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Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Better, Cheaper, Faster
Board-CEO Partnership for Change
Ellen 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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
State-Level Relative Hardship
2
CA NJ IL UT AK IA KS MI MO VA MA MD OH WA DE RI AR0
1
2
3
4
5
6
7
8
9
10
Gap as % GF
Change in GF Spending
% HE from Stimulus
Total
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Goals for the Workshop
1. Understand strategic finance as a context for achieving long-term institutional sustainability
2. Learn new strategies and tools for dealing with current challenges
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Agenda
Changing Landscape in Higher Education
A Strategic Finance Approach
Reducing Cost and Increasing Productivity
Break
Strategic Finance: CFO Perspective
New Tools for New Decisions
Wrap Up
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
CHANGING LANDSCAPE OF HIGHER EDUCATION
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
The Changing Landscape of Higher Education
We CANNOT do
What we MUST do
If we KEEP doing
What we USUALLY do
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
What we MUST do
“By 2020, America will once again have the highest proportion of
college graduates in the world”
- President Obama, 2/24/09
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
And there’s consensus on that
To increase the percentage of Americans with high-quality
degrees and credentials to 60 percent by the year 2025
Currently: 39%
Lumina Foundation for Education
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
College Degree
Knowledge-Economy Work Force
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Can we go on this way?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
• State funding: 3%
• Tuition: 3% above CPI
• Student aid: 4%
• Expenditure per student : 1-2% above CPI
Recent Revenue/Expense Trends
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
TuitionExpend/FTEState Approp
CPI
Our Business Model is Not Sustainable
Start Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18 Y19 Y200
0.5
1
1.5
2
2.5
3 20 Years of Trends
AFFORDABILITY GAP
STATE FUNDS GAP
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
State Financials: Gaps could approach 7% of spending - “The Lost Decade” of state funding
Source: Don Boyd (Rockefeller Institute of Government), 2009
*
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
We
cann
ot g
o on
this
way
HITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl, www.makingopportunityaffordable.org
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
The Change Process
• Expert• Secure
Status Quo
•Disruption
•Turmoil
Transition •Vagu
e•Scary
New State
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Board-President Relations in Times 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.
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Brainstorm
• Is your university feeling these pressures?
• What are some of the barriers to dealing with them?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
STRATEGIC FINANCE
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
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.
What is Strategic Finance?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
In graphic terms…
Mission
Strategic Plan
Financial Decisions
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
The New Bottom Lines
Core IssueBalanced ScorecardKaplan and Norton/et al
Good to GreatCollins/Staisloff/et al
Is the organization doing the right things and doing them well?
Quality, effectiveness, customer satisfaction
Mission
Does the environment want/need what the organization does?
Financial stability and strength
Market
Is the organization ensuring that revenues exceed costs?
Operating efficiency, internal processes
Margin
Is the organization investing in its own future?
Learning and growth Momentum
YES
What’s the cost/benefit of improvement in this?
What’s the cost/benefit of improvement in this?
What’s the cost/benefit of improvement in this?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Importance of ALIGNMENT and Tracking Progress
Strategic Finance (Momentum,
Margin)
Actions
Strategic Indicators
CommunicationInformation
AnalysisCourse Correction
Strategic Goals
(Mission, Market)
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Strategic Indicators (North Star Proxies)(examples)
• More students– Enrollment growth by in/out of state
• Affordability– Net tuition/median household income
– Total financial aid/Total tuition revenue
• Accessibility– Enrollment growth by race, income, transfer status
• Efficiency– Cost per SCH by program, by site, by delivery
• Effectiveness– Retention and graduation rates
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Removing the brick wall
College DegreeMore
graduates
AffordableEffective
Efficient
Accessible
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Current Institutional Responses
• Increase efficiency
• Increase administrative productivity
• Leverage stimulus money
• APLU 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?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Missing in Action?
• Progress to strategic goals
• Growth
• Quality improvement
• Academic productivity
• Innovation
• Development of a sustainable business model
David Wiley, BYU, http://davidwiley.org/
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
What do institutions need?
• Growth by substitution
• Greater cost containment
• Greater productivity
• Clear expectations
• Innovation
• LEADERSHIP$
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Roaring Out of Recession
Companies that recovered well from past recessions:
• Used multi-faceted strategies that were highly customized to their own circumstances
• Focused on operating efficiency, market development, and asset development
• Reduced employee numbers as little as possible
• Continued to invest in asset development, marketing, and new product/ market development
Ranjay Gulati, Nitin Noharia, and Franz Wohlgezogin, “Roaring out of Recession,” Harvard Business Review, March 2010.28
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Reducing Cost and Increasing Productivity
*
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Cost Effective: Cost Reductions + Productivity
Cost reductions =
Permanent structural reductions in spending
Productivity improvements =Increase in output
(learning, research, jobs), without changing
admissions or spending
*
X
From paying $1 for XTo paying $1 for X + 2
From paying $1 for XTo paying $0.75 for X
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Examples of Cost Reductions
• Reduce high cost/low demand programs
• Address retirement eligibility
• Reduce growth in health care cost
• Consolidate administrative functions
• Reduce spending on non-revenue producing athletics
• Restructure 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
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Examples of Productivity Improvements
• Increase in student retention and graduation
• Reduce excess credits for the degree
• Increase credit-by-exam
• Increase distance-based learning programs
• Increase proportion of graduates who meet goals for critical learning
• Increase proportion of students who remain – and are employed – in state
Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Building Cost-Effective Institutions
• Reduce administrative costs
• Tackle ‘automatic’ cost increases
• Reengineer curricula
• Reengineer course delivery
• Eliminate, innovate, or consolidate high cost/low demand programs
Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Learning Productivity
• Students come to college fully prepared (no remediation)
• Accelerated learning
• Minimize “rework” and reduce credits to degree
• Improve rates of course completion
• Encourage use of assessment/”test out” options
• Learning in the workplace/credit for experience
Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Improving Affordability & Choices
• Commit to average undergraduate tuition growth no more than CPI, with increased need-based aid
• Allow differential tuitions for high cost/demand
programs
• Experiment with low priced options
• Greater on-campus employment opportunities for students
• Reduce time to degree
Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Implications for Leaders
• Re-imagine your business model to create long-term sustainability
• Support change in approach to budget building – Examine old habits and conventional wisdom about costs
– Focus on big picture, and progress on achieving strategic goals
– Commit to institutional innovation
– Examine long-term implications of current decisions
Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
From Steve Jobs to YOUR Job
• 20th Century was one of technological innovation
• 21st Century must be one of institutional innovation
David Wiley, BYU, http://davidwiley.org/
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Speed Dating – Strategic Finance
Around the table, 1 minute each:
• Give an example of an effective change (at your institution or another) that represents a strategic finance perspective
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Strategic Finance?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Magic Formula
Mission + Market + Margin = Success
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
“Tried and True” Reporting
• Budget to Actual– Quarterly– Year over Year Comparison– Projections– Multi Year Rolling Budgets
• Financial Statements– Quarterly
• Audit– Annual
• Focus must be on what the numbers mean, more than on the numbers themselves
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Financial Ratios
• Build off of the audit
• What are the numbers telling us?
• Debt Rating
• Central Question – Are we financially healthier this year than last?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Financial Ratios
MarylandPrivate Colleges
Threshold 2005 20042006 2005 2004 Value Trend Median Median
Composite Financial Index 6.0 4.7 5.5 3.0+ F 4.0 5.2
Sufficiency of Net Assets Ratio:
Primary Reserve 96% 86% 87% 40%+ F 78% 83%
Debt Management and Physical Plant Ratios:
Viability 2.6 2.1 1.7 1.25+ F 1.1 1.0
Leverage 5.9 5.2 5.0 2.0+ F 2.0 2.0
Debt Burden 4.4% 8.7% 5.1% 7%- F 5.0% 5.0%
Age of Facilities (years) 14.3 13.3 12.3 U 10.6 11.2
Operating Measures Ratios:
Net Income 9% 5% 10% 3%+ N 7% 12%
Return on Net Assets 5% 3% 10% 4%+ N 7% 9%
Net Tuition Dependency 83% 76% 77% 60%- N 81% 66%
Notes: Legend:(1) Maryland Private Colleges are Goucher College, Hood College, F= Favorable Loyola College, McDaniel College, Maryland Institute College of Art, N= Neutral Mount Saint Mary's College, and Villa Julie College. U= Unfavorable
College of Notre Dame
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Strategic Indicators
Strategic Indicators - Measures institutional performance in key areas • How do you know if you have the right ones?
– Focus on important issues– Impact decision making– Understandable– Come from available data– Must have trend, benchmark, and target– Few in number
• Peer Group vs. Competitors
• Importance of Telling the Story
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Dashboard Indicators – Notre Dame
Student Faculty/Student Staff Ratio
Rev. and Exp. by Source
Cost per FTE
Age of Facility/Deferred Main.
Participation in Annual Fund
Endowment per FTE
Enrollment by Program – HC and FTE
Matriculation
Graduation Rate
Diversity
Tuition Discount
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Is This a Strategic Finance View?
• Importance of the “Reality Check” – Where are we right now?
• However, these tools are backward looking
• New tools are needed for us to look forward and to act strategically
• Shift from input focus to output focus
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Top 12 programs account for89% of credit hours
Activity Drivers
Nursing
Biology
Religious Studies
Pharmacy
Education
Business
Communication Arts
English
Modern Foreign Language
Philosophy
Psychology
Math
1,903
904
786
813
1,227
1,330
873
6,991
861
799
798
667
4%
35%
4%
4%
4%
3%
9%
4%
4%
7%
6%
4%
CHM
HIS CST
ARTPHY
MUS POL HSV
PED
Anchor4 Programs = 57%
Core8 Programs = 32%
Other9 Programs = 11%Each 2% or <
47
48
90% of prospects originate from the top 12 majors
10,681
6,374
5,895
5,377
4,476
4,316
4,093
3,627
2,786
2,267
1,805
1,217
0 2000 4000 6000 8000 10000 12000
Bio
Bus
Chem
Nurs
Psy
Educ
Pl.Sc
Com
Art
Crim
Engl
Engin
Total prospects by major
Median 1,169
48
Demand – What Do People Want?
Yield
Eng
His
ComS
Educ
Art
Chem
Crim
Bus
Engl
Com
Rel Stud
Pysch
Bio
Math
Pol Sci
Nur
Int'l Studies
Radiology
MFL
Econ
0% 10% 20% 30% 40% 50% 60%
49
Median33%
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
# of Prospects vs. Yield (accepted to enrolled)High # Prospects/Low Yield High # Prospects/High Yield
Low # Prospects/Low Yield Low # Prospects/High Yield
Median Yield33%
Median #Prospects
1,169
Bio
High10,681
Low162
Bus
EDU
Nursing
PsychPol Sci
Comm Art
Chem
CriminEnglish
Engin
Comp SciInternat
History
High55%
Mod ForLang
Math
RadiolPhysics
Rel StudyPhilos
Econ
Elevate Yield
Maximize
50
Low 0%
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Net Revenue Modeling
Net Revenue Modeling - By Division
UG PT UG Accelerated Graduate Eng Lang Inst Total
Revenue 15,686,486 2,481,446 3,999,994 10,266,637 464,207 32,898,770
Tuition Discounting 5,656,577 40,026 0 876,158 0 6,572,761
Discounted Revenue 10,029,909 2,441,420 3,999,994 9,390,479 464,207 26,326,009
Total Discount % 36.06% 1.61% 0.00% 8.53% 0.00% 19.98%
UG PT UG Accelerated Graduate Eng Lang Inst Total
Discounted Revenue 10,029,909 2,441,420 3,999,994 9,390,479 464,207 26,326,009
Direct Costs 8,284,316 1,277,669 1,554,435 2,874,851 347,933 14,339,204
Net Revenue 1,745,593 1,163,751 2,445,559 6,515,628 116,274 11,986,805
Net Revenue % 17% 48% 61% 69% 25% 46%
Percentage of Total Revenue Base
UG PT UG Accelerated Graduate Eng Lang Inst Total
Discounted Revenue 10,029,909 2,441,420 3,999,994 9,390,479 464,207 26,326,009
Total Direct and Allocated Cost 9,954,583 2,366,828 3,149,668 7,858,580 347,933 23,677,592
Net Revenue 75,326 74,592 850,326 1,531,899 116,274 2,648,417
Net Revenue % - FY 2008 0.8% 3.1% 21.3% 16.3% 10.1%
Net Revenue % - FY 2007 2.1% 18.8% 28.8% 25.0% 16.5%
Net Revenue % - FY 2006 5.5% 23.0% 20.0% 25.0% 16.0%
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Student Credit Hours per FTE Faculty FY 2008
NationalNorm
FY 2008
+ 45
+30
+15
-20
-50
-80
-110
-140
-170
Bio
Bus
Edu
Nursing
Psych
Comm
Chem English
Music
Comp Sci
History
ForeignLang
MathRel
Study
Philos
Arts
HealthPhy Ed
Source: CND Delaware Instructional Cost Study52
More efficient than market standard
Less efficient than market standard
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Direct Instructional Expenditure per FTE Student FY 2008
NationalNorm
FY 2008
+$12,000
+$10,000
+ $8,000
+$6,000
+$4,000
+$2,000
-$2,000
-$4,000
-$6,000
-$8,000
-$10,000
-$12,000
Bio
Bus
EDU
Nursing
Psych
Comm
Chem
English
Music
History
ForeignLang
Rel Study
Philos
Computer
HealthPhy Ed
More efficient than market standard
Less efficient than market standard
Math
Source: CND Delaware Instructional Cost Study53
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Sample Financial Decision Matrix
Grow
We willevaluate, dialogue
then organize decisions intofour buckets
Sunset Redesign
Maintain/Manage Cost
54
Mission Demand Conversion Contribution Efficiency
Program Mission # Prospects Yield Credit Hours Student Cr Hr/FTE Faculty
A Yes > 5,000 >33% > 1,000 Above
Benchmark
B Yes < 1,000 < 33% > 500 At
Benchmark
C Yes > 1,000 < 33% > 500 Below Benchmark
D No < 1,000 < 33% < 500 Below Benchmark
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Reallocating To Areas Of Strength
Focus on what you will stop doing
Reallocation allows institutions to:
• Create new areas of growth
• Strengthen core programs
• Invest strategically without new funding stream
• Reinvent themselves
Budget shortfall as opportunity
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Business Plan Pro Forma
– Develop a model• Relation to mission
• Market analysis
• Competition
– Test Externally
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Business Plan – Cost Analysis
• Enrollment Projections - 3 years– cannibalization– working backwards
• Revenue– Adjusting gross for discounts and financial aid– Grants, Fees, etc.
• Expense Projections – 3 years– new and reallocated– divesting– existing faculty costs– Use of Debt
• Breakeven – How long until we get there?• Mark-up – How much above cost do we want to achieve
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Business Plan - Advantages
– Sets the bar
– Creates Milestones – Go/No Go
– Resources identified up front
– Builds accountability
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
How Will We Know When We Have Arrived?
• Feedback Loops
• Go back to:
– Business Plans
– Strategic Indicators
However beautiful the strategy, you should occasionally look at the results. Sir Winston Churchill
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Speed Dating #2 – Strategic Finance
Each 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?
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Now What Do I Do?
• Be an advocate for mission/market/margin opportunities
• Insist on seeing the data behind the decisions
• Focus on what the numbers are saying
• Have the courage to ask the hard questions
• Regularly review the mission and market return from new initiatives
• Develop joint board committee meetings and activities – Example Finance and Academic
• Support rotation between board committees
• Consider having a Board-Executive Strategic Finance workshop on campus (more info: 3:00 this afternoon)
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
Evaluations, Please
Association of Governing Boards of Universities and Colleges. All Rights Reserved.
To continue the dialogue . . .
• Dr. Ellen Chaffee, Senior Fellow
Association of Governing Boards of Universities and Colleges
701-840-1780 or 202-296-8400
• Rick Staisloff, Vice President for Finance and Administration
College of Notre Dame of Maryland
410-532-5340
64