Implementing Cost/Revenue Modeling for Meaningful Decision-Making

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Grant Thornton's State of Higher Education 2017 - cost/revenue modelingEconomic pressures caused by lower revenues and higher costs are placing increasing strain on higher education institutions. Revenue provided by governments to public institutions is not keeping pace with rapidly rising costs, including those related to greater technology needs. Further, for both public and private institutions, raising tuition and fees has become difficult for students, parents and other stakeholders to accept since they are experiencing their own economic pressures.

The institutions most likely to succeed will be ones that can effectively assess how their use of resources — facilities, class size, academic workloads, etc. — contribute to the financial sustainability of the mission, and right-size those resources accordingly. Institutions are beginning to leverage cost/revenue modeling to proactively make changes from within.

At issue is what academic programs really cost — not just program delivery’s direct (mainly instructional) costs, which often result in a positive margin, but also indirect costs — and how these total costs relate to an institution’s revenue. It is possible to gain this more informed understanding of your business operations — the relationship among costs, revenues, activities, courses, programs, etc. — through an activity-based model.

For a summary of the modeling initiatives that first-adopter institutions have undertaken and the best practices they have employed, read the full article.

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The State of Higher Education in 2017

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Contact Anthony Pember
Senior Manager, Advisory Services, Not-for-Profit and Higher Education Practices
+1 703 637 2777

Matt Unterman
Principal, Advisory Services, Not-for-Profit and Higher Education Practices
+1 212 542 9834