A recent social media video displayed two paragliders rushing through a canyon performing loops, twists and drops. Their acrobatic movements rest upon the slightest movements of two small levers. Pulling the lever incorrectly would lead to disaster. Only through their experience and knowledge of the sport do they successfully navigate their route to safety on the ground below.
Leading your university to financial health may feel similar to the paraglider’s harrowing experience. Success rests on the slightest movements from critical levers that affect the trajectory of the school. The leader of a struggling college, founded more than 100 years ago, recently asked what financial levers they should be pulling to improve their financial trajectory. Unfortunately, the reality is that most financial levers only make incremental improvements, not major directional changes. The primary focus should be on operational adjustments, specifically the academic and student life levers. There’s no “silver bullet” that addresses the myriad stress points in higher education.
Presidents or provosts should assess five areas today to help improve the financial health of their institution:
- Academic Programs – A significant lever available to college leadership is the academic portfolio. The academic core has the largest economic effect on university finances. Auxiliary, philanthropy and endowment return budgets usually supplement shortfalls in the academic core financial margin, but limitations on the timing and amount of meaningful changes affect administrators’ ability to “move the needle” quickly and meaningfully. But just cutting operating budgets, such as supplies and travel, does not lead to financial health. Some schools have attempted to right the ship through athletic growth. While this strategy may increase enrollment, growth is limited to team sizes and, sometimes, the availability of facilities such as practice fields and locker room space. Growing enrollment through academic programs does not have these limitations. Increasing the right academic programs creates synergy and, when chosen well with solid background data, this lever can build a platform for significant enrollment growth.
- Course Efficiencies – Academic institutions also can consider the efficiencies of their core offering: education. Many schools are finding savings through simple adjustments to their course offerings and section sizes. Doing a thorough job of this task requires a system in place to review and maintain course sizes, utilization of adjuncts, permanent faculty and overall scheduling. While internal policies and sometimes accreditation criteria may require a minimum number of students enrolled or minimum number of professors, the internal numbers are often set too low and only serve to ensure the class “breaks even.” The academic criteria of some specialty accrediting bodies sometimes require excess permanent staffing that raises costs significantly, requiring substantial enrollment. Both of these factors create economic problems. The break-even concept can bring a false positive, as breaking even is not enough for the overall health of the institution. Managing course and department costs, when done well, is a pathway to improving the bottom line without releasing faculty positions.
- Program Economics – It is the responsibility of academic leaders to understand the economic contributions of their academic programs. This must not be the concern of the financial leader alone. Donors and accreditors are beginning to ask presidents what it costs to deliver a student credit hour. What amount does the business school contribute to the institution’s financial position? How about the theater program? The goal is not to shame or close an academic program. Professor William Massey of Stanford University argues that colleges and universities should—and usually do—strategically subsidize weaker mission-critical programs through margin-rich ones. Institutional leaders need to understand program margins and make data-informed decisions regarding strong and weak margins.
- Market-Responsive – Colleges and universities need to be responsive to external market demand. In today’s competitive environment, administrators need to know the skills employers want from your graduates. It also is important to make data-informed decisions on what prospective students want to study. This is accomplished through an understanding of student inquiries and completions, as well as job postings and salaries linked to academic programs. Making the right program choice sets the institution’s trajectory for success. Likewise, a bad program choice can lead to financial stress. Making data-informed decisions on which programs to start or grow will help your institution avoid investing in a new program that fails to add value to the institution. Is your university providing a product that both prospective students and employers desire? Is it robust? Is it accurate and timely? What data sources are you using to validate your conclusions?
- Retention – The final operational lever is retention. Requiring campuswide commitment, retention is critically important for financial sustainability. It’s no secret that the cost to recruit a new student exceeds the cost to retain a student. In a recent American Institutes for Research study, the authors calculated the total national cost of students dropping out of college, as measured by lost earnings, measured $3.8 billion for a single year. As demographics change on college campuses, administrators must remain diligent in engaging all students both socially and academically. UCLA’s Higher Education Research Institute reported “The more students are academically and socially engaged with other people on campus … the more likely (other things being equal) they will stay and graduate from college.”
Data related to each operational lever is a valuable commodity for institution leaders. Unfortunately, time is a scarce resource that often prevents analysis and action. Presidents and provosts need to set the tone for their institution’s use of data analytics to improve financial health. [ Tweet That ]
BKD Financial Sustainability Services can help. Our solutions include Program Economic Analysis, an affordable service that helps institutions evaluate the demand and financial performance of their academic programs. We also offer Academic Program Portfolio Review, which is a review of the strength of the market for your existing and future academic programs. This is a review of all your current and potential new programs, allowing you to decide which programs to start, stop, sustain or grow.
To learn more or request a complimentary demo, visit bkd.com/higheredconsulting.