For the past two months, I have been visiting various institutions, learning about their current issues and identifying where I may be able to offer some assistance. There seem to be a number of parallels and common themes as I go from place to place. Let me share with you some of my observations.
First, traditional enrollments are struggling. Only a couple of campuses anticipate an increase for the fall, provided their numbers hold up. A few are hoping to match last year but the majority are thinking that incoming student numbers will decline. What is fascinating is that nearly all institutions are not sharing much in the way of these concerns with their constituents. Years ago, college newsletters showed a few exemplary items and listed areas of concern – the prayer requests. Alums picked up on both and supported their alma mater accordingly. Now, for whatever reason, the industry appears to be reluctant to share any of the difficult news. I am sorry to see this pattern emerge but it has reached the level of common practice.
A second, related trend involves financial aid. Conventional wisdom says that reductions in enrollment can only be offset by increases in financial aid. Unfortunately, some are more generous in their aid packages but are not experiencing an offsetting uptick in enrollment. To confront the great recession, institutions bolstered financial aid dramatically to the point where first year discount rates above 50% became all too common. A change in philosophy or at least practice is needed to avoid further deterioration in revenues. It may no longer be possible to effectively buy students.
Third, those who offer non-traditional programs are generally seeing stagnation. Programs that used to be filled to capacity are struggling to meet start schedule expectations. Business and Education seem to be the most vulnerable. Those who are bucking the trend appear to have done so with new programs. RN to BSN, BSW and MSW are a few that are on the ascent in some places. The delivery method appears to have shifted to online from face to face. This requires redoubling retention efforts, among other accommodations.
Fourth, certain big ticket items continue to increase at rates beyond inflation. Health care costs are probably the most common topic of conversation with respect to the cost of operations. Strategies for dealing with the Affordable Care Act vary from place to place. High deductible plans appear to be on the increase, with a few pioneering institutions adding wellness programs and other cost containment initiatives that may not benefit the program for a few years. Health care inflation is running at 6% to 7% this year, with the anticipation that it will increase similarly for some time to come,
Other big ticket items with extra-inflationary increases include athletic programs (transportation is a big component of this), food costs and commercial real estate being rented for non-traditional programs. On the horizon are property and casualty insurance premiums, borrowing costs and software maintenance. P&C insurance has benefitted from a highly competitive “soft” market for a few years. That may be changing. Interest rates, particularly on variable rate bonds, have been incredibly low for the past three years as well but we’re seeing signs of a more normal level returning. Competition has limited the impact of software maintenance contract increases but recent industry consolidation may cause a return to former levels of increase.
Sounds depressing, I know. A number of CFOs have confided that this may be the most challenging period of time that they have experienced. I counter that it is a time to mitigate risk as much as possible. Seek ownership of the overall plan from the various components represented by senior leadership. Create a measurable plan and monitor it. And, put everything on the table. Doing things the same way we have got us to this point. We need a fresh perspective, particularly when it comes to cost reduction initiatives. And, don’t forget how important a good offense is. New, more appealing programs are helping innovative institutions buck current enrollment trends. After all, you can’t cut your way to health!
I continue to work with institutions on their forecasting for both non-traditional programs and the entire operation. Banks in particular appear to be pleased with the comprehensive forecast since it is more akin to what commercial enterprises provide. These tools are cost effective ways to improve communication about the state of the institution among the leadership team and with boards – particularly the finance committee. I am convinced that planning has never been more important than the present time.
I’m also working on cost containment and reduction while evaluating anticipated revenue streams from new programs. These are delicate processes that I am not at liberty to share information about. Suffice it to say, if tuition increases are supposed to be muted, reducing costs in a material way is critical to success, as is the advent of new programs to replace those that are not performing anymore. Real progress is being made but it takes a measure of courage. Hard work, to be sure; but necessary in this environment.
Let me finally say that I have gleaned a great deal from conversations with my peers and working along side various colleagues. Each institution has established a number of best practices that are worth imitating elsewhere and I often come away having learned much more than the client has from me.
Your needs and aspirations are what CFO Colleague is all about. I look forward to working together as we navigate new territory.