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

1. 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

2. State-Level Relative Hardship 2

3. 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

4. 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

5. Changing Landscape of Higher Education

6. The Changing Landscape of Higher Education We CANNOT do What we MUST do If we KEEP doing What we USUALLY do

7. What we MUST do “By 2020, America will once again have the highest proportion of college graduatesin the world” - President Obama, 2/24/09

8. 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

9. Knowledge-Economy Work Force College Degree

10. Can we go on this way?

11. Recent Revenue/Expense Trends State funding: 3% Tuition: 3% above CPI Student aid: 4% Expenditure per student : 1-2% above CPI

12. Our Business Model is Not Sustainable Tuition Expend/FTE State Approp CPI

13. State Financials: Gaps could approach 7% of spending - “The Lost Decade” of state funding * Source: Don Boyd (Rockefeller Institute of Government), 2009

14. We cannot go on this way HITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl, www.makingopportunityaffordable.org

15. The Change Process

16. 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.

17. Brainstorm Is your university feeling these pressures? What are some of the barriers to dealing with them?

18. Strategic Finance

19. 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.

20. In graphic terms… Mission Strategic Plan Financial Decisions

21. 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?

22. Strategic Goals (Mission, Market) Importance of ALIGNMENT and Tracking Progress Communication Information Analysis Course Correction

23. 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

24. Removing the brick wall College Degree More graduates Accessible Affordable Efficient Effective

25. 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?

26. 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/

27. What do institutions need? Growth by substitution Greater cost containment Greater productivity Clear expectations Innovation LEADERSHIP $

28. 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

29. Reducing Cost and Increasing Productivity *

30. 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 *

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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/

38. 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

39. Strategic Finance?

40. Magic Formula Mission + Market + Margin = Success

41. “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

42. 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?

43. Financial Ratios

44. 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

45. 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

46. 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

47. 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. 48 Demand – What Do People Want? Median 1,169 Total prospects by major 90% of prospects originate from the top 12 majors 48

49. Yield Median 33% 49

50. # 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

51. Net Revenue Modeling

52. 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

53. 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

54. Sample Financial Decision Matrix Grow Maintain/Manage Cost We will evaluate, dialogue then organize decisions into four buckets Sunset Redesign 54

56. Strengthen core programs

57. Invest strategically without new funding stream

58. Reinvent themselvesBudget shortfall as opportunity

59. Business Plan Pro Forma Develop a model Relation to mission Market analysis Competition Test Externally

60. 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

61. Business Plan - Advantages Sets the bar Creates Milestones – Go/No Go Resources identified up front Builds accountability

62. 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

63. 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?

64. AGB Support

65. 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)

66. Evaluations, Please

67. 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