In a previous article, I discussed how financial modeling work could be adapted to inform decision-making and understand the financial implications of continuing the Fall 2020 term online. Since financial modeling is complex and must be accomplished over multiple iterations, institutions simply will not have the time to pursue all the strategic and financial questions raised for the fall term. Instead, I recommended that they should be prepared to prioritize those inputs that will have the biggest impacts on the financial model (and be prepared to change priorities if, within the time that is available, an unexpected, significant input is discovered).
Almost all colleges and universities had initiated some level of activity around online education before the COVID-19 crisis struck. The rapid switch to remote learning necessitated by the pandemic was a departure from a strategic approach to developing an online initiative. Institutions have an opportunity, as they begin planning for fall, to use their efforts as a foundation for getting their online initiatives back on track. In this article, I discuss how institutions can start developing a longer-term, more comprehensive financial model for online education initiatives, beyond what may be needed for the fall term.
Align Online Initiatives with Institutional Goals
Financial modeling will be accelerated if the online work at an institution has been structured to align with the institution’s overall strategic plan. That isn’t always the case; sometimes institutional strategic plans include nothing about online education. But usually, some way can be found to make a connection.
Integrating online learning as thoroughly as possible into the strategic plan’s trajectory helps ensure that everyone is working in the same direction. Because of the many decisions and assumptions needed to build a comprehensive financial model for online initiatives, the modeling itself is an exceptionally useful tool to assess current organizational status and structure. Financial modeling provides insight into the many processes that make exceptional online education possible (or not), identifying what is strong, weak, or completely missing. This insight can, in turn, help the institution identify issues that could slow progress on the overall strategic plan.
Determine Scope of Academic Product Mix
For almost every institution, the online product mix will include much more than one course or program. Colleges and universities would do well to determine strategically what the scope of their online product mix will eventually comprise, as informed by the institution’s strategic plan. After the current crisis, does the institution want to develop one or two online programs? Does it want to provide undergraduate students with an online modality choice across multiple courses? Does it want to create an additional, sustainable revenue stream with online graduate programs? Does it want to use an online program manager (OPM) or does it want to create internal OPM-like capabilities?
These questions should not be answered unilaterally; instead, they should be integrated into the financial modeling process. Because financial modeling activity provides so much insight into the full landscape of online activity and capabilities at the institution, a best practice is to develop financial modeling and online strategy at the same time to produce the strongest, most transparent, and most accurate results. Finance and strategy should be intertwined.
As your planning team seeks to comprehensively model different program options from different schools or units, consider creating “buckets” of similar product types. As is often the case, scale, and simplicity equal success. Creating a new model for each course or certificate will mire down planners in an unmanageable morass of customized functions. Product buckets provide a balance between specificity and manageability. For example, your online academic product mix might include master’s degrees (one bucket) and certificates of either 40 or 80 contact hours (one bucket each). Choose product buckets that work best for your situation; with time and experience, you can make changes as needed.
Model the Timing and Financial Implications of New Program Launches
For most institutions, a comprehensive online initiative will be introduced in phases, as successful programs provide additional resources to fund new programs. A company like Apple, for example, has gradually grown its product line, with successful products producing a sustainable cash flow and providing support for new innovations until they become self-sustaining (the iPhone) or are retired (the Apple Newton). For online programs it is the same: new product launches, in general, will require three years to become revenue positive, as shown in the graphic, and will require both initial funding for product development and support until they produce a positive margin.
Starting a new program or academic course of any kind will require financial outflow—an investment, similar to venture capital. For modeling, this means that the speed of product launches must be considered. Initial financial outflows will have to be supported by the institution as a whole until the product mix becomes sufficiently robust to support itself, and ultimately fund the development of additional programs. Success breeds success (and can cover the cost of an occasional misstep). Again, financial considerations and strategy must be intertwined.
The timing of online product launches is an essential input as your planning team models how many online programs the institution can support and establishes expectations about sustainable cash flows with your institutional leadership.
Build Your Knowledge
As I have mentioned several times in this article, strategic planning and financial modeling for online initiatives must be developed interactively and aligned with the institution’s overall strategic plan. Strategic direction will inform financial modeling decisions; financial modeling will inform how and when programs are launched, and which have the greatest potential for success. Working backward from all that learning, you will be able to create or modify the processes which support these plans and construct a dynamic structure for how to integrate them throughout the institution, which will be the subject of an upcoming article.
These activities require a significant amount of time and knowledge spanning a wide array of functional areas, including strategy, finance, academics, pedagogy, and course design. Consider bringing in an outside team that can help you develop strategy, models, and processes. This proactive choice can save a considerable amount of resources and time, build expertise internally, and provide a space to hold internal politics at a distance. All these efforts encourage success.