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Enhancing financial performance through strategic business analysis

RFP
Faced with declining funding, falling enrollments, rising health care costs and questions about the value of a degree, many colleges and universities are struggling to deliver acceptable financial performance. In order to balance financial results and mission-driven outcomes, higher education leaders are performing strategic business analyses (SBAs) to transform their operating model and bottom-line financial performance.

Clearly, what has been happening of late is not the first wave of higher education managers seeking to improve financial performance. However, as “low-hanging fruit” remedies have already been identified and addressed, reducing costs is no longer a simple exercise of changing the procurement function and going out to bid on long-standing contracts. Instead, the task at hand is more strategic in nature and more challenging, with every decision coming with trade-offs, complexities, politics and implementation challenges. As a result, in their search for more substantive, less incremental opportunities to enhance revenues and decrease expenditures, institutions are conducting analyses in a more sophisticated, integrated, strategic and inclusive manner.

Here are a dozen proven techniques
that can help your institution continue to enhance its business results through the execution of a successful SBA:
  1. Engage in upfront communications with the entire college/university community. Let them know that this effort is happening, and that it will be challenging. Being transparent about the fact that all constituents will be affected and that the institution is pursuing a well-rounded and inclusive strategy lets the community know this process will be fair, even if it won’t be easy.
  2. Establish and empower a steering committee. Gone are the days of making decisions for the community behind closed doors. These tough decisions need to be made together to minimize implementation roadblocks. While involving constituents in the analysis and decision-making process will at first blush seem to slow things down, it will ultimately lead to tangible and implemented solutions as opposed to continuous pushback and divisive behavior.
  3. Seek creative solutions. At all costs, avoid pursuing potentially community-destroying initiatives and programmatic compromises. Leave no stone unturned to generate revenue-enhancing and expenditure-reducing concepts that enable your institution to stay true to itself and its constituents. Have you looked at privatizing that parking garage or using your facilities for alternative purposes? While no solution will be a silver bullet and all will involve some kind of trade-off, avoid decisions that compromise your culture, mission or relationships with alumni, students and funders — shore up your bottom line through other means.
  4. Don’t ignore revenue-enhancement opportunities. Steer clear of focusing solely on cost reduction. While reducing expenditures can at times be more immediate and appear to be more of a “sure thing” than enhancing revenue, taking the time to consider investments that can generate revenue will reinforce constituents’ understanding that the administration does not want to adversely affect the community.
  5. Put everything on the table. Sparing specific areas due to sensitivities of certain populations is counterproductive; your communities want a fair and transparent process. There should be no sacred cows or pet projects left unexamined. Generating a complete list of ideas will underscore to the community that you are committed to an open and honest assessment.
  6. Avoid reliance on benchmarks. Assessing and transforming operations are challenging tasks, and there will inevitably be “that guy” on your steering committee who wants to take the easy way out, relying on benchmarks to make the decision. But operating in line with benchmarks is not necessarily a best practice. Each institution has its own unique situation and circumstances. “More or less” is not necessarily “better or worse,” and regressing to the mean will likely not serve your institution well. Further, don’t assume that others have good data or are operating under optimal circumstances — aligning to others’ performance is desirable only if they have been verifiably effective and successful. As a result, extrapolating benchmarked metrics onto your unique situation can be a dangerous proposition. Instead, successful institutions approach their situation strategically and treat challenging financial performance as an opportunity to make holistic changes that serve their constituents and mission over the long haul.
  7. Examine inflows and outflows. Follow the money as it comes into, moves through and leaves your institution. Seek to understand where an incoming dollar goes, what areas are far from self-sufficient and what departments are healthy while their peers are suffering. Work on responding to identified opportunities, either by making investments in areas that are doing better than expected or by focusing remediation efforts on identified weaknesses.
  8. Establish assessment criteria upfront. It is only natural to be protective of one’s own areas and to take a “not in my backyard” approach to generating and supporting enhancement ideas. To combat this bias, create a set of agreed-upon criteria that can be utilized to filter through identified opportunities and serve as decision support for the steering committee. These criteria should support the institution as a whole, as opposed to special interests or specific fiefdoms, in order to enable your SBA initiative to generate ideas and facilitate decisions that will optimally serve the entire enterprise.
  9. Examine your budget. It’s easy to try to crack down on reducing specific expenditures, but doing so on a one-off basis will be of limited value — you will be playing Whack-a-Mole, as new unfunded expenses are sure to arise in the future. Ineffective budgeting processes and systems will inevitably lead to suboptimized deployment of institutional resources, wasted funds and missed opportunities. Instead, make sure to analyze your budgeting process and tools in parallel with identifying opportunities for cost reduction and revenue enhancement so that you can achieve long-term financial success within your organization.
  10. Focus on implementation. While generating actionable ideas and obtaining support from across the community is an important objective, it is hardly the end goal. Creating a “pretty report” only to leave it on a shelf collecting dust is far from a success. Invest resources in implementation and monitoring, not just in idea generation, in order to make a quantifiable difference in your institution.
  11. Communicate to show progress. Making certain that the institution stays afloat is in everyone’s interest. While many will want the SBA effort to simply “go away,” reminding them of its progress is critical. Further, holding the institution accountable to itself for the end-to-end project and the achievement of actual financial improvements will ensure this isn’t yet another effort announced by central administration with minimal feedback loops and tangible results.
  12. Make an ongoing commitment to change. An SBA is practically guaranteed to be hard. Given the level of effort required to improve results and the extent of parallel investments in socializing the importance of performance improvement, an SBA effort should not just be a one-shot deal. True improvement comes from establishing processes and a culture that give assurance that performance continues to be monitored and improved, even in good times, so that every dollar is optimally invested in the institution’s mission-driven performance.

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