With state and federal governments cutting direct support and grants-in-aid, the amount of funds to support a private or public college will decline over the next several years until tax revenues improve at the state and federal level. In addition, the federal government and parents are insisting that colleges and universities limit the rate of increases in tuition and fees. The combination of shrinking government support and pressure to limit changes in tuition and fee rates could have a dramatic effect on the structure of higher education.
Many institutions are already confronting the need to substantially cut the cost of delivering instructional services and providing administrative support. The University of North Carolina (UNC) system is a good example. They are planning to cut nearly 150 programs, close several branch campuses, and push students into lower-cost distance learning programs. The UNC system is located in the Research Triangle – a region that is growing fast and is expected to continue to grow at an accelerated rate. In the past decade, the Research Triangle alone has added one million residents. This would seem to suggest that the state should be in a strong financial position. However, the cuts to the UNC system clearly show that even states with a good record of population and economic growth are facing tough times.
Should presidents and boards of trustees address the issue of controlling costs by taking a cleaver and cutting a fixed percentage off the budget? The reasoning behind across the board cuts is that the leadership expects that the current revenue shortfall is merely a short-term dip and when the economy strengthens they can add back the dollars that were cut. There is mounting evidence, however, that the current situation is more than a simple dip in financial markets. Parents and government, as noted above, are rebelling against the impetus to adding costs even when good times return. In addition, competition among nonprofit colleges is becoming tougher as they compete among themselves and with for-profit institutions for students. Declining grants-in-aid and rising tuition discounts could be the precursor to a time when the institutions face declining returns on revenue growth.
What should presidents and boards of trustees do to address the serious issue of limiting costs increases? Our experience at Stevens Strategy suggests that there are four components to institutional plans that cut costs, are strategically driven, and sustain the mission of the institution:
- Mission Driven Review – do all programs and activities of the institution support the mission?
- Program Review – review the objectives, costs, markets, and operational requirements for all programs and activities.
- Communications – involve all segments of the college community to assure that they: understand why the changes are being made; participate in the analysis of current and proposed programs; become involved in the development of new programs; and know the time-line and responsibilities for making the changes.
- Follow-Through – do what you say that you are going to do with plans, timelines, and review stages.
The most demanding part of the process is assuring continuing lines of communications and support for “right sizing” plans from all segments of the college community. Communications should not be limited to the board and key administrators; it should also include faculty, staff, alumni, and community representatives who have a stake in the on-going success of their college or university.
Stevens Strategy has the experience to custom tailor a dynamic plan for presidents and boards of trustees as they work through “right sizing” their college or university. Our clients give the firm high marks in successfully accomplishing the goals involved in these strategic changes. Contact [email protected] for more information.
Originally posted April 6, 2011