Last week, Breakthrough Models Incubator participants took on the subject you never discuss in polite company– money. Rick Staisloff, principal at rpkGROUP, a consulting firm that specializes in helping higher education institutions think differently about their resources and revenue, prepared a pre-recorded webinar (which you can watch and listen to here) explaining that the nature of the conversation around finances is moving from inputs (enrollments, budgeting) to outcomes (degree production, investment) and why this focus improves sustainability in the long run. Staisloff said that continued focus on inputs, gross revenue, and departments and programs as budget items rather than investments hides true costs, obscures subsidies, and conceals the true economic drivers in an institution.
Using real world examples, Staisloff demonstrated the importance of accurately calculating net revenue (allocating all true costs to all relevant departments) to determine where the real power in an institution’s program lies and to create transparent, intentional decisions about where, when, and how long to subsidize activities which are not revenue positive. He also made the point that revenue was not the only factor to consider when making such decisions and sometimes it made sense to subsidize activities that don’t pay for themselves, especially when they are central to the institution’s mission.
Staisloff introduced three new tools for navigating the shifting landscape and getting to sustainability:
- an academic scorecard to analyze the profitability and cost for every academic offering in a school’s portfolio;
- a cost per unit tool that enables institutions to move from legacy budgeting to outcome-based investment and maintain accountability for those results; and
- a pro forma tool that allows institutions to calculate the best investments to make in light of their mission, market, and margin needs.
On the live follow-up webinar, Staisloff reviewed each participating institution’s Incubator plan and offered some advice on financial questions raised by their proposed plans. Although the teams’ plans are diverse, one of the common threads that emerged was a caution on “freemiums.” While it can be useful to offer free experiences that allow students to see the value of enrolling, or to offer a MOOC to increase incoming students’ financial literacy, Staisloff urged the teams to carefully define the parameters necessary to determine the return on the investment. In the case of the financial literacy course, for example, Staisloff encouraged the team to look at direct and indirect outcomes. That is, the team should look both at the retention rates of students who took the class (based on the theory that students with better information about money tend to make better decisions on planning for college) and at savings in other departments where workload may be decreased by improvement in student financial literacy, like financial aid offices. By framing his advice to the teams in terms of return on investment and net revenue, Staisloff mirrored the trend he talked about: the movement from an “inputs” lens that cannot sustain institutions financially to “outcomes,” which, if properly framed, can guide institutions to the sweet spot were market, mission, and margin all meet.
To learn more about the Breakthrough Models Incubator, visit: www.educause.edu/educause-institute/breakthrough-models-incubator