Better cheaper faster board-ceo partnership for change


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Workshop on strategies and analysis that will help universities succeed in financial hard times

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  • Economy requires more graduatesPeople driving the economy now are not the ones who are growing the youth populationIncoming students have greater challengesPreparationParticipationAffordability
  • Our business model is still geo-centric and depends on physical capital, expensive equipment, acreage, etc. Business model fails to optimize key resources (e.g., empty classroom seats) and tends to ignore potential synergies, partnerships, etc.
  • Business model is becoming non-viableAll revenue sources are maxing outRevenue and expense trend lines are not sustainableAs these trends show in graph on the next page.
  • State funds are not keeping up with cost per FTE (so institutions turn to other sources, especially tuition), while tuition soars over CPI (the “easiest” source of additional funds, until it hits a wall; demographics mean more students are keenly price sensitive, while tuition is ever-farther out of reach). “If a trend cannot continue … it won’t!”
  • Rockefeller Institute predicts that state shortfalls will continue through the “teens” decade and could AVERAGE up to -7% from 2009-2013. Universities can forget about state incentive money for new programs to reach the new students and increase the graduation rate. In fact, they will indeed have to do more with less.
  • Further illustration of the affordability gap. People often complain about their increasing inability to afford a new car of their prescriptions drugs, and the nation is boiling over the cost of health insurance – yet tuition at all institutional types has risen faster than any of these!
  • All of this means that change is in order for most if not all of us, and we will either create the changes we can believe in or be changed by the forces at work. Change is often uncomfortable, and many of you are or will be in very difficult and uncomfortable circumstances. Boats will be rocked and some turned over. Some people will not be happy (bring in the warrior).
  • These are the foundation elements for successful organizations. Their long-term existence depends on success in ALL FOUR. The good news is that one of them (market) is clearly present. In what areas might your university find the greatest payoff for improvement? Are there any areas of deficit/concern that must be addressed?
  • All action plans need specific goals – here called strategic indicators – that we use as touchstones for all our decisions. For example, “If we do X, will it move the needle on Goal 3?”The “Action” circle is implementation, where the heavy lifting typically involves little or no time from you as leaders. Instead, you must take responsibility for everything else on the screen!The most efficient and effective pathway to the strategic indicators comes from making sure that your goals, financial plans, and actions are ALIGNED and that you TRACK progress, making course corrections as you learn from experience.
  • What do strategic indicators look like? Here are some examples based on your five goals. Once you have indicators, you ask “What level of performance in what time frame do we aim to achieve (strategic goals)? What will CAUSE the needs to move on these (action plan)? And what business model and resources are required to achieve the progress and sustain the organization (strategic finance, resource plan)?
  • So far, the typical university has not embraced strategic change as a response to the financial downturn. Given the conditions we discussed this morning, typical responses are likely to prove quite inadequate.
  • Among other things, typical responses are reactive hunkering down. They do not strengthen the institution, foster growth, or prepare the institution for future conditions.
  • “More money” is not a realistic answer. We will find the funds we need in other ways, at least for the time being.
  • This list is actions that are primarily administrative, some in close consultation with faculty.
  • This list is oriented more toward faculty governance initiatives that administrators can encourage.
  • Ways to make enrollment more affordable for students.
  • This is a CHANGE agenda. Keep goals at the forefront and work to/from the Big Picture, learning as you go.
  • Better cheaper faster board-ceo partnership for change

    1. 1. Better, Cheaper, FasterBoard-CEO Partnership for Change<br />Ellen Chaffee, AGB Fellow and <br />President Emerita, Valley City State University (slides 1-38)<br /> Rick Staisloff, Vice President for Finance And Administration, <br />College of Notre Dame of Maryland (slides 39-60)<br />ASSOCIATION OF GOVERNING BOARDS NATIONAL CONFERENCE, ORLANDO, 2010<br />
    2. 2. State-Level Relative Hardship<br />2<br />
    3. 3. Goals for the Workshop<br />Understand strategic finance as a context for achieving long-term institutional sustainability<br />Learn new strategies and tools for dealing with current challenges<br />
    4. 4. Agenda<br />Changing Landscape in Higher Education<br />A Strategic Finance Approach<br />Reducing Cost and Increasing Productivity<br />Break<br />Strategic Finance: CFO Perspective<br />New Tools for New Decisions<br />Wrap Up<br />
    5. 5. Changing Landscape of Higher Education<br />
    6. 6. The Changing Landscape of Higher Education<br />We CANNOT do<br />What we MUST do<br />If we KEEP doing<br />What we USUALLY do<br />
    7. 7. What we MUST do<br />“By 2020, America will once again have the highest proportion of college graduatesin the world”<br />- President Obama, 2/24/09<br />
    8. 8. And there’s consensus on that<br />To increase the percentage of Americans with high-quality degrees and credentials to 60 percent by the year 2025<br />Currently: 39%<br />Lumina Foundation for Education<br />
    9. 9. Knowledge-Economy Work Force<br />College Degree<br />
    10. 10. Can we go on this way?<br />
    11. 11. Recent Revenue/Expense Trends<br />State funding: 3%<br />Tuition: 3% above CPI<br />Student aid: 4%<br />Expenditure per student : 1-2% above CPI<br />
    12. 12. Our Business Model is Not Sustainable<br />Tuition<br />Expend/FTE<br />State Approp<br />CPI<br />
    13. 13. State Financials: Gaps could approach 7% of spending - “The Lost Decade” of state funding<br />*<br />Source: Don Boyd (Rockefeller Institute of Government), 2009<br />
    14. 14. We cannot go on this way<br />HITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl,<br />
    15. 15. The Change Process<br />
    16. 16. Board-President Relations in Times of Change <br />Find common ground on how much/what kind of change. Trust AND verify, both ways. Early and often. <br />Keep roles clear and support each other.<br />Define the North Star and navigate by it.<br />
    17. 17. Brainstorm<br />Is your university feeling these pressures?<br />What are some of the barriers to dealing with them?<br />
    18. 18. Strategic Finance<br />
    19. 19. What is Strategic Finance?<br />Strategic finance is aligning financial decisions<br />—regarding revenues, creating and maintaining institutional assets, and using those assets—<br />with the institution's mission and strategic plan. <br />
    20. 20. In graphic terms…<br />Mission<br />Strategic Plan<br />Financial Decisions<br />
    21. 21. The New Bottom Lines<br />What’s the cost/benefit of improvement in this?<br />YES<br />What’s the cost/benefit of improvement in this?<br />What’s the cost/benefit of improvement in this?<br />
    22. 22. Strategic Goals (Mission, Market)<br />Importance of ALIGNMENT and Tracking Progress<br />Communication<br />Information<br />Analysis<br />Course Correction<br />
    23. 23. Strategic Indicators (North Star Proxies)(examples)<br />More students<br />Enrollment growth by in/out of state<br />Affordability<br />Net tuition/median household income<br />Total financial aid/Total tuition revenue<br />Accessibility<br />Enrollment growth by race, income, transfer status<br />Efficiency<br />Cost per SCH by program, by site, by delivery<br />Effectiveness<br />Retention and graduation rates<br />
    24. 24. Removing the brick wall<br />College Degree<br />More graduates<br />Accessible<br />Affordable<br />Efficient<br />Effective<br />
    25. 25. Current Institutional Responses<br />Increase efficiency<br />Increase administrative productivity<br />Leverage stimulus money<br />APLU survey just out: “The survey results indicate that "universities are striving to protect the core education mission of their institutions.”<br />What’s missing from this picture?<br />
    26. 26. Missing in Action?<br />Progress to strategic goals<br />Growth<br />Quality improvement<br />Academic productivity<br />Innovation<br />Development of a sustainable business model<br />David Wiley, BYU,<br />
    27. 27. What do institutions need?<br />Growth by substitution<br />Greater cost containment<br />Greater productivity<br />Clear expectations<br />Innovation<br />LEADERSHIP<br />$<br />
    28. 28. Roaring Out of Recession<br />Companies that recovered well from past recessions:<br />Used multi-faceted strategies that were highly customized to their own circumstances<br />Focused on operating efficiency, market development, and asset development<br />Reduced employee numbers as little as possible<br />Continued to invest in asset development, marketing, and new product/ market development<br />RanjayGulati, NitinNoharia, and Franz Wohlgezogin, “Roaring out of Recession,” Harvard Business Review, March 2010.<br />28<br />
    29. 29. Reducing Cost and Increasing Productivity<br />*<br />
    30. 30. Cost Effective: Cost Reductions + Productivity<br />From paying $1 for X<br />To paying $0.75 for X<br />From paying $1 for X<br />To paying $1 for X + 2<br />X<br />*<br />
    31. 31. Examples of Cost Reductions <br />Reduce high cost/low demand programs <br />Address retirement eligibility<br />Reduce growth in health care cost<br />Consolidate administrative functions<br />Reduce spending on non-revenue producing athletics<br />Restructure debt <br />Restructure faculty compensation and rewards (use turnover to substitute teaching faculty for research faculty)<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    32. 32. Examples of Productivity Improvements <br />Increase in student retention and graduation <br />Reduce excess credits for the degree<br />Increase credit-by-exam <br />Increase distance-based learning programs<br />Increase proportion of graduates who meet goals for critical learning <br />Increase proportion of students who remain – and are employed – in state<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    33. 33. Building Cost-Effective Institutions <br />Reduce administrative costs<br />Tackle ‘automatic’ cost increases<br />Reengineer curricula<br />Reengineer course delivery<br />Eliminate, innovate, or consolidate high cost/low demand programs<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    34. 34. Learning Productivity<br />Students come to college fully prepared (no remediation)<br />Accelerated learning<br />Minimize “rework” and reduce credits to degree <br />Improve rates of course completion<br />Encourage use of assessment/”test out” options<br />Learning in the workplace/credit for experience<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    35. 35. Improving Affordability & Choices<br />Commit to average undergraduate tuition growth no more than CPI, with increased need-based aid<br />Allow differential tuitions for high cost/demand programs<br />Experiment with low priced options <br />Greater on-campus employment opportunities for students<br />Reduce time to degree<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    36. 36. Implications for Leaders<br />Re-imagine your business model to create long-term sustainability<br />Support change in approach to budget building <br />Examine old habits and conventional wisdom about costs<br />Focus on big picture, and progress on achieving strategic goals<br />Commit to institutional innovation<br />Examine long-term implications of current decisions<br />Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009<br />
    37. 37. From Steve Jobs to YOUR Job<br />20th Century was one of technological innovation<br />21st Century must be one of institutional innovation<br />David Wiley, BYU,<br />
    38. 38. Speed Dating – Strategic Finance<br />Around the table, 1 minute each:<br />Give an example of an effective change (at your institution or another) that represents a strategic finance perspective<br />
    39. 39. Strategic Finance?<br />
    40. 40. Magic Formula<br />Mission + Market + Margin = Success<br />
    41. 41. “Tried and True” Reporting<br />Budget to Actual<br />Quarterly<br />Year over Year Comparison<br />Projections<br />Multi Year Rolling Budgets<br />Financial Statements<br />Quarterly <br />Audit<br />Annual<br />Focus must be on what the numbers mean, more than on the numbers themselves<br />
    42. 42. Financial Ratios<br />Build off of the audit<br />What are the numbers telling us?<br />Debt Rating<br />Central Question – Are we financially healthier this year than last?<br />
    43. 43. Financial Ratios<br />
    44. 44. Strategic Indicators<br />Strategic Indicators - Measures institutional performance in key areas<br />How do you know if you have the right ones?<br />Focus on important issues<br />Impact decision making<br />Understandable<br />Come from available data<br />Must have trend, benchmark, and target<br />Few in number<br />Peer Group vs. Competitors<br />Importance of Telling the Story<br />
    45. 45. Dashboard Indicators – Notre Dame<br />Enrollment by Program – HC and FTE<br />Matriculation<br />Graduation Rate<br />Diversity<br />Tuition Discount<br />Student Faculty/Student Staff Ratio<br />Rev. and Exp. by Source<br />Cost per FTE<br />Age of Facility/Deferred Main.<br />Participation in Annual Fund<br />Endowment per FTE<br />
    46. 46. Is This a Strategic Finance View?<br />Importance of the “Reality Check” – Where are we right now?<br />However, these tools are backward looking<br />New tools are needed for us to look forward and to act strategically<br />Shift from input focus to output focus<br />
    47. 47. Activity Drivers<br />Other<br />9 Programs = 11%<br />Top 12 programs account for89% of credit hours<br />CHM<br />Each 2%or < <br />HIS<br />CST<br />ART<br />PHY<br />PED<br />MUS<br />POL<br />HSV<br />Math<br />667<br />3% <br />Core<br />8 Programs = 32%<br />Psychology<br />786<br />4% <br />798<br />4%<br />Philosophy<br />799<br />4%<br />Modern Foreign Language<br />813<br />4%<br />CommunicationArts <br />861<br />4%<br />English<br />873<br />4%<br />ReligiousStudies<br />Anchor<br />4 Programs= 57%<br />4%<br />904<br />Biology<br />1,227<br />6%<br />Nursing<br />1,330<br />7% <br />Pharmacy<br />1,903<br />9%<br />Business<br />35%<br />6,991<br />Education <br />47<br />
    48. 48. 48<br />Demand – What Do People Want?<br />Median 1,169<br />Total prospects by major<br />90% of prospects originate from the top 12 majors<br />48<br />
    49. 49. Yield<br />Median<br />33%<br />49<br />
    50. 50. # of Prospects vs. Yield (accepted to enrolled)<br />High # Prospects/Low Yield <br />High # Prospects/High Yield<br />High<br />10,681<br />Bio<br />Maximize<br />Bus<br />ElevateYield<br />Chem<br />Nursing<br />Psych<br />EDU<br />Pol Sci<br />Comm<br />Art<br />High<br />55%<br />Median #<br />Prospects<br />1,169<br />English<br />Crimin<br />Low # Prospects/Low Yield <br />Low # Prospects/High Yield <br />Engin<br />Low<br /> 0%<br />Comp Sci<br />Internat<br />History<br />Math<br />Mod For<br />Lang<br />Rel<br /> Study<br />Philos<br />Radiol<br />Physics<br />Econ<br />Median <br />Yield<br />33%<br />Low<br />162<br />50<br />
    51. 51. Net Revenue Modeling<br />
    52. 52. Student Credit Hours per FTE Faculty <br />FY 2008<br />+ 45 <br />+30<br />+15<br />-20<br />-50<br />-80<br />-110<br />-140<br />-170<br />More efficient than market standard<br />Nursing<br />Edu<br />National<br />Norm<br />FY 2008<br />Music<br />Math<br />Rel<br /> Study<br />Arts<br />Bus<br />Comp Sci<br />Foreign<br />Lang<br />English<br />Bio<br />Chem<br />Less efficient than market standard<br />Comm<br />Philos<br />History<br />Health<br />Phy Ed<br />Psych<br />Source: CND Delaware Instructional Cost Study<br />52<br />
    53. 53. Direct Instructional Expenditure per FTE Student <br /> FY 2008<br />+$12,000<br />+$10,000<br />+ $8,000 <br />+$6,000<br />+$4,000<br />+$2,000<br />-$2,000<br />-$4,000<br />-$6,000<br />-$8,000<br />-$10,000<br />-$12,000<br />Health<br />Phy Ed<br />Less efficient than market standard<br />English<br />History<br />Psych<br />Bio<br />Music<br />Chem<br />Comm<br />Foreign<br />Lang<br />Philos<br />Bus<br />National<br />Norm<br />FY 2008<br />Rel<br /> Study<br />Math<br />EDU<br />Computer<br />Nursing<br />More efficient than market standard<br />Source: CND Delaware Instructional Cost Study<br />53<br />
    54. 54. Sample Financial Decision Matrix<br />Grow<br />Maintain/Manage Cost<br />We will<br />evaluate, dialogue<br />then organize <br />decisions into<br />four buckets<br />Sunset<br />Redesign<br />54<br />
    55. 55. Reallocating To Areas Of Strength<br />Focus on what you will stop doing<br />Reallocation allows institutions to: <br /><ul><li>Create new areas of growth
    56. 56. Strengthen core programs
    57. 57. Invest strategically without new funding stream
    58. 58. Reinvent themselves</li></ul>Budget shortfall as opportunity<br />
    59. 59. Business Plan Pro Forma<br />Develop a model<br /> Relation to mission<br />Market analysis<br /> Competition<br />Test Externally<br />
    60. 60. Business Plan – Cost Analysis<br />Enrollment Projections - 3 years<br />cannibalization<br />working backwards<br />Revenue<br />Adjusting gross for discounts and financial aid<br />Grants, Fees, etc.<br />Expense Projections – 3 years<br />new and reallocated<br />divesting<br />existing faculty costs<br />Use of Debt<br />Breakeven – How long until we get there?<br />Mark-up – How much above cost do we want to achieve<br />
    61. 61. Business Plan - Advantages<br />Sets the bar<br />Creates Milestones – Go/No Go<br />Resources identified up front<br />Builds accountability<br />
    62. 62. How Will We Know When We Have Arrived?<br />Feedback Loops<br />Go back to:<br />Business Plans<br />Strategic Indicators<br />However beautiful the strategy, you should occasionally look at the results.<br />Sir Winston Churchill<br />
    63. 63. Speed Dating #2 – Strategic Finance<br />Each member of your table has 1 minute to share the following:<br />How would your role or your president-board relationship need to change in order to support a strategic finance approach?<br />
    64. 64. AGB Support<br />
    65. 65. Now What Do I Do?<br />Be an advocate for mission/market/margin opportunities<br />Insist on seeing the data behind the decisions<br />Focus on what the numbers are saying<br />Have the courage to ask the hard questions<br />Regularly review the mission and market return from new initiatives<br />Develop joint board committee meetings and activities – Example Finance and Academic <br />Support rotation between board committees<br />Consider having a Board-Executive Strategic Finance workshop on campus (more info: 3:00 this afternoon)<br />
    66. 66. Evaluations, Please<br />
    67. 67. To continue the dialogue . . .<br />Dr. Ellen Chaffee, Senior Fellow<br />Association of Governing Boards of Universities and Colleges<br /><br />701-840-1780 or 202-296-8400<br />Rick Staisloff, Vice President for Finance and Administration<br />College of Notre Dame of Maryland<br /><br />410-532-5340<br />64<br />