Chapter 7 - Strategic Investment Plan
Our planning has highlighted a number of ongoing priorities and critical new investments in programs and facilities that we must support financially if the plan is to succeed. Our Strategic Investment Plan will provide a blueprint for future resource development and allocation. Specific financial commitments for annual program expenses and individual capital projects will be determined by the senior officers in the course of the regular operating and capital budget processes and subject to normal Board of Trustees review and approval through those processes. We will monitor the short and long-term effects of our strategies and investments, and the Board of Trustees will participate regularly in the assessment of the overall effectiveness of the plan and its execution.
Resources for Strategic Investment
Duke operates through a resource allocation system of managed decentralization. While our schools have considerable latitude in prioritizing expenditures and strong incentives to generate funds and allocate them wisely, we have also developed strong central funding mechanisms to supplement school resources to achieve critical priorities. These central strategic investment funds provide a critical component of our overall resource allocation system and are allocated by the senior officers for both programmatic (typically as seed money) and capital purposes with the approval of the Board of Trustees. Allocations are typically based on: 1) strategic importance of the investment to the advancement of the institution or a particular school; 2) the ability of the central commitment to leverage additional resources, either provided by the school or from external resources such as philanthropy or sponsored research; and 3) sustainability of the program once central funds are expended. In essence, we have created a renewing pool of strategic investment funds so that Duke can continually invest in projects that promise a high academic or financial return and can become self-sustaining in the long run.
Several strategies implemented converge to create these strategic investment funds. Funding sources include:
- "Virtual Equit" derived from deposits in the institutional reinvestment account (IRA) and depends on the spread between the IRA investment return and the rate paid to depositors. The university formed the IRA in 1994 as an "internal bank." Equity is generated by paying depositors a rate equal to the 30-Day T-Bill, while investing the assets in longer-term vehicles which generate returns greater than the pay out rate to depositors (the current asset mix for investments is approximately 60% long-term pool and 40% short-term account). The university can take dividends (i.e., discretionary income) when the equity generated exceeds 6% of the fund's liabilities.
- Strategic Investment Funds allocated in the university operating budget. In May 2000, the Board of Trustees approved a new spending rate and distribution structure and at the same time approved creation of new line appropriations in the university operating budget to support the strategic fund. Strategic funds in each of the schools are allocated to deans' priorities after approval by the provost and for the Schools of Medicine and Nursing, with the concurrence of the chancellor for health affairs. In addition, a central strategic funding source has been created under the president for investment in central strategic initiatives.