Operational and real estate choices aid smart budgeting

Rethinking higher education expenses: Processes and place

In this, the fourth in our series of articles with insights from Robert Scott, President Emeritus of Adelphi University and senior advisor to Grant Thornton’s Higher Education practice, we identify questions you could be asking about operational and real estate changes while rethinking your cost management.

Dennis Morrone

National Managing Partner

Not-for-Profit and Higher Education Practices

In our previous issue of the Rethinking Expenses series, Robert Scott discussed considerations of cost structure with regard to People and Programs. Here, he ends the series with the remaining Ps — Processes and Place.

Examine Processes for efficiency and effectiveness

Among the processes to be examined for efficiency and effectiveness are the costs of recruiting a student to enroll and graduate. This involves examining the admissions “funnel” of high school graduates in the catchment area, inquiries, applicants, offers of admission, registered students, tuition discounting and net tuition revenue. It also involves an examination of advertising and marketing dollars spent, being careful to distinguish between public relations for prestige and the productive use of media resources.

With challenges to traditional revenue sources, institutions are emphasizing fundraising and grant seeking. Using a call center can add to costs but can also bring in new data such as updated telephone numbers and email addresses, among other information. Nevertheless, the cost to raise a dollar must be understood.

In addition to examining the cost of faculty, staff, consultants and vendors, as noted in “Staff and program reviews inform expense decisions,” it is crucial to analyze the efficiency and effectiveness of risk management, cybersecurity, investment management, collective bargaining counsel, lines of credit costs, etc. Should debt be refinanced? Are all accreditations worth the expense? Should the energy management system be financed internally to reap all savings, or should it be done jointly with savings shared? These are among the questions to be asked and answered.

A review of the cost structure can be organized around five Ps — Purpose (Mission), People, Programs (and Services), Processes and Place (or Plant). While the analysis differs between a single-campus private college and a multicampus public university system, the variables to be examined are the same.

The head of the campus library is in a good position to monitor book, periodical, and electronic media purchase requests for course and program developments across the campus. The librarian, working with the chief academic officer, can identify duplication and extra expense by analyzing the curricula of different departments. The librarian can also monitor requests for special collections or journals, which can be very expensive and of limited classroom utility. The goal, according to the long-held maxim, is to be on the “leading edge” of quality, not on the “bleeding edge” of untested and expensive innovations.

In addition to interlibrary agreements, colleges and universities can control costs by joint purchasing agreements and by joint program arrangements. Examples abound of campuses sharing the courses necessary to offer programs in foreign languages, audiology, actuarial science and other programs of low campus demand but of high priority.

IT is another area of growth in staffing, equipment purchases and software development. It is better to be on the leading edge than the bleeding edge with expenditures on unproven technology.

Student life, residential life, career services, Greek life, international student and immigration services, public safety or police, transportation and clinical placements are also areas of increased costs due in part to the focus on recruiting and retaining students to graduation, and campus activism, and in part due to the popularity of certain amenities, whether single rooms with bathrooms or climbing walls.

In recent years, health services, including mental health services, have become of increasing importance on campuses. As with other services, a key question is whether to build your own or partner with another institution or do some of each.

To learn more about keeping your purpose statement and goals relevant, achievable and sustainable, read “Budget cuts alone won’t amount to financial stability.”

Read “Staff and program reviews inform expense decisions” to learn more about managing expenses by controlling — not just cutting — staff and program costs.

Athletics can be a large cost center. NCAA Division and Conference membership dues, scholarships, coaches and trainers cost money. It can be especially expensive to move from Division II to Division I, yet institutions attempt this because news media give more attention to Division I team results. A must-ask question — Is the sport worth the cost when the funds could be used for other purposes?

Another response to fiscal challenges is to sell assets, such as art and land. An institution must be cautious about legal constraints, donor relationships and long-term consequences.

Finally, even with finances limited, and perhaps because they are, campuses should budget contingencies for emergencies and innovations; be prudent about end-of-year balances; and call upon campus experts in areas such as accounting, marketing, architecture, etc. The local talent called upon will appreciate the attention, and the campus will benefit from their expertise.

Revisit Place planning for usage and tradeoffs

For many colleges and universities, campus buildings and grounds set the stage for an appealing visit by prospective students, parents, and donors. While it may be tempting during challenging times to skimp on cutting the grass and managing deferred maintenance, these are not good strategies. Not only do they work against attracting people to engage with the institution, costs of remediating the problems will continue to rise. Some campuses that desired to be acquired by those in better financial condition found that the stronger institution wanted the students, but not the debt and deferred maintenance of the other.

The use of classroom and other space by day and time of day should be analyzed. In many cases, the demand for space is often a sign of inefficient use of available space. Moving forward, facilities planning must receive greater attention.

There is a temptation to manage costs by outsourcing housekeeping, grounds maintenance, food service and security. However, many campuses view these functions as related to student satisfaction and would rather employ their own staff. Campus staff are more likely to get to know and care about students and are less likely than a vendor’s staff to engage in frequent turnover. At times, there is a trade-off between paying overtime or hiring more staff, especially for groundskeeping. A careful examination of the times of year and other trends should be undertaken. It may make more sense to pay overtime than to hire staff that is not needed all year long.

Many colleges and universities have extension centers or other off-campus facilities for teaching particular sets of students. These sites may be in the same town or state or in another state or country. Should the location be leased or owned? What local laws or customs might interfere with the institution’s mission, commitment to academic freedom, or admissions policies? What are the benefits to having the site, given other priorities?

Since colleges and universities are tax-exempt entities, some communities charge a payment in lieu of taxes (PILOT). These payments are demanded due to the fire, police, ambulance and other services provided by the locality and range from relatively modest to millions of dollars. In some cases, colleges can negotiate the cost by engaging in a trade such as opening the athletic fields for local use for a lower PILOT.

Monitor and measure

Monitoring and measuring the alignment of mission, resource use and results can help achieve efficiency as well as improve effectiveness. It also can support integrated planning and budgeting by acknowledging that leaders cannot simply cut or take across the board reductions. Priorities matter. The student experience matters.

In this series, Robert Scott mobilizes his expertise and insider understanding of higher education to help boards be better equipped to face new challenges. In the next article, Scott will discuss the metrics needed to measure an institution’s vitality and vulnerability, in order to help them identify and navigate current and future obstacles.

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Dennis Morrone

National Managing Partner

Not-for-Profit and Higher Education Practices