By Dr. William Massy
We are pleased to welcome higher education financing and strategy consultant, Dr. William Massy as our guest blogger this week. Dr. Massy has been active as a professor, author, consultant, and university administrator for more than forty years. He holds emeritus professor status at Stanford University where he also served in a number of administrative roles including Vice President for Business and Finance and Acting Provost. To hear more of his insights, check out last week’s episode of the IngenioUs podcast here.
What college or university doesn’t have money problems these days? We’ve seen such problems before but this time they’re deeper and more acute. In the “good old days,” such as the stagflation of the 1970s and the economic recessions of the 80s, 90s, and 2008, the solutions involved a grab-bag of common-sense actions based on relatively crude information. These include: cutting fixed percentages of cost from administrative and support services, pressing upwards on class sizes and teaching loads, substituting adjunct for regular faculty wherever possible, and hacking away at small classes. In today’s environment, however, the sufficiency of these actions seems doubtful because of the depth of the money problems and because the low-hanging fruit already has been depleted by years of belt-tightening.
Every school is searching for effective ways to reduce the cost and increase the revenue of its teaching programs. Decades of experience as a university administrator, consultant, and modeler tell me that the current crisis calls for actions on a scale that will take the institution outside its comfort zone. These decisions will require deep and evidence-based conversations about course and program economics, market threats and opportunities, and mission priorities. The key ideas and tools are described in my latest book, Resource Management for Colleges and Universities, which is being published this week.
This blog introduces a suite of analytics that consider courses and degree programs in academic portfolio terms: i.e., holistically, where the whole may differ from the sum of the individual parts. Portfolio-based thinking is good anytime, but it’s essential when large changes are contemplated. Subsequent blogs in this series will dig more deeply into the various analytics that my colleagues at Gray Associates and I are developing.
The four approaches shown below span the possibilities for cost-cutting and revenue-improving actions at any scale. Items 1 and 2 focus on courses and items 3 and 4 focus on programs. Online and hybrid courses fit into this framework quite nicely. Course redesign often adds hybrid elements to existing courses, for example, and the program portfolio will include all online courses as well as on-campus offerings.
Most short-term opportunities for cost cutting occur at the course level, but institutions can rarely cut their way to success over the longer term. Program-level actions aim to grow revenue as well as reduce cost, so they make the biggest difference strategically. What’s needed is an ensemble of changes to course and program portfolios, which, when taken together, will solve the institution’s financial problems while maintaining the best possible mission contributions and market positions.
Cost-Cutting and Revenue-Improving Actions
- Prune Courses
- Redesign Courses
- Improve the Current Program Portfolio
- Add New Programs to the Portfolio
Course proliferation provides the classic example of incoherent curricular growth. Courses usually are vetted for academic worth before being added to the curriculum but the economic consequences of adding them are rarely considered systematically. My May 2020 blog discussed this problem and the beginnings of an approach for addressing it.
Deans and provosts sometimes mandate that courses with small enrollments be dropped in times of financial hardship, but this fails to recognize that some small courses do in fact make money, or that some are very important to the academic discipline in question or the students in certain programs. Faculty members often push back on the question of importance but, because administrators have no systematic way to evaluate these concerns, the resolution too often depends on guesswork and personal relationships rather than conversations that are well informed by evidence.
The new tools and protocols for evidence-based curricular pruning identify candidates for pruning based on a course’s profitability and its importance to the discipline and the curricula of various programs. There’s also an index of curricular economic efficiency, which can be used for benchmarking and for estimating the potential cost reductions from efficiency improvement.
Unprofitable courses that are important for the course and program portfolio may be identified as candidates for redesign. The same is true for mildly profitable courses for which cost per credit hour exceeds the relevant benchmark. Modern course redesign dates from the 1990s, when the National Center for Academic Transformation (NCAT) began demonstrating that new configurations can boost student learning while simultaneously reducing cost per credit hour.
Today’s course-based economic models and protocols, together with information technology advances that expand the range of options, make course redesign an attractive alternative for cost containment. They use profitability analysis and benchmarking to identify candidates (just as for pruning), pinpoint potential areas of inefficiency, and provide baseline data for the redesign process. As noted, the goal is to improve learning as well as curricular efficiency.
The array of degree programs on offer and the number of students in each program are the biggest revenue and cost drivers for most universities. Consequently, the best way to improve financial performance (i.e., its overall margin) may well be to down-size or eliminate money-losing programs and grow those that make money—providing, of course, that market conditions will permit the upsizing. My January 2020 blog described the need to balance margin with mission contribution when making these changes. I’ll describe how to do that in a future post.
Deep thinking about your institution’s program portfolio will reveal another problem, however: programs share courses with other programs. This means that enrollment changes in one program affect the economics of others. These changes may be large, so one must look at the interactions among programs before taking action on any of them. Failure to do so can lead to seriously flawed results, so that seemingly plausible decisions actually make things worse. Today’s program economic models take these interactions into account. For the first time, they allow both routine and credibility-stretching decisions about program offerings and intakes to be considered holistically—that is, in portfolio terms.
The addition of new programs to the portfolio may well be the best way to improve the university’s overall academic and financial performance. Gray offers a Program Evaluation System (PES) and workshops that pull together market data and faculty judgments about mission contribution to identify new program candidates. From there, it’s straightforward (using the economic model) to estimate a proposed program’s interactions with the current portfolio and to predict the revenues, costs and margins for both the new and existing programs.
If you would like to reach out please visit https://www.williammassy.com and I would be happy to answer any questions.