Higher education is experiencing a range of unprecedented challenges in this chaotic era. Of the many issues confronting institutions at present, financial strain tops the list for all but a minority of highly resourced schools. To succeed, Chief Academic Officers (CAO) will need to integrate institutional finance into their academic leadership.
As our institutions attempt to balance operating expenses and revenue, CAOs can find themselves negotiating the ideals of curriculum within the realities of financial constraint. Faculty become understandably concerned when program prioritization, “rightsizing,” and other forms of reduction happen to them rather than with them as partners in a shared enterprise. Navigating this space necessitates new aptitudes for financial analysis, and a successful CAO cultivates a partnership with the Chief Financial Officer (CFO) to gain a better understanding of the complexity of budgets, endowments, enrollment and discount strategies, loan markets, etc.
Democratizing data
This knowledge allows the CAO to build a shared understanding, language, and approach to the financial strategy of academic affairs with the faculty and staff. When we democratize data, accounting, and planning, we allow the faculty to understand the variables and trade-offs. We involve the campus in weighing local options within the overall budget envelope. And we demonstrate that financial discipline involves both reduction and investment.
Transparency and accountability
Transparency and accountability – these are values all members of an institution want. How can CAOs work collaboratively with CFOs to foster collective and shared understanding and accountability of the budget and operating expenses across the institution? What new knowledge, skills, and aptitudes do they need? What are the key units of measure that matter and how can you use them to inform academic decisions?
The American Association of Colleges and Universities Conference
Join me at AAC&U’s 2025 Annual Meeting on January 25 as I discuss this and more with two provosts. These provosts will share their journey to develop a new understanding of finance as it relates to academic costs and institutional operations. They will also describe their collaboration across their institutions to decide where to cut and where to invest.
I will share my perspective on how to foster more shared understanding and collaboration between the academic and finance units. To do this, I will use specific examples and models that make the data more accessible and enable others to ask questions. This will facilitate greater shared understanding about higher education finance amongst faculty and senior staff.
Some lessons learned from our collective experience:
Exact data vs directionally correct data:
Do not get to exact. Time is of the essence, so quick is better than precise. This is a directional view; it is not perfect or exact, but regardless of the way I crunch the numbers, I reach the same conclusion. For example, if I exclude independent study because the provost thinks it distorts the picture, I don’t get stuck debating that. I just exclude it and keep the conversation moving.
Do not focus conversations on fully allocated revenue or cost:
Do not allocate below the VP level. You will get stuck debating the merits of an estimate that the user has no ability to control. Sixty to seventy percent of all expenses are related to personnel, so each functional area needs to examine what individuals are doing and stoplight (stop, start, change) the daily activities.
Understand the goal of the exercise:
Do not try to allocate revenue and indirect costs by department. Instead, focus on understanding net tuition per student and per three-credit course, as well as the percentage of facilities allocation. Shift the conversation to units of measure that are in their control, such as direct budget expenses.
Make sure data is converted into actions:
Everything should reflect a 5-year trend. It helps to show the drivers. Are revenues increasing at a slower rate than expenses? Are class sizes slowly declining across certain departments? This context helps to illustrate what the future state is likely to look like. If metrics are low but improving, this is cause for celebration. If metrics are declining, it serves as an early warning indicator. This is not about cutting everything that does not generate profit; we will subsidize. However, if we cut only to break even or make a small margin, we cannot survive, let alone invest in new programs.
Effectively communicating insights (units of measure others understand):
How to Distill This into a Dashboard – There are lots of measures, but what are the 6-10 for each area?
Horizon management:
Financials are the past; the budget is now! How can we effectively communicate what we think will happen in the future, based upon now and then? 5-year projections are CRUCIAL!
A picture is worth a thousand words (1 hour to analyze, 4 hours to develop a picture)
Tell a story:
The flow of data is important.
The burden cannot fall solely on academics:
This is an important exercise to undertake across the entire institution because instruction is generally only 30% of our budget.
An eye towards future market demand:
There is no substitute for that, as consumer demand is changing. You need to understand whether consumers will want your product or a different one four years from now. For example, accounting majors are declining. Accounting used to be the only choice, but more recently students are opting for majors like analytics, entrepreneurship, and finance. This raises a few questions. Should I eliminate accounting? Should I scale it back? Much of the core is the same across these majors. How can I model the shift in the faculty skills I will need to teach them and sunset courses to reduce sections and increase class size?
Lessons learned about the approach
The value of repetition:
Reiterate. Match revenue and expenses. Ask yourself what is driving our main expense, and where to look. Keep repeating that 70% of expenses are salary and benefits.
Transparency
This is important, but what does it mean at your institution? Well, the meaning can be different based on individual needs. Venues and strategies are incredibly important in ensuring that your message is delivered/heard. There is wariness and suspicion among the faculty. Create space for them to make decisions themselves to help solve the problem.
Communications (When? What? How Often?):
The president set a high expectation for transparency because he wanted everyone to know the challenge, but he also had to participate across the board. If it were only academic, portfolio review would not show that we are looking at everything. (I was surprised that this was not a bigger challenge.) You should be sure that you have someone in charge of communications. Additionally, having a plan for dealing with a potential vote of no confidence, as well as student and faculty concerns, will prove beneficial.
The importance of timing:
Many individuals cannot move this fast. It is important to ask, “What are your realities? Do you really understand the timeline of the larger financial ramifications?”. If you have the luxury of time, you need to include faculty and staff engagement. You may not, however, have that luxury.
Avoid panic:
Do not share the details, as this can pit departments against each other. The provost can see this at a granular level. Be sure to use the larger picture to set major objectives for class size targets for the institution. Consider blending classes of different sizes to meet this average.
Set the right tone: Between Chicken Little and Pollyanna:
You want to underscore the urgencies, while at the same time projecting confidence. This is not exactly a tone halfway between Chicken Little and Pollyanna, but rather an overlay of these ends of the spectrum. It is important to understand that this tonal messaging is not just coming from you. You, your provost, and your president can harmonize.
Support faculty agency:
Ultimately, the faculty are responsible for the curriculum. This means that all the efforts above are table-setting. Indeed, setting that table means establishing the parameters and the budget envelope. But the faculty will need to make programmatic and curricular decisions informed by mission and learning. There should be a balance of valuable supporting programs and the ability to support all of them. The provost is there to negotiate between those realities and the faculty goals.
Break down silos:
This requires cross functional work, as well as healthy debate. It requires you to understand your audience. What is their attitude (including trigger terms profit and loss) and data aptitude?
Convert everything into a unit others can understand. This is really a demonstration of the drivers: cost per athlete by sport, students per class by department, etc.
Share insights and data with questions, not answers:
Ask for feedback. Approach everything as a question, not a fact. You want others to tell you where the flaws are, and in doing so, they buy in. There will be items you miss, so you want everyone to give insight. This shifts their perspective, because you are asking them for feedback (discussion not presentation). More importantly, it allows people to engage more thoroughly with the data, which leads to actions.
Be sure to go deep enough, because you only get one shot at it:
Cuts need to include a 5-year compounding effect of inflation, considering net tuition, room/board cost, and salary increases. This is where five-year projections will help. If we do all this and still have a $1 million deficit, we keep layering in new assumptions.