus facilities.

Prior to 2007, building space funded by the general fund had been increasing about 2 percent a year. Since the Space Utilization Initiative was launched, growth in new space has slowed to an average 0.5 percent per year, avoiding approximately $188 million in one-time capital costs and $7.5 million in recurring operating costs.


U-M units made $22 million in general fund budget reductions and reallocations for FY 2010. The largest savings resulted from eliminating 63 funded positions and some equipment replacement, eliminating lower priority activities, and introducing other operational efficiencies.

U-M plans to reduce or reallocate general fund expenditures by approximately $100 million during the next three years. Measures include:

  • Additional restructuring of health care benefits so employees pay a larger share of their health care costs.
  • Postponing employer retirement contributions until employees have worked at the university one year.
  • Discontinuing the operation of U-M’s public television station.
  • Funding all new initiatives through re-allocation.
Health Rate


U-M has tapped other revenue sources to support financial aid, some faculty salaries, and activities that otherwise would be paid for from the general fund. Here are a few examples:

  • More than $1 million of U-M’s annual proceeds from the Big Ten Network contract is dedicated to need-based financial aid for undergraduates.
  • Donors to the recent fundraising campaign contributed $545 million for student support, including 2,045 new endowed scholarships valued at $260 million, generating $13.2 million for students in FY 2009.
  • U-M received $18.3 million in revenues from royalties and equities in FY 2009.


U-M continues to identify and pursue opportunities to become more efficient and generate additional revenue, including the consolidation of information technology units, central scheduling of classrooms, and revised travel and hosting guidelines. Task forces are exploring the following:

  • Expanding spring/summer instruction.
  • Developing new non-traditional education programs.
  • Ensuring U-M remains the school of choice for out-of-state students through effective marketing to outstanding potential applicants.
  • Developing ideas for creative staffing and shared administrative services.
  • Identifying best practices for centers and institutes.

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