Not-for-profit financial management personnel often use the phrase “no margin, no mission.” This phrase was originally coined by a nun, Sister Irene Kraus, who successfully directed six hospitals. She believed charity wasn’t enough to sustain a mission and that institutions had to be financially solid. This is particularly true for higher education, as institutions need more than quality academic programs to succeed.
A recent study from Inside Higher Ed revealed only half of the chief business officers (CBO) surveyed believe their institutions will be sustainable over the next 10 years. This supports the assertion that the current financial delivery model is no longer sustainable and significant changes are needed.
In a world of limited resources and significant pressures on the operating model, higher education management and leaders are being driven to look more closely at operations and resource allocation. Academic programs are at the center of schools’ economic engines and are the real drivers of costs; however, as most would appreciate, academic programs have been allowed to continue to grow over the years, with most institutions striving to be current and relevant in the marketplace by adding programs and course offerings without removing anything. There have been significant efforts and focus on measuring the qualitative and student success factors of programs, but trends in financial margins haven’t had the benefits of focus or clear data. In addition, a variety of other factors have led to this widening disconnect between academic program offerings and the resources needed and financial contributions the programs are making to an institution. The conventional across-the-board cuts, leaving vacated positions open and reducing expenses in nonacademic areas—while helpful in some circumstances—haven’t moved the needle as much as expected. Too often, a lot of the cost reduction efforts have been on the nonacademic (nonprogrammatic) side of the institution.
There’s a growing recognition that institutions must get a better handle on the revenue and expenses associated with academic programs, courses, etc. Management and institutional leaders recognize that knowing the revenues, costs and “margin contributions” of their institutions’ various academic units and other departments is essential to safeguarding the institution’s long-term financial sustainability and is an important component of the program analysis process. This important analysis can give leaders a clearer picture of the financially successful programs and those that lag behind. The analysis is intended to provide management with data to help make decisions about the appropriate allocation, effective use and productive investment of schools’ limited resources.
Higher education carries out an essential mission in our society. Institutions will need adequate margins to remain financially sustainable. With higher education at a critical point in history where economic pressures are peaking, it is vital margins are understood, analyzed and managed to help maintain missions.
Evaluating Program Profitability
As you consider the viability of your academic programs and seek data to help you make informed decisions, BKD National Higher Education Group can help. BKD’s Interactive Margin Analysis Tool provides a visual analysis of the financial contribution and margin at various levels of detail—school, department, major, class, faculty member, etc. Request a complimentary demo here or contact your trusted BKD advisor.