We are faced with significant pressure to right-size our institutions while facing unknown enrollment headwinds. This makes it almost impossible to predict the future or achieve financial sustainability. As we see revenue eroded and face inflationary pressures, our presidents look to the finance department to close the gap. This is a difficult task given that we operate separately from the various business units.
Up to now, these units have managed their activities (and budgets) as they saw fit. How can we identify ways to solve our budget deficits quickly? The key to this lies in our ability to help budget managers understand how the decisions they make each day affect our bottom line and work with them to identify potential solutions. This is no small task. We have been working with other institutions struggling with this for the last four years.
While we are not attempting to provide all the answers, we are sharing some important lessons learned.
Understanding institutional and program economics
Our first mission is to stop trying to get everyone to understand the bottom line for the institution and instead, help them understand how the decisions they make each day impact that bottom line. To do this, we need to turn all financial data into useful insights everyone can understand.
We must:
- Convert financial data into a unit of measure the user understands (per student, per credit, per athlete, per degree day, per residential student).
- Show a trend over time (3-5 years)
- Consider how this information will differ by audience (board, provost, department chair, budget manager).
- Frontload the time to develop an understanding of the business operations to create meaningful measures. Example, how are internships, dissertations, etc. counted toward faculty load? What are class caps for clinical courses?
- Think of yourself as an educator. You understand finances and dollars. When others do not, consider whether you need to teach them all about finances or just help them understand the components important to them. This could mean showing graphs and charts, with expenses per 3 credit course, rather than financial statements.
- Build with, not for. As you develop measures, ask your audience for feedback on the accuracy and meaningfulness.
- Never convey as a conclusion, convey as a question (they need to understand the data). This gives them permission to question the data, which is where real insight and engagement occurs.
- Consider when to use qualitative vs quantitative measures and how they relate to each other. For example, when you examine low average class size (quantity) for upper-level courses or number of degrees granted (quantity) and compare them to retention rate by major (quality), is the low enrollment being driven by retention?
Don’t talk about profit and loss to a provost or department chair, they have no control over revenue, but they do have control over activities. By using the guidelines above, you will help them to see how their daily decisions result in a sustainable institution.
Develop useful data for each audience:
Understanding your audience is critical anytime you are communicating, but in times of financial stress, it is even more important. Our tendency is often to give more information and details. But I have always said that if you don’t want non-financial people to know what is going on, then give them more details and they will drown in a lack of insight. The focus should be to provide the minimum level of information in a format they can easily understand. Most importantly, all information should be designed around a question you want them to answer:
- Board & President (focus on governance and preservation of value):
If you are asking the board to approve a deficit budget and a special draw from board designated funds, you should help them understand the long-term consequences of approval, non-approval, and the alternatives. - Provost (Academic quality and program economics):
By providing data that shows the trend of degrees granted over time by major, and color coding them in a chart, you make decreasing demand apparent, creating focus and engagement. Showing average class size for upper-level courses related to those degrees declining in demand paints a clear picture that a deeper examination is necessary. If you take this one step further and show the student retention rate by major, you may find additional insight. You’ve now demonstrated that eliminating under-enrolled degrees and courses directly impacts the bottom line. - Advancement (return on investment in fundraising):
Through evaluation of the percentage cost of fundraising per dollar raised and the total dollars raised per FTE student over time, we can see efficient and inefficient areas. - Enrollment (attract and enroll the right students):
What is the enrollment cost per new student recruited? Is the cost increasing or decreasing? How does that compare to retention over time? Retention is critical. If we do not retain students beyond 1-2 years, there is little value to recruiting them in the first place. - Athletic Director (Athlete Experience: recruitment & retention):
I am surprised at how many small institutions have athletic programs but don’t really connect the value of having them. It is all about recruitment and retention (and perhaps revenue for institutions with larger athletic programs). Starting at a fundamental level, showing the cost by sport and by the number of athletes on the roster is a very enlightening experience. It allows you to discuss why you need two coaches for every sport. Often, there is a significant disparity in cost per athlete among sports, even between men’s vs women’s sports. This view is important, but for me, student retention per sport is as important. These measures help the athletic director and coaches understand the importance of their roles in recruiting and retention. - Student Life (student experience outside of the classroom):
Many small institutions spend as much here as they spend on instruction since they often compete with well-funded institutions to attract students. I look at it like going to a restaurant and saying the side dishes are the star of the show, rather than the main dish (instruction). Families are starting to tell us we need to focus on academic outcomes and lower the price. This will place more pressure on the cost of the amenities. I like to take the cost of the major activities (clubs, sports, counseling and wellness, etc.) and divide by the number of students participating and examine whether there are activities we spend money on that have very low participation rates, driving up the cost per participant.
Remember, if the group you’re presenting to has no control over the revenue of a certain program, don’t present the profit margin to them. Provide each group with a big picture appreciation of the total costs and focus on the costs they can control. You’ll get your point across more clearly, and your audience will understand and engage more. For more information on financial sustainability, download our Lessons Learned Guide.
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