2019 brings new and continued challenges for higher education, as well as new opportunities to innovate.

We conducted our second annual in-depth look at financial priorities for universities and colleges. When we did this survey last year, 47 percent of respondents said their institution’s current business model is not sustainable over the next five to 10 years. In this year’s survey, that percentage increased to 66 percent. 

Given the results and challenges we heard, we identified four areas of opportunity for institutions: 

  1. Examine your current business model. 
  2. Ground your financial goals in reality. 
  3. Use financial planning and analysis to drive improvements in decision-making and performance. 
  4. Modernize systems and tools to enable transparency and informed decision-making. 

Opportunity #1 - Examine your current business model

We hear different views about whether universities and colleges are indeed businesses. The disagreements lead to two challenges. One is if we don’t consider ourselves businesses, how do we adapt best business practices in order to make changes during these challenging times? The second is how do we optimize what we’re doing and stop being all things to all people? 

Given the challenges to financial resources, we believe that institutions are beginning to make tough decisions, and significant changes are being made. Leaders are bringing a more critical eye to a mix of academic programs, including prioritizing issues such as sustainability, stability, growth, expansion opportunities and contributions to institutional reputation. 

Some of the key fundamental questions as institutions start thinking about partnerships are:

  • Why are we the right partners?
  • Why is now the right time?
  • What is the strategic value of our partnership?
  • What is the financial value created by the partnership?
  • How will the partnership impact our credit and our ability to access capital?
  • What are the key gating issues that need to be resolved?
  • What sort of structure will allow us to meet our vision and goals?
  • Do we have a pre-merger and post-merger integration plan? 

Opportunity #2 - Ground your financial goals in reality

The second opportunity is about setting and prioritizing financial goals. According to our survey, the top initiative is reducing the institution’s expenses. I think that’s certainly appropriate given the challenges we’ve seen. And the next three initiatives are about finding new revenue sources. 

But in this environment, not everyone will be able to grow tuition revenue. That’s why leaders need to consider proactive measures. We need to adopt cost structures that align to different levels of revenue. We need to continually strive to drive efficiencies into all aspects of our institutional operations while continuing to look for new revenue streams. 

Opportunity #3 - Use financial planning and analysis to drive improvements in decision-making and performance

The third opportunity is adopting financial planning processes to drive these improvements. 

We all see tools and processes that are available in finance and other industries, and we need to take advantage of them in higher education. When you look at other industries, it’s about improving efficiency and improving decision-making. When we apply those same practices to higher education, we get other benefits too, given that we have this collaborative culture and we have a shared governance model.

Having more disciplined financial planning processes increases the quality of the financial plans we produce. It also increases transparency, which builds trust. Those are necessary ingredients for any kind of change that we’re going to implement in our organizations.

Opportunity #4 - Modernize systems and tools to enable transparency and informed decision-making

In the fourth opportunity, we pivot to talking about a technology to support these financial decisions

In our survey, 38 percent of respondents said their budgeting cycle takes more than six months. A long budget cycle time is not good because it takes a lot of institutional effort and attention - and tends to be resource-intensive. A longer cycle doesn’t necessarily lead to a better plan. 

 


From Financial Planning to Budgeting and Beyond: We offer solutions to help your institution tackle these challenges

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This article was adapted from a University Business Web Seminar Digest originally presented on January 24, 2019.