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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
- 2. Schehr, MdAIR Spring Institute 2010 2 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
- 3. Schehr, MdAIR Spring Institute 2010 3 Budgeting Process for Academic Programs – Revenues Revenues
- 4. Schehr, MdAIR Spring Institute 2010 4 Budgeting Process for Academic Programs - Expenses Board of Trustees Budget Management Committee President Provost Academic Department / School
- 5. Why Do Cost-Revenue Analysis? Schehr, MdAIR Spring Institute 2010 5
- 6. Revenues Top Sources and Uses of Operating Funds Schehr, MdAIR Spring Institute 2010 6 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 Schehr, MdAIR Spring Institute 2010 7 Program $ Expense Expense Expense Expense ExpenseProgram $ Expense Expense Expense Expense Expense Expense Program $ Operating budgets Revenues
- 8. Schehr, MdAIR Spring Institute 2010 8 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
- 9. Cost-Revenue Models Schehr, MdAIR Spring Institute 2010 9
- 10. Schehr, MdAIR Spring Institute 2010 10 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
- 11. Schehr, MdAIR Spring Institute 2010 11 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 Schehr, MdAIR Spring Institute 2010 12 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 Schehr, MdAIR Spring Institute 2010 13
- 14. Schehr, MdAIR Spring Institute 2010 14 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
- 15. Schehr, MdAIR Spring Institute 2010 15 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
- 16. Schehr, MdAIR Spring Institute 2010 16 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
- 17. Schehr, MdAIR Spring Institute 2010 17 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
- 18. Schehr, MdAIR Spring Institute 2010 18 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
- 19. Application of the Analysis Schehr, MdAIR Spring Institute 2010 19
- 20. Schehr, MdAIR Spring Institute 2010 20 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
- 21. Schehr, MdAIR Spring Institute 2010 21 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
- 22. 22 Prepared by: Terra Schehr Assistant Vice President for Institutional Research & Effectiveness tschehr@loyola.edu
Editor's Notes
- 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.