Blooming Together_ Growing a Community Garden Worksheet.docx
TSchehr_Cost_MdAIRSpring10
1. Improving Institutional
Effectiveness Through Cost-
Revenue Analysis of Instructional
Programs
Prepared by:
Terra Schehr
Assistant Vice President for
Institutional Research & Effectiveness
Loyola University Maryland
For:
MdAIR Spring Institute
April 2010
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Overview
Typical Budgeting Process
Why do cost-revenue analysis?
Cost-revenue models (Excel)
For departments with one academic program
For departments with multiple academic
programs
Application of the analysis
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Budgeting Process for Academic
Programs - Expenses
Board of Trustees
Budget Management Committee
President
Provost
Academic Department / School
6. Revenues
Top Sources and Uses of Operating
Funds
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Expense
Public 4-yr
16.8% T&F
17.6% G&C
Public 2-yr
16.2% T&F
15.9% G&C
Private 4-yr
26.0% T&F
30.7% Invs
Public 4-yr
25.9%
Instruction
Private 4-yr
33.1%
Instruction
Public 2-yr
38.5%
Instruction
Data are 2006-07
Source of Data: Digest of Education Statistics 2009
7. University
$
University and Program Funds
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Program
$
Expense
Expense
Expense
Expense
ExpenseProgram
$
Expense
Expense
Expense
Expense
Expense
Expense
Program
$
Operating budgets
Revenues
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Why Do Cost – Revenue Analysis?
To get beyond what Frank H.T. Rhodes describes
as decisions made “by indecision; [where]
direction has been determined by indeterminate
drift; and long-term policy—such as it has been—
has involved a varying mixture of territorialism,
opportunism, competition, absent mindedness,
and greed.”
Frank H.T Rhodes (2001). The Creation of the Future:
The Role of the American University. p241.
To move beyond cross-subsidy to revenue
sharing
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Cost-Revenue Model – Departments
With One Academic Program
Based on a model provided by University of
Delaware
Identify:
teaching workload
faculty workload
fiscal data (gross tuition revenues and instructional
expense)
Streamlined format
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Program Level Data Needed
Minimum data needed
Direct instructional expenditures
Gross tuition revenue
Additional useful data
Degrees granted
Number of majors
FTE students taught
Credit hours taught
FTE faculty
12. Fiscal Ratio Examples
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FY06 FY07 FY08
Cost Related to Instruction
Direct Instructional Expenditures 758,878$ 771,312$ 976,602$
Revenues Related to Instruction
Gross Tuition Revenue - Undergraduate 8,411,295$ 8,737,199$ 8,590,381$
Gross Tuition Revenue - Graduate 0 0 0
Earned Income from Instruction 8,411,295$ 8,737,199$ 8,590,381$
Cost-Revenue Ratios
Direct Expense/SCH 192.8 167.9 277.8
Direct Expense/FTE Students Taught 491.5 422.6 755.9
Earned Income/Direct Expense 11.08 11.33 8.80
C. Fiscal Data and Ratios
Neural Science
FY06 FY07 FY08
Cost Related to Instruction
Direct Instructional Expenditures 1,031,484$ 1,073,952$ 1,168,313$
Revenues Related to Instruction
Gross Tuition Revenue - Undergraduate 1,060,974$ 1,060,720$ 1,412,661$
Gross Tuition Revenue - Graduate 0 0 0
Earned Income from Instruction 1,060,974$ 1,060,720$ 1,412,661$
Cost-Revenue Ratios
Direct Expense/SCH 1,568$ 1,949$ 1,632$
Direct Expense/FTE Students Taught 4,798$ 6,033$ 5,014$
Earned Income/Direct Expense 1.0 1.0 1.2
C. Fiscal Data and Ratios
Metropolitan Studies
Ratio of income to direct
expense
Must be >1 to cover
indirect expenses
Cut point for “generating
revenue” needs to be
appropriate to the campus
13. Cost-Revenue Model – Departments
With Multiple Academic Programs
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Cost-Revenue Model – Departments
With Multiple Academic Programs
Based on a model provided by Ursuline College at
a NACUBO workshop 2004
Identify:
distribution of students across programs
fiscal data (gift revenue, net tuition revenues, and
instructional expense)
Decouple the costs associated with components
of multi-program departments
Fairly robust set of data
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Program Level Data Needed
Minimum data needed
Course details
Total enrollment and distribution of UG and GR
Instructor
Number of majors and distribution of UG and GR
Faculty and staff salaries
Additional useful data
Operating budget
Gift revenues designated to programs
Tuition discount rates
Faculty and staff benefit rates
Faculty FTE
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Fiscal Ratio Examples - Summary
SUMMARY
PROGRAM NAME: Linguistics
2005-06 2006-07 2007-08 2008-09 2009-10
Total Faculty FTE 12.0 12.0 14.0 14.0 14.0
Student FTE (GR & UG) 693.18 684.06 637.72 637.72 637.72
% Graduate Students 38% 40% 44% 44% 44%
Student-to-Faculty Ratio 58 57 46 46 46
Operating Expense-Per-Student 42$ 39$ 56$ 56$ 57$
TUITION REVENUE 9,376,468 9,657,647 9,640,890 10,123,463 10,629,495
Other Revenue 35,500 30,000 18,000 1,000 7,000
TOTAL REVENUE 9,411,968 9,687,647 9,658,890 10,124,463 10,636,495
EXPENSES 955,300 1,007,700 1,074,196 1,144,120 1,200,142
NET INCOME/(LOSS) BEFORE
INDIRECT EXPENSES *
Tuition Revenue 8,421,168 8,649,947 8,566,695 8,979,343 9,429,353
Ratio of Income to Expense 8.82 8.58 7.97 7.85 7.86
Total Revenue 8,456,668 8,679,947 8,584,695 8,980,343 9,436,353
Ratio of Income to Expense 8.85 8.61 7.99 7.85 7.86
YEAR
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Fiscal Ratio Examples -
Undergraduate
UNDERGRADUATE SUMMARY
PROGRAM NAME: Linguistics
2005-06 2006-07 2007-08 2008-09 2009-10
UG Faculty FTE 7.40 7.24 7.83 7.83 7.83
UG Enrollment 3631 3508 3030 3030 3030
UG FTE 427 413 356 356 356
UG Student-to-Faculty Ratio 58 57 46 46 46
Operating Expense-Per-Major 42$ 39$ 56$ 56$ 57$
TUITION REVENUE 8,496,540 8,710,364 8,599,140 9,029,400 9,480,870
Other Revenue 10,500 5,000 8,000 1,000 2,000
TOTAL REVENUE 8,507,040 8,715,364 8,607,140 9,030,400 9,482,870
EXPENSES 605,400 573,340 578,608 601,093 632,524
NET INCOME/(LOSS) BEFORE
INDIRECT EXPENSES *
Tuition Revenue 7,891,140 8,137,024 8,020,532 8,428,307 8,848,346
Ratio of Income to Expense 13.03 14.19 13.86 14.02 13.99
Total Revenue 7,901,640 8,142,024 8,028,532 8,429,307 8,850,346
Ratio of Income to Expense 13.05 14.20 13.88 14.02 13.99
YEAR
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Fiscal Ratio Examples - Graduate
GRADUATE SUMMARY
PROGRAM NAME: Linguistics
2005-06 2006-07 2007-08 2008-09 2009-10
Graduate Faculty FTE 4.60 4.76 6.17 6.17 6.17
GR Majors 400 402 450 450 450
GR Student-to-Faculty Ratio 87 84 73 73 73
Operating Expense-Per-Student 28$ 27$ 35$ 35$ 36$
TUITION REVENUE 879,928 947,283 1,041,750 1,094,063 1,148,625
Other Revenue 25,000 25,000 10,000 - 5,000
TOTAL REVENUE 904,928 972,283 1,051,750 1,094,063 1,153,625
EXPENSES 349,900 434,360 495,588 543,027 567,618
NET INCOME/(LOSS) BEFORE
INDIRECT EXPENSES *
Tuition Revenue 530,028 512,923 546,162 551,036 581,007
Ratio of Income to Expense 1.51 1.18 1.10 1.01 1.02
Total Revenue 555,028 537,923 556,162 551,036 586,007
Ratio of Income to Expense 1.59 1.24 1.12 1.01 1.03
YEAR
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Some Political Considerations
Only quantify what you can objectively measure
Direct expenses only
Start with what you know/have access to
Questions raised about the completeness of those data
may open doors to access of other important data
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Application of Cost-Revenue Analysis
New program development
Accreditation / substantive change
Budget planning for existing programs
Graduate student financial aid
Justification of budget decisions
Revenue sharing models
This presentation focuses on identifying the cost and revenues associated with academic departments. Knowing this information allows faculty and senior administrative staff to think strategically about leveraging resources to meet the needs of students while also enabling curricular growth in the context of finite resources.
In what any good finance person would say is an oversimplification, all revenues go into one big bucket.
Where to allocate that bucket of money is determined through a budgeting process that, generally, follows this ladder of decision-making and approval.
When we think about the largest share of expenses at a college typically being instructions costs (salaries, etc.) it becomes important for us to truly understand the how much our programs cost and to conduct cross-program comparisons
Pair that with tuition and fees which is typically one of the top two revenue streams and it becomes important to see the relationship between our largest expense and the direct revenue associated with it
G&C = grants and contracts
T&F = tuition and fees
Invs = investment returns
Instruction includes salaries and wages
In fact though, while it is fairly easy to find out how the university budget is allocated across programs, it is less easy to see how the extent to which programs contribute to the university budget
If we begin though to do a better job of understanding the relationship of the budgets in both directions (revenue and expense) we are better able to conduct thorough multi-year cost-revenue analysis for existing and new programs being proposed
I do not want to imply a lack of fiscal responsibility or care about budget allocations but the reality at many institutions is what Frank H.T Rhodes the President Emeritus of Cornell describes as . . .
So to move toward more intentional decisions which in turn allow us to move beyond Cross-subsidy (unknown levels and areas of) to revenue sharing:
not all of the revenue goes back into the one big university bucket.
If neural science is a center of excellence attracting many students and bringing in tuition revenue in excess of what it spends shouldn’t they be able to keep some of that money to support new innovations?
Two different cost-rev models
Simple form for use with departments that have only one programs
More detailed form for use with departments that have multiple programs
At 1:1 you are not even really self-sustaining because you are not covering indirects
Delaware uses 2.5 but they are a large research 1 university
A small liberal arts college that I’ve worked with in the past used
1.35 as covering own costs
1.59 as self-sustaining (returning funds to the college for overhead)
>1.6 as revenue generating or “contributing” (returning funds to the college for support of lib arts)
JUMP OUT TO EXCEL
We realized we were not doing thorough multi-year cost-revenue analysis for new programs; or for that matter existing programs that might want enhancement
we did not know enough about the costs and revenues associated with each multiple programs in one department
A key difference we see in this model is the inclusion of other revenue (gift or grants)
You will also notice that this department teaches graduate students, in fact nearly half of the students taught are graduate students.
Overall, the are revenue generating but are both programs revenue generating?
JUMP OUT TO EXCEL
Don’t let the best be the enemy of the better.
The successful university will be quality obsessed but procedurally efficient. . . scholarly quality and academic excellence are not inconsistent with administrative efficiency and cost-effectiveness. Universities have too readily assumed that because quality is priceless, cost is no object, that no support level could ever be fully adequate for their needs. – Rhodes, p 239
“. . . resource allocation processes should be designed with two purposes in mind:
to maintain the institution's ability to invest in new initiatives
and to provide incentives for improvement. The two purposes are self-reinforcing.”
– William Massy (2003). Honoring the Trust: Quality and Cost Containment and Higher Education. P280.
