1. Office of the Vice President for FinanceMassachusetts Institute of Technology An Overview on University’s Finances and Leadership Lessons Israel Ruiz (iruiz@mit.edu) December 3 th, 2007

2. Office of the Vice President for FinanceMassachusetts Institute of Technology Warm-up (I) What are the biggest challenges facing your Institutions today? What should be your role as IT leaders? How would you define your budgetary allocation? How would you compete more effectively for resources? What type of resources would you ask for?

3. Office of the Vice President for FinanceMassachusetts Institute of Technology Warm-up (II) Types of Costs –Fixed vs. Variable –Nominal vs. Real –Direct vs. Indirect Financial Overhead – Secondary Costs –Gross costs vs. Net Costs Incentives Tuition and Financial Aid –Operating vs. Capital

4. Office of the Vice President for FinanceMassachusetts Institute of Technology Agenda Leadership Lessons Financial Overview –The context for fiscal decision-making –Key Concepts Financial Flexibility Financial Strength Financial Equilibrium –Recap: Project Financing Options

5. Office of the Vice President for FinanceMassachusetts Institute of Technology My Leadership Lessons (I) Leadership –Reflecting on Transitions (I) HP vs. MIT Leadership vacuum –Strategic vs. Tactical –Long-term vs. Short-term –Autocratic vs. Democratic Engineering the University Leader

6. Office of the Vice President for FinanceMassachusetts Institute of Technology My Leadership Lessons (II) My role as VP for Finance @ MIT –Reflecting on Transitions (II) From Staff of 7 to ~170 From Strategy to Operations Critical first 100 days: –Assessing the task and coping with multiple priorities –The path to credibility and trust –The importance of Communication and the leader’s role and style –The foundation for Effectiveness: Excellence and Investment in Individuals

7. Office of the Vice President for FinanceMassachusetts Institute of Technology A Different Investment Model AttractHire Develop Engage & Connect Partner Influence On-boarding process Build Pipeline @ all levels General Training Curriculum Specialized Training VPF Events Speaker Series Workshops Revamped R&R Rotational Assignments Project Opportunities Academic Exchanges Development Programs

8. Office of the Vice President for FinanceMassachusetts Institute of Technology The mission of XXXX is to provide society with superior products and services by developing innovations and solutions that improve the quality of life and satisfy customer needs, and to provide employees with meaningful work and advancement opportunities, and investors with a superior rate of return. We believe our first responsibility is to the doctors, nurses and patients…We are responsible to our employees…We are responsible to the communities in which we live and work…Our final responsibility is to our stockholders. Business must make a sound profit. Produce high-quality, low cost, easy to use products that incorporate high technology for the individual. We are proving that high technology does not have to be intimidating for non-computer experts. The context for fiscal decision-making What about the mission?

9. Office of the Vice President for FinanceMassachusetts Institute of Technology The mission of MIT is to advance knowledge and educate students in science, technology, and other areas of scholarship that will best serve the nation and the world in the 21st century. The Institute is committed to generating, disseminating, and preserving knowledge, and to working with others to bring this knowledge to bear on the world's great challenges. MIT is dedicated to providing its students with an education that combines rigorous academic study and the excitement of discovery with the support and intellectual stimulation of a diverse campus community. We seek to develop in each member of the MIT community the ability and passion to work wisely, creatively, and effectively for the betterment of humankind. The context for fiscal decision-making Financial perspective - A missing link?

10. Office of the Vice President for FinanceMassachusetts Institute of Technology Key Concepts Financial Flexibility Financial Equilibrium Financial Strength

11. Office of the Vice President for FinanceMassachusetts Institute of Technology Financial Flexibility

12. Office of the Vice President for FinanceMassachusetts Institute of Technology Institutions of Higher Education rely on the following revenue sources: –Student Income (i.e. Tuition net of financial aid, Executive Education, Special Programs, etc) –Direct and Indirect Costs/Revenues associated with Research –Gifts and Income from Endowment –State Appropriations Balance of revenue has shifted in the last decade –Pressures on Student income Less Revenue from Net Tuition, after accounting for Aid Higher tuition increases to compensate for declining state appropriations –More Reliance on Gifts and Income from Endowment Expenses funded with this revenue stream are subject to previously unseen volatility Endowment distribution policies came under pressure to distribute more/less –Limited and unpredictable growth in State funding –Research Growth, but… Is the funding frenzy of the 90s over? How much more diversified is the research portfolio? Federal vs. Industry? In summary, how much flexibility is left to fund your projects? A closer look at the revenue sources

13. Office of the Vice President for FinanceMassachusetts Institute of Technology MIT Research by Discipline FY2006Yale Research by Discipline FY2006 Sponsored Research

14. Office of the Vice President for FinanceMassachusetts Institute of Technology A closer look at the expenses Higher Education Institutions are undeniably intensive in human capital and physical facilities : –50-60% Personnel expense –5-10% Depreciation –5-10% Utilities –20-40% Materials and Services 5-10% IT related expenditures 5-10% Consulting (Human Capital?)

15. Office of the Vice President for FinanceMassachusetts Institute of Technology Financial Equilibrium

16. Office of the Vice President for FinanceMassachusetts Institute of Technology Unlimited demands competing for limited resources –Short-term funding priorities must ensure long-term viability of Institutional mission Institutional Mission and Values Annual Funding Priorities Sustainable Funding Priorities Long-Term Intergenerational Balance / Financial Equilibrium Short-Term Budget & Planning: A Balancing Act

17. Office of the Vice President for FinanceMassachusetts Institute of Technology Defining Financial Equilibrium

18. Office of the Vice President for FinanceMassachusetts Institute of Technology Financial Strength

19. Office of the Vice President for FinanceMassachusetts Institute of Technology AAA Credit rated InstitutionsAA Credit rated Institutions (Details below) Note: AA credit rated Institutions detail: Duke (AA1), CMU (AA-), and Penn (AA3) Broadest Measure of Financial Strength Financial Assets / Operating Expenses (FY2005)

20. Office of the Vice President for FinanceMassachusetts Institute of Technology Project Financing

21. Office of the Vice President for FinanceMassachusetts Institute of Technology Project Financing Project decision-making context –Alignment with Institutional goals and priorities –Project definition and assumptions review Cost, operating efficiencies, existing funding, etc –Project funding alternatives… Financing options for your project

22. Office of the Vice President for FinanceMassachusetts Institute of Technology Build – Buy – Lease Why would you lease in the first place? –Buying a house –Word Processing –Is it truly more expensive? In what terms? Institutional Debt Capacity Constraints Space Constraints Cost Analysis –Make sure to include Opportunity Cost and Present Value

23. Office of the Vice President for FinanceMassachusetts Institute of Technology InternalExternal Assets Endowment Expendable Funds Operating Budget -Earmarked (i.e. Service fee) -Undesignated -Recurring -Non-recurring Fundraising -Individual Donors -Foundation Grants -Company Grants Research -Equipment Grants Liabilities Internal Loans -Working Capital -Interest free -Interest Bearing External Loans -Taxable -Tax-exempt -Commercial Paper Project Financing - Summary