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Better cheaper faster   board-ceo partnership for change
 

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

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 Better cheaper faster board-ceo partnership for change Presentation Transcript

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