When the bill comes due, institutional data can help

In 2015, when I first began working with colleges and universities all over the country, we didn’t call what we were doing “performance management.” Fast forward to 2024, and the last few years have proven that universities are beholden to the laws of economics.

Tuition pricing has reached the maximum point of price elasticity. Institutions that used to rely on increased tuition revenue to balance the budget are now forced to look at the cost drivers and align their operating expenses with their various revenue streams. Institutions resistant to change, or those that do not have the right tools and processes in place to manage expenses, may face consolidations and cuts.

While natural inclinations may lead us to resist or circumvent change, the laws of economics always win. They eventually catch up with us and that is holding true for higher ed. We’ve finally reached the other side where everything that has been put off and deferred can no longer be avoided.

Despite a myriad of challenges, there is optimism. According to a recent survey, 83% of chief business officers believe their institution will be financially stable over the next three years, and 85% believe the same is true for the next five years. The overall sentiment from survey respondents was increased optimism from the previous year.

Optimism is essential for financial recovery and rebuilding, but is the data telling us something else? My intention is not to extinguish their optimism; rather, it’s to ensure the long-term sustainability of it. Because the bill is coming due in more ways than one.

A discipline to meet the moment: institutional performance management

Institutional performance management, or IPM for short, is a broad concept for business performance management in higher education. It encompasses both the traditional measures of institutional health as well as modern operational characteristics.

Think of it as a blueprint for continuous improvement, or ongoing maintenance. It is a practice borrowed from top-performing organizations across industries centered on integrated planning, identifying risks and opportunities and ensuring alignment. It is a discipline that when applied to higher education recognizes the interconnectedness of mission, student outcomes and the financial sustainability of the institution.

There are three main components of IPM:

1. Managing revenues by driving enrollment, student retention, and net tuition revenue
2. Understanding cost structure to align expenses with revenues
3. Delivering on the mission of the institution by measuring and improving student learning outcomes.

It’s important to note that IPM is meant to prevent crises. It’s not just the way out, it’s to avoid financial exigency in the first place. It’s about continuous improvement—evaluating and reprioritizing on a regular basis—so instead of consolidating or eliminating multiple academic programs all at the same time, you might have to make small adjustments each year.

When a financial crisis looms, the way forward has to be through tighter financial controls and finding new ways to generate revenue. IPM provides a framework the entire organization can follow in terms of how to move forward. For example, if we draw a parallel to the deferred maintenance crisis, there’s a collective understanding of what should be done to fix it, but it’s how to move forward with an over-stretched budget that creates the stop-gap. Without actionable data, and the right tools and processes in place to support a long-term solution, it’s a finger in the dam situation.

Putting integrated planning into action

Enacting a performance management framework puts integrated planning into action. Every university business office needs a reliable framework to evaluate its cost structure and look for areas that need reallocations and investments. As a general rule of thumb, business officers can apply the following practices to better understand the budget and overall financial circumstances of the institution:

1. Generate financial scenarios to understand the impacts of shifts in enrollment, state appropriations, and rising costs.
2. Analyze administrative cost structure and opportunities to be more efficient.
3. Understand the financial performance of academic departments to rationalize your programs and manage them as a portfolio.

These are critical best practices to implement to avoid getting to the point of a crisis that requires draconian cuts the institution may never recover from. When it comes to complex ecosystems like universities, we have to interrogate the data to understand where to prioritize efforts and investments. The pressure to do this with precision and accuracy will only continue to increase. If the devil is in the details, then understanding the data is the way forward.

By adopting a methodical approach, CBOs can help ensure that universities remain financially viable and continue to provide high-quality education to students. While some may argue that running a university like a business is incompatible with its mission of public service, it’s important to recognize that financial sustainability is essential to realize the impact of the institution on students. CBOs play a pivotal role in addressing this issue by identifying important economic measures such as streamlining administrative processes, managing the academic portfolio, and exploring alternative revenue sources.

Performance management is a process of continuous learning, adaptation and growth. We’re not there yet but most finance departments are leveling-up. CBOs are stepping into more visible leadership roles, embracing innovation, and working across departments to ensure stability – all things to feel optimistic about.

This article was reposted from University Business. You can read the original here: https://universitybusiness.com/when-the-bill-comes-due-institutional-data-can-help/