What’s Next? Stress Testing for Fall 2020 & Beyond
The recent pandemic has disrupted all sectors of our economy and forced higher education to transition from a traditional pedagogy to online delivery. Campuses across the country accomplished a formidable task within days and weeks. The transition has reduced the immediate financial effect caused by the SARS-CoV-2 virus and incidence of COVID-19 (COVID-19). As higher education was already stressed due to softening demand and demographic changes, a prolonged economic recovery is sure to wreak havoc this fall. Academic leaders must turn their attention to future operations and the financial effect of their strategic decisions.
While the future may remain uncertain, August is just around the corner. Presidents and board members may hope for the best, but they must plan for the worst and everything in between. Contingency planning ranges from on-campus learning with social distancing parameters to remote learning for the entire fall semester. Many business leaders have admitted that a distance-only option would devastate cash flow and financial health.
Financial officers need to transition from tactical to strategic leaders. Reporting “the score” and hoping for others to act won’t lead your institution through the crisis ahead. Board members and presidents need strategic scenario modeling. According to the Association of Governing Boards of Universities and Colleges 2020 Trustee Index, 84 percent of board members are concerned or very concerned about the future of higher education. They need to understand the institution’s status.
Scenario modeling is a critical strategic exercise that requires collaboration and consensus. Many institutions are asking questions regarding fall modality, start dates and staffing levels. These decisions have unique financial implications. For example, if a college decides to operate through distance education, it may find students unwilling to pay the same tuition rates without the on-campus experience. This scenario involves lower tuition rates and student headcounts along with empty residence and dining halls.
If your institution moves toward online-only education, students will expect a different experience than they received these past few weeks. Schools that fail to deliver quality online experiences may anger students and face retention issues. Lost auxiliary revenue, which is heavily relied on for operating budgets, will have a devastating effect on cash flows. Modeling these options is paramount to making the best decision for your institution.
Scenario planning helps leadership understand the potential revenue and expense implications of their decisions. Whether opening the campus to students with social distancing guidelines in place or a delayed opening in October, presidents and trustees must know the effect these decisions have on financial health.
The planning and work required to provide scenario modeling should start immediately. After creating the necessary initiatives and assumptions to create a financial and scenario model, leadership should follow former U.S. Secretary of State Colin Powell’s 70 percent rule. He argues that leaders must make decisions with 70 percent of available information to prevent indecision. Scenario modeling has inherent risk that strategic leaders must accept, and your students depend on you.
BKD Financial & Scenario Modeling is an agile modeling solution that provides powerful, visual reporting based on multiple scenarios. To assist schools during this difficult time, we’ve created an abbreviated version at a significantly reduced rate. For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.
As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication.