Navigating Economic Whitewater – Five Ways to Make It to Calmer Water

Thoughtware Article Published: Dec 08, 2020
Books

Talk to any experienced whitewater rafting expert and among their best advice would be these three items:

  1. Work as a team. Everyone has to paddle.
  2. Learn to read the water levels. Determining the water depth will help you understand the speed and irregularity of the water.
  3. Be ready for the unexpected. Nothing will fully prepare you for a rafting trip. Expect the unexpected at all times.

These three pieces of advice work equally well for navigating the whitewater of higher education these days. Leading your university to financial health may feel similar to a whitewater rafting trip. Success rests on the team’s ability to work together and smartly navigate the various speeds and depths of the river. The leader of one 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 many financial levers on their own only make incremental improvements, not major directional changes. It takes an entire team making operational adjustments, academic adjustments, and student life adjustments for major directional change to be successful. All paddles need to be in the water. 

In the closing chapter of their book How to Run a College: A Practical Guide for Trustees, Faculty, Administrators, and Policymakers, authors Brian C. Mitchell and W. Joseph King say it best: “The path forward must be comprehensive in design. It is not enough to ‘fix the admissions problem’ to generate new revenue. Nor will it be sufficient to launch eternal comprehensive fund-raising campaigns or anticipate that the federal government will replace tuition or donors to fund the changes that must be made as the crisis deepens.”

To get all team members paddling effectively, presidents, chief financial officers, enrollment officers, and provosts should work together to assess five areas to help improve their institution’s financial health:

  1. Academic Programs – The first paddle needed by 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 number of meaningful changes affect administrators’ ability to “move the needle” quickly and meaningfully. However, just cutting operating budgets, such as supplies and travel, doesn’t 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 doesn’t have these limitations. Increasing the right academic programs, though admittedly slower, creates synergy—and when chosen well with solid background data, this paddle can build a platform for significant enrollment growth.
     
  2. Course Efficiency – Academic institutions that focus on teaching (as opposed to research) 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 adjust course sizes, number of sections taught, use 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 help 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 isn’t enough for the institution’s overall health. Someone has to pay the overhead costs, and in many cases, philanthropy or investment return isn’t enough to cover it. Managing course and department costs, when done well, is a pathway to improving the bottom line without releasing faculty positions.
     
  3. Program Economics – It’s 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 isn’t to shame or close an academic program. Professor William Massy 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.
     
  4. Market-Responsiveness – 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’s also important to make data-informed decisions on what your 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 your data robust? Is it accurate and timely? Do the data sources validate your conclusions? Does the data give you the opportunity to rank the programs on their overall market strength? This might include composite scoring for student demand, the employment market for graduates, competitive intensity of other schools, and the fit of your degrees in the job market.
     
  5. Retention – The final operational paddle is retention. This demands campuswide commitment. Steady to improving 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 paddle is a valuable commodity for institution leaders. Unfortunately, time is a scarce resource that often prevents analysis and action. Presidents, provosts, and others need to set the tone for their institution’s use of data analytics to improve financial health. 

Finally, expect the unexpected. Have the right tools and margin of safety needed to navigate choppy water. Certainly no one expected a global pandemic to suddenly break out. Those who had a margin of safety are finding it easier to adjust to different realities than existed not even a year ago.

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, reach out to your BKD Trusted Advisor™, or submit the Contact Us form below.

Kate & Ben — How can we help you? Contact Us!

How can we help you?