Inside Higher Ed’s recently published survey of Chief Financial Officers contains several findings suggesting CFOs are deeply concerned about the financial future of their institutions. Their concerns should be taken seriously by presidents and boards of trustees as they develop strategies for their colleges and universities. Here are the main findings of the survey with commentary:
- Only 27% of CFOs are confident that the financial model for the institution is “sustainable for the next five years”. Only 13% believe that the model is viable for ten years. What does this mean? CFOs believe that the student choices, government support, tuition rates, donor income, endowment performance, and costs of operation are so uncertain that they cannot predict what will happen in the future. The findings also suggest that they believe that dramatic changes in income flows, expense allocations, and government regulations could undermine the financial stability of their institutions. This implies that colleges will need to make major strategic changes in response to these financial threats.
- Most CFOs do not “perceive that faculty are realistic about their institution’s financial challenges”. What could be the repercussions of this finding? Since most institutions operate under a dual governance system, the normal problems of making strategic changes to deal with major financial threats will be magnified. Given current institutional financial conditions and external economic factors, incremental strategic change may not be sufficient to quell the threats to financial stability. It is not inconceivable that presidents and boards of trustees may have to change tenure, eliminate academic programs, reduce instructional allocations, change the mix of full time to part-time faculty, or severely cut traditional benefits. Getting faculty consensus for these changes is difficult under the best of circumstances and could result in considerable faculty opposition. If faculty are not willing to develop and accept a new strategic or operational model, an institution’s delicate web of public confidence, student willingness to enroll or donor support is shattered.
- If there is one finding that points to CFOs deep concern about the future is that only 3% strongly agree that the institution should take on new debt. What does this mean for strategic planning? Simply it means that CFOs think that the future is too uncertain to incur debt and to reliably predict the ability of the institution to cover its debt.
- CFOs (45%) believe that business technology using technology will help make better decisions. However, they also say that their institution does not have the programs or the data to make “informed decisions”. This suggests that the while institutions have made large investments in technology for administration and business operations they still do not have effective way to analyze costs, forecast the future, or control the costs of operations. What is typically missing from most business systems is a highly detailed chart-of-accounts that provides financial and operational data down to the smallest unit. If financial and operational data is too aggregated, as is the case with most charts, then a CFO cannot perform the analysis or maintain controls to accurately know whether or not a particular program is contributes to the financial stability of the institution. One way to determine if the institution has the financial and operational data needed to determine performance, is to conduct ‘Responsibility Centered Analysis” of its income producing programs.
- Tuition Discount levels are too high according to 33% of not-for-profit CFOs. What does this suggest? This suggests that they have not yet reached diminishing returns. Nevertheless, there is evidence that smaller private colleges have reach the point of diminishing returns where discounts do not generate increases in enrollment and tuition revenue to offset the discount. The big issue in discount is not the discount including all funded aid. The big question is the unfunded institutional aid because it is not supported by endowment or governmental sources. As a result, unfunded institutional aid is a direct reduction to the cash derived from tuition revenue.
- Most CFOs (93%) thought sustainability projects (projects to minimize environmental impacts) had not produced significant benefits. What does this suggest? Colleges will need to be more careful if financial resources dwindle as expected, when they select sustainability projects. The project will need to produce a positive fit into the college’s financial forecast model.
- Most colleges are pursuing collaboration opportunities and more than 35% of the CFOs expect to cut administrative positions. Can this yield a new workable financial model? If there is a strategy that guides these actions, yes they can lead to a new financial model. However, if it is a piecemeal or short-term defensive strategy, then the possibility that higher education is going through a paradigm shift will thwart short-term solutions.
- CFOs (41%) report that their institutions are “shifting from a classroom-based to a Web-based model of instruction”. Does this matter? The shift is sizeable; whether the cost savings are really there is another question. Since most CFOs lack detailed data about program costs, they may not know if the online delivery of instructional programs is more efficient. The other issue with online delivery is how it affects market strategy and plans. Online both opens the college to new markets and puts the college into very competitive regional and national markets. Not many private colleges are prepared to compete online nor do they understand the best way to deliver instruction and what students want in an online program.
The preceding eight items represent several of the most salient findings from the CFO survey. You can find the full survey at this link for the Inside Higher Ed article.