Provosts, presidents, and other higher education leaders are facing increasing financial pressures. While cost reduction may appear to be the most immediate recourse, a purely reactive approach risks long-term institutional health. True financial sustainability requires a more strategic approach, one that moves beyond simply slashing budgets and instead focuses on resource allocation, program optimization, and revenue generation.
Here is some advice on achieving financial stability in higher education, drawing on the expertise of academic program economics notables Robert Atkins, Elaine Millar, and Elizabeth Atkins.
The Pitfalls of Blind Cost-Cutting
Decisions that lack supporting data, such as cutting small programs simply because they are small, often fail to consider the complex financial ecosystem of a university. As Robert Atkins points out, these cuts can damage an institution’s brand and ultimately hurt the bottom line by overlooking hidden revenue generators and the potential for strategic reallocation. Elaine Rowles further emphasizes the complexity of program cuts, highlighting the need to understand the economics of each program: revenue, cost, and contribution margin. A small program might still produce a positive contribution margin, and cutting it could lead to a net loss for the institution.
Understanding the Economics
A deeper understanding of program economics is crucial. This involves analyzing revenue (net of discounts), instructional cost, and contribution margin by program, department, course, and even sections. This granular approach, as advocated by Atkins, reveals the financial contribution of each program and helps identify areas for improvement. Rowles illustrates this with a case study, demonstrating how cutting a program without considering its full financial impact can actually worsen an institution’s financial situation.
Strategic Resource Allocation and Program Optimization
Instead of focusing solely on cuts, institutions should prioritize strategic resource allocation. This involves careful management of course offerings, optimization of faculty workload, and reinvestment in growth initiatives. Atkins suggests that the least expensive instructor to teach a course is a full-time faculty member who does not have a full teaching load, emphasizing the importance of optimizing faculty time and workload rather than simply relying on adjuncts. This also involves reclaiming unaccounted-for faculty time and optimizing release time to ensure it aligns with institutional priorities.
Revenue Generation and Growth
While cost reduction is essential, it’s equally important to focus on revenue generation and growth. As Elizabeth Atkins argues, institutions cannot simply cut their way to sustainability. Growth, in the form of increased enrollment, provides a powerful lever for reducing cost per student credit hour and generating additional revenue. Benchmarking data can be invaluable in identifying growth opportunities and areas where institutions are under-resourced compared to their peers. This data-informed approach allows for strategic investment in programs with high demand and strong contribution margins.
Benchmarking for Financial Vitality
Benchmarking plays a crucial role in achieving financial vitality. It allows institutions to compare their performance against peers and identify areas for improvement in cost per student credit hour, program performance, and overall financial health. As Elizabeth Atkins explains, benchmarking data can guide institutions to optimize course scheduling, adjust faculty workload, explore alternative instructional models, and align resources with student needs and market demands. It also helps ensure that cost-saving measures do not compromise educational quality or student success.
A Balanced Approach to Sustainability
Ultimately, financial sustainability requires a balanced approach. Institutions must combine strategic cost reduction with revenue generation and growth initiatives, all while maintaining a focus on student success and educational quality. By embracing data-informed decision-making, leveraging benchmarking data, and understanding the economics of their programs, institutions can move beyond simply reacting to financial pressures and instead proactively shape a vibrant and sustainable future. This involves:
- Understanding Cost per Student Credit Hour: This metric is crucial for assessing financial efficiency and identifying areas for improvement.
- Implementing Strategic Cost Reduction: Cost-cutting measures should be targeted and data-informed, minimizing impact on educational quality.
- Balancing Cost and Student Success: Financial efficiency should never come at the expense of student outcomes.
- Focusing on Program-Level Performance: Understanding program economics and aligning resources with student demand is crucial.
- Prioritizing Growth: Strategic growth, informed by market trends, is essential for long-term financial health.
By adopting this comprehensive and strategic approach, higher education institutions can navigate the current financial landscape and ensure a thriving future for themselves and the students they serve.
