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Better cheaper faster board-ceo partnership for change
This document summarizes a workshop on strategic finance for higher education institutions facing budget challenges. It discusses the need for colleges and universities to change their business models to improve affordability, accessibility, efficiency and effectiveness in order to meet goals for increasing the number of college graduates. The workshop covers strategies for reducing costs through program prioritization, administrative efficiencies and productivity gains through improved retention, time to degree and learning outcomes. It emphasizes the importance of aligning financial decisions with institutional mission and strategic goals through the use of strategic indicators and financial metrics to assess progress.
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Better cheaper faster board-ceo partnership for change
- 1. Better, Cheaper, FasterBoard-CEOPartnership for ChangeEllen Chaffee, AGB Fellow and President Emerita, Valley City State University (slides 1-38) Rick Staisloff, Vice President for Finance And Administration, College of Notre Dame of Maryland (slides 39-60)ASSOCIATION OF GOVERNING BOARDS NATIONAL CONFERENCE, ORLANDO, 2010
- 2.
- 3. Goals for theWorkshopUnderstand strategic finance as a context for achieving long-term institutional sustainabilityLearn new strategies and tools for dealing with current challenges
- 4. AgendaChanging Landscape inHigher EducationA Strategic Finance ApproachReducing Cost and Increasing ProductivityBreakStrategic Finance: CFO PerspectiveNew Tools for New DecisionsWrap Up
- 5. Changing Landscape ofHigher Education
- 6. The Changing Landscapeof Higher EducationWe CANNOT doWhat we MUST doIf we KEEP doingWhat we USUALLY do
- 7. What we MUSTdo“By 2020, America will once again have the highest proportion of college graduatesin the world”- President Obama, 2/24/09
- 8. And there’s consensuson thatTo increase the percentage of Americans with high-quality degrees and credentials to 60 percent by the year 2025Currently: 39%Lumina Foundation for Education
- 9.
- 10. Can we goon this way?
- 11. Recent Revenue/Expense TrendsStatefunding: 3%Tuition: 3% above CPIStudent aid: 4%Expenditure per student : 1-2% above CPI
- 12. Our Business Modelis Not SustainableTuitionExpend/FTEState AppropCPI
- 13. State Financials: Gapscould approach 7% of spending - “The Lost Decade” of state funding*Source: Don Boyd (Rockefeller Institute of Government), 2009
- 14. We cannot goon this wayHITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl, www.makingopportunityaffordable.org
- 15.
- 16. Board-President Relations inTimes of Change Find common ground on how much/what kind of change. Trust AND verify, both ways. Early and often. Keep roles clear and support each other.Define the North Star and navigate by it.
- 17. BrainstormIs your universityfeeling these pressures?What are some of the barriers to dealing with them?
- 18.
- 19. What is StrategicFinance?Strategic finance is aligning financial decisions—regarding revenues, creating and maintaining institutional assets, and using those assets—with the institution's mission and strategic plan.
- 20. In graphic terms…MissionStrategicPlanFinancial Decisions
- 21. The New BottomLinesWhat’s the cost/benefit of improvement in this?YESWhat’s the cost/benefit of improvement in this?What’s the cost/benefit of improvement in this?
- 22. Strategic Goals (Mission,Market)Importance of ALIGNMENT and Tracking ProgressCommunicationInformationAnalysisCourse Correction
- 23. Strategic Indicators (NorthStar Proxies)(examples)More studentsEnrollment growth by in/out of stateAffordabilityNet tuition/median household incomeTotal financial aid/Total tuition revenueAccessibilityEnrollment growth by race, income, transfer statusEfficiencyCost per SCH by program, by site, by deliveryEffectivenessRetention and graduation rates
- 24. Removing the brickwallCollege DegreeMore graduatesAccessibleAffordableEfficientEffective
- 25. Current Institutional ResponsesIncreaseefficiencyIncrease administrative productivityLeverage stimulus moneyAPLU survey just out: “The survey results indicate that "universities are striving to protect the core education mission of their institutions.”What’s missing from this picture?
- 26. Missing in Action?Progressto strategic goalsGrowthQuality improvementAcademic productivityInnovationDevelopment of a sustainable business modelDavid Wiley, BYU, http://davidwiley.org/
- 27. What do institutionsneed?Growth by substitutionGreater cost containmentGreater productivityClear expectationsInnovationLEADERSHIP$
- 28. Roaring Outof RecessionCompanies that recovered well from past recessions:Used multi-faceted strategies that were highly customized to their own circumstancesFocused on operating efficiency, market development, and asset developmentReduced employee numbers as little as possibleContinued to invest in asset development, marketing, and new product/ market developmentRanjayGulati, NitinNoharia, and Franz Wohlgezogin, “Roaring out of Recession,” Harvard Business Review, March 2010.28
- 29. Reducing Cost andIncreasing Productivity*
- 30. Cost Effective: CostReductions + ProductivityFrom paying $1 for XTo paying $0.75 for XFrom paying $1 for XTo paying $1 for X + 2X*
- 31. Examples of CostReductions Reduce high cost/low demand programs Address retirement eligibilityReduce growth in health care costConsolidate administrative functionsReduce spending on non-revenue producing athleticsRestructure debt Restructure faculty compensation and rewards (use turnover to substitute teaching faculty for research faculty)Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 32. Examples of ProductivityImprovements Increase in student retention and graduation Reduce excess credits for the degreeIncrease credit-by-exam Increase distance-based learning programsIncrease proportion of graduates who meet goals for critical learning Increase proportion of students who remain – and are employed – in stateStrategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 33. Building Cost-Effective InstitutionsReduce administrative costsTackle ‘automatic’ cost increasesReengineer curriculaReengineer course deliveryEliminate, innovate, or consolidate high cost/low demand programsStrategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 34. Learning ProductivityStudents cometo college fully prepared (no remediation)Accelerated learningMinimize “rework” and reduce credits to degree Improve rates of course completionEncourage use of assessment/”test out” optionsLearning in the workplace/credit for experienceStrategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 35. Improving Affordability &ChoicesCommit to average undergraduate tuition growth no more than CPI, with increased need-based aidAllow differential tuitions for high cost/demand programsExperiment with low priced options Greater on-campus employment opportunities for studentsReduce time to degreeStrategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 36. Implications for LeadersRe-imagineyour business model to create long-term sustainabilitySupport change in approach to budget building Examine old habits and conventional wisdom about costsFocus on big picture, and progress on achieving strategic goalsCommit to institutional innovationExamine long-term implications of current decisionsStrategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
- 37. From Steve Jobsto YOUR Job20th Century was one of technological innovation21st Century must be one of institutional innovationDavid Wiley, BYU, http://davidwiley.org/
- 38. Speed Dating –Strategic FinanceAround the table, 1 minute each:Give an example of an effective change (at your institution or another) that represents a strategic finance perspective
- 39.
- 40. Magic FormulaMission +Market + Margin = Success
- 41. “Tried and True”ReportingBudget to ActualQuarterlyYear over Year ComparisonProjectionsMulti Year Rolling BudgetsFinancial StatementsQuarterly AuditAnnualFocus must be on what the numbers mean, more than on the numbers themselves
- 42. Financial RatiosBuild offof the auditWhat are the numbers telling us?Debt RatingCentral Question – Are we financially healthier this year than last?
- 43.
- 44. Strategic IndicatorsStrategic Indicators- Measures institutional performance in key areasHow do you know if you have the right ones?Focus on important issuesImpact decision makingUnderstandableCome from available dataMust have trend, benchmark, and targetFew in numberPeer Group vs. CompetitorsImportance of Telling the Story
- 45. Dashboard Indicators –Notre DameEnrollment by Program – HC and FTEMatriculationGraduation RateDiversityTuition DiscountStudent Faculty/Student Staff RatioRev. and Exp. by SourceCost per FTEAge of Facility/Deferred Main.Participation in Annual FundEndowment per FTE
- 46. Is This aStrategic Finance View?Importance of the “Reality Check” – Where are we right now?However, these tools are backward lookingNew tools are needed for us to look forward and to act strategicallyShift from input focus to output focus
- 47. Activity DriversOther9 Programs= 11%Top 12 programs account for89% of credit hoursCHMEach 2%or < HISCSTARTPHYPEDMUSPOLHSVMath6673% Core8 Programs = 32%Psychology7864% 7984%Philosophy7994%Modern Foreign Language8134%CommunicationArts 8614%English8734%ReligiousStudiesAnchor4 Programs= 57%4%904Biology1,2276%Nursing1,3307% Pharmacy1,9039%Business35%6,991Education 47
- 48. 48Demand – WhatDo People Want?Median 1,169Total prospects by major90% of prospects originate from the top 12 majors48
- 49.
- 50. # of Prospectsvs. Yield (accepted to enrolled)High # Prospects/Low Yield High # Prospects/High YieldHigh10,681BioMaximizeBusElevateYieldChemNursingPsychEDUPol SciCommArtHigh55%Median #Prospects1,169EnglishCriminLow # Prospects/Low Yield Low # Prospects/High Yield EnginLow 0%Comp SciInternatHistoryMathMod ForLangRel StudyPhilosRadiolPhysicsEconMedian Yield33%Low16250
- 51.
- 52. Student Credit Hoursper FTE Faculty FY 2008+ 45 +30+15-20-50-80-110-140-170More efficient than market standardNursingEduNationalNormFY 2008MusicMathRel StudyArtsBusComp SciForeignLangEnglishBioChemLess efficient than market standardCommPhilosHistoryHealthPhy EdPsychSource: CND Delaware Instructional Cost Study52
- 53. Direct Instructional Expenditureper FTE Student FY 2008+$12,000+$10,000+ $8,000 +$6,000+$4,000+$2,000-$2,000-$4,000-$6,000-$8,000-$10,000-$12,000HealthPhy EdLess efficient than market standardEnglishHistoryPsychBioMusicChemCommForeignLangPhilosBusNationalNormFY 2008Rel StudyMathEDUComputerNursingMore efficient than market standardSource: CND Delaware Instructional Cost Study53
- 54. Sample Financial DecisionMatrixGrowMaintain/Manage CostWe willevaluate, dialoguethen organize decisions intofour bucketsSunsetRedesign54
- 55. Reallocating To AreasOf StrengthFocus on what you will stop doingReallocation allows institutions to: Create new areas of growth
- 56.
- 57. Invest strategically withoutnew funding stream
- 58. Reinvent themselvesBudget shortfallas opportunity
- 59. Business Plan ProFormaDevelop a model Relation to missionMarket analysis CompetitionTest Externally
- 60. Business Plan –Cost AnalysisEnrollment Projections - 3 yearscannibalizationworking backwardsRevenueAdjusting gross for discounts and financial aidGrants, Fees, etc.Expense Projections – 3 yearsnew and reallocateddivestingexisting faculty costsUse of DebtBreakeven – How long until we get there?Mark-up – How much above cost do we want to achieve
- 61. Business Plan -AdvantagesSets the barCreates Milestones – Go/No GoResources identified up frontBuilds accountability
- 62. How Will WeKnow When We Have Arrived?Feedback LoopsGo back to:Business PlansStrategic IndicatorsHowever beautiful the strategy, you should occasionally look at the results.Sir Winston Churchill
- 63. Speed Dating #2– Strategic FinanceEach member of your table has 1 minute to share the following:How would your role or your president-board relationship need to change in order to support a strategic finance approach?
- 64.
- 65. Now What DoI Do?Be an advocate for mission/market/margin opportunitiesInsist on seeing the data behind the decisionsFocus on what the numbers are sayingHave the courage to ask the hard questionsRegularly review the mission and market return from new initiativesDevelop joint board committee meetings and activities – Example Finance and Academic Support rotation between board committeesConsider having a Board-Executive Strategic Finance workshop on campus (more info: 3:00 this afternoon)
- 66.
- 67. To continue thedialogue . . .Dr. Ellen Chaffee, Senior FellowAssociation of Governing Boards of Universities and [email protected] or 202-296-8400Rick Staisloff, Vice President for Finance and AdministrationCollege of Notre Dame of [email protected]
Editor's Notes
- #10 Economy requires more graduatesPeople driving the economy now are not the ones who are growing the youth populationIncoming students have greater challengesPreparationParticipationAffordability
- #11 Our business model is still geo-centric and depends on physical capital, expensive equipment, acreage, etc. Business model fails to optimize key resources (e.g., empty classroom seats) and tends to ignore potential synergies, partnerships, etc.
- #12 Business model is becoming non-viableAll revenue sources are maxing outRevenue and expense trend lines are not sustainableAs these trends show in graph on the next page.
- #13 State funds are not keeping up with cost per FTE (so institutions turn to other sources, especially tuition), while tuition soars over CPI (the “easiest” source of additional funds, until it hits a wall; demographics mean more students are keenly price sensitive, while tuition is ever-farther out of reach). “If a trend cannot continue … it won’t!”
- #14 Rockefeller Institute predicts that state shortfalls will continue through the “teens” decade and could AVERAGE up to -7% from 2009-2013. Universities can forget about state incentive money for new programs to reach the new students and increase the graduation rate. In fact, they will indeed have to do more with less.
- #15 Further illustration of the affordability gap. People often complain about their increasing inability to afford a new car of their prescriptions drugs, and the nation is boiling over the cost of health insurance – yet tuition at all institutional types has risen faster than any of these!
- #16 All of this means that change is in order for most if not all of us, and we will either create the changes we can believe in or be changed by the forces at work. Change is often uncomfortable, and many of you are or will be in very difficult and uncomfortable circumstances. Boats will be rocked and some turned over. Some people will not be happy (bring in the warrior).
- #22 These are the foundation elements for successful organizations. Their long-term existence depends on success in ALL FOUR. The good news is that one of them (market) is clearly present. In what areas might your university find the greatest payoff for improvement? Are there any areas of deficit/concern that must be addressed?
- #23 All action plans need specific goals – here called strategic indicators – that we use as touchstones for all our decisions. For example, “If we do X, will it move the needle on Goal 3?”The “Action” circle is implementation, where the heavy lifting typically involves little or no time from you as leaders. Instead, you must take responsibility for everything else on the screen!The most efficient and effective pathway to the strategic indicators comes from making sure that your goals, financial plans, and actions are ALIGNED and that you TRACK progress, making course corrections as you learn from experience.
- #24 What do strategic indicators look like? Here are some examples based on your five goals. Once you have indicators, you ask “What level of performance in what time frame do we aim to achieve (strategic goals)? What will CAUSE the needs to move on these (action plan)? And what business model and resources are required to achieve the progress and sustain the organization (strategic finance, resource plan)?
- #26 So far, the typical university has not embraced strategic change as a response to the financial downturn. Given the conditions we discussed this morning, typical responses are likely to prove quite inadequate.
- #27 Among other things, typical responses are reactive hunkering down. They do not strengthen the institution, foster growth, or prepare the institution for future conditions.
- #28 “More money” is not a realistic answer. We will find the funds we need in other ways, at least for the time being.
- #34 This list is actions that are primarily administrative, some in close consultation with faculty.
- #35 This list is oriented more toward faculty governance initiatives that administrators can encourage.
- #36 Ways to make enrollment more affordable for students.
- #37 This is a CHANGE agenda. Keep goals at the forefront and work to/from the Big Picture, learning as you go.