Friday, August 7, 2009

Some Thoughts about Achieving Financial Sustainability

Guest Blogger: Marcia Bromberg, former CFO at Tulane University, the University of Wisconsin System, and Wesleyan University.

I begin with a simple premise: “The Glass is Half Full.” The recession offers an opportunity to identify base resources required to provide academic services at all levels of education. Moreover, the recession provides institutions the opportunity to assess what is needed and what isn’t in order to operate and to identify operational efficiencies and inefficiencies.

Identifying the Revenue Base. The lowest point of income from all revenue streams reached during the recession should be used as the base-line for financial planning. This low point should exclude all one-time resources such as stimulus funds, special gifts, and accounting bonuses.

Institutions should manage growth incrementally from that low point:

• For private institutions this means modifying use of endowment proceeds as endowments begin to grow again by reducing payout formulas and using longer smoothing formulas (perhaps five rather than 3 year averages). It also means modifying tuition increases by using gift proceeds and other revenue streams (more about that later) to replace tuition revenue.

• For public institutions it means negotiating with states for a new “base plus increment” model of funding where increments reflect both enrollment changes and inflationary forces but are not tied so tightly to either that the academic mission is compromised.

Efficiency of Operations or Using Analytics to Lift out of Recession. In the very short term, expenditure reductions to meet reduced revenue streams will be expedient and, often, short term in nature.

An in-depth analytical review of expenditures will help identify longer term operational efficiencies and the changes required to implement these efficiencies. This is only a first step as efficiencies must be assessed as to whether they are desirable and attainable. (Note: without institution-wide understanding and acceptance of the reason for changes and impacts of changes the best ideas can be undermined).

A part of any analytic review will be to measure institutional performance against industry benchmarks. This is where the opportunity lies to truly transform educational support services and take the next steps beyond the types of outsourcing begun at the end of the last century. Rather than try to just replicate the “best of breed” or adopt methods of the most efficient institutions, organizations and businesses, institutions can begin to contract with those entities to actually provide those services. Examples include: enrollment management; accounting services; endowment management; purchasing and distribution; construction services and many more. In some cases these services can be provided at a distance through use of technology. In other cases clusters of institutions can share expert personnel.

The change from a single institution providing all services to one where services are provided from a myriad of near and distant sources based upon efficiency, quality and cost will require ongoing review to ensure services continue to meet institutional needs and expectations. More and more the role of institutional staff will be to monitor and manage rather than provide services using the analytic framework developed early in the process.

New Revenue Opportunities. While moving away from a campus-based model for support services offers an opportunity for reducing costs, it also offers an opportunity for those institutions which already excel in certain service areas to become income generators by providing those services to other institutions. In some cases several institutions might pool resources to form a central service center which can expand its operations to sell those services more broadly.

As part of an analytic review of institutional strengths and weaknesses all resources should be assessed for revenue potential including physical space (campus grounds and well as buildings), academic and non-academic expertise, technology resources, and efficient services (as noted above).

The potential for exploiting revenue opportunities can expand beyond higher education to other levels of education, non-educational nonprofits and for profit businesses.

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