Archives for posts with tag: Higher education

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“It doesn’t mean a thing, but even so, after twenty-five years; it’s nice to know.”

The words from the song, “Do you Love Me?” are sung by Tevye and his dear wife Golda in “Fiddler on the Roof” as they grapple with yet another generation of would-be husbands and wives, each testing tradition in uncomfortable ways. The idea is that, though Tevye and Golda were introduced on their wedding day a quarter century ago, they have adapted to each other to the point where each “supposes” they love the other.

Some things we just have to adjust to.

Bringing this closer to home, “We can’t seem to budget for depreciation,” is a common refrain we hear in our visits to over fifty institutions.  Rather than cow-tow to the FASB-mandated enterprise form of accounting, some capital spending and principal on debt are inserted into the operating budget, hoping that, by some miracle, the audit will show a positive result.

Twenty-five years ago, we were preparing for the FASB-mandated forced marriage between a new form of accounting and non-profit organizations.  Prior to that, a widely-variable application of fund accounting made comparisons and gauges of health difficult.  Today, we stand at the threshold of of yet another change, albeit evolutionary.  Higher education can be slow to adopt new practices – but twenty-five years? I’m not feelin’ the love.

 

In defense of those who continue to act as if the mid-nineties never occurred, if what is spent on debt principal and capital items exceeds depreciation, it really doesn’t matter. But that tends to be mere coincidence.  Too often, when cuts are needed, capital spending is put on the block, as if it will help in “balancing” the budget.  In those cases, an internal operating budget can show a surplus while the board hears from the auditors that the college had a deficit. You might get away with, “The audit doesn’t matter,” with an unsophisticated board but the DOE and your bank …

Because depreciation expense is the ratable allocation of an asset’s historic cost, it makes sense that the eventual replacement of that asset will be more expensive.  This is particularly true of facilities.  For this reason, the CFO Colleague standard for capital spending and principal on debt stands at 120% of annual depreciation expense.  If you are not spending more than depreciation expense, you are not keeping up. If you are spending less, deferred maintenance will eventually consume you.

Incorporation of depreciation expense is but the beginning, however.  Step two is a contingency of at least two percent so that changes in demand, unanticipated increases in costs or one-time opportunities for investment can be covered. Then, there is the Standard and Poor’s expectation of a three percent surplus.

But wait, there’s more.

What will the DOE financial responsibility ratio be at the end of next year?  What are the required debt service coverage ratios or cash balances by our bond trustee?  Are our revenue-driving activities supportable and owned?  All of this enters into a well-crafted budget that benefits a college for years to come.

We call this the “budget performance matrix.”  Rather than a false sense of security brought on by cash-based plans, a comprehensive approach of this kind ensures that the budget accomplishes the primary expectations of each evaluator/stakeholder.

Our COMP4cast model incorporates each of these measures, generating in real time the projected surplus or deficit, cash position, debt service coverage and DOE ratios. The leadership team interacts with this model while sitting around the table, conversing about various “what-ifs.”

And it’s available for free from our website: cfocolleague.com/free-downloads

After twenty-five years, it’s nice to know.

http://www.bing.com/r/1E/KeYvx?a=1&m=en-us

Whither the Library:

For centuries, the physical library has been a consistent fixture on college campuses.  Often clad in a foreboding architecture, its floors are heavily reinforced to handle the extreme weight of stacked volumes and the shelving that supports them.  Climate control, carts piloted by “reshelvers,” interlibrary loan specialists, reference librarians, department heads and various other people tend to populate the places.  Oh, and somebody tries to keep the students quiet.

I recall a listing of qualifications for a new President, purportedly crafted by the official search committee.  A characteristic that made the cut was for someone, “loathe to reduce the library acquisition budget.” (Makes you understand why corporations go out and find their leaders while higher ed uses committees.)

Acquisition is one thing; Access another.  With electronic media taking the world by storm, the days of the physical book may be limited.  The benefit, of course, will be access to more volumes than any one institution could possibly accumulate.  And, there wouldn’t be any sort of a wait for a book sourced from an interlibrary system participant.

Indeed, while a helpful librarian would continue to assist users in a particular place, the library need not be constrained by walls either.  The adult learner and everyone who takes online classes can benefit from much more efficient search methods, even creating the virtual 3X5 card from a quote, along with a proper citation and the ability to insert it within a research paper with ease.  As I reflect on my papers of 35 years ago, a sense of unfairness turns to envy.  Nonetheless, access may no longer be a constraint for any library – and learning may actually be the beneficiary.

So, in light of this situation, why couldn’t the university library be shared by communities, K-12 schools, colleges and other universities?  Imagine the savings.  Maybe this Texas library is on to something.  Or, maybe it is just an early adopter of what will be the norm in five years. 

Stay tuned.

For many of us in the higher education world, returning from the Christmas break is not always welcomed.  For residential campuses, the second semester is typically less populated than the first.  If the change is too large, the financial plan can be in trouble.  Then, there is the influence on next year’s budget, brought on by a lower number of potential returners.

In my travels, I find it interesting how low the sophistication is with respect to the planning process.  Few can enter in population changes and  immediately view the impact on next year’s plan.  Fewer still are prepared to project revenues from their non-traditional operations, a growing component of overall revenues as the world of higher ed changes.  Let me offer a few of the reasons why this tends to be the case.

1.  The CFO is but one voice and might not be an important one.  This is not an exercise in whining, by the way.  I do see financial issues being treated as but one of the considerations to be weighed.  When an institution is dealing with fundamental financial issues, it would be prudent to evaluate nearly everything on the table in terms of its financial impact.  Sorry to be so blunt but, without a margin, there will be no mission. Every decision has stewardship ramifications.  Make sure the dollars are measured, at a minimum.

2.  Making cuts ahead of time is to be avoided.  Some would rather put an unrealistic plan together that relies on optimism off the scale and blame poor performance on an unanticipated occurrence later that fall.  These institutions might have a planning model for this or that but the driving force behind budgeting is to inflict the least amount of pain for the shortest amount of time.  The staff tend to absorb the brunt of after-the-fact cuts and, sadly, that is often on purpose.  “Sorry, we had no way of knowing,” leads to loss of confidence in leadership, an environment of paranoia and low morale.  This is particularly true if some were privy to data that predicted the problem well in advance of the revelation.

3.  A lack of faith.  Some are reluctant to believe that the rigor of a comprehensive planning system will be of any benefit.  In fact, some think such approaches are too rigid and wind up being too conservative, leading to the worse exercise possible – cutting more than necessary.  Skepticism is hard to overcome, particularly with digital immigrants or those who never got on the digital boat.

4. The availability of comprehensive planning programs is quite limited.  This is an area where ERP providers are profoundly inadequate.  The reasons are probably related to the influences in 1 through 3 above.  There are some programs out there that require a lot of effort, training and expense.  If it is too complex, expensive or not designed for distributed ownership, there is little chance it will be adopted.

So, what do I recommend? Adopt a system that is being used by a goodly number of institutions and tested over a period of years.  And, to avoid the limitations of budget problems, find one that is free of charge.  Oh, and while were dreaming, add a companion that projects revenues for cohort-based non-traditional programs accurately. 

I’m pleased to say that there now is no reason not to have a comprehensive system for planning and budgeting – not even a financial one.  I have one that is owned by all the leadership team, broken down into component parts and includes a non-traditional component.  And, all of it is free (though I would be happy to jump-start your implementation into a handful of days from months or years.)

Maybe, the return from Christmas vacation won’t be all that unappealing next year.

contact me – jeff@cfocolleague.net

The junior senator from Massachusetts is proposing that the use of credit reports be eliminated in connection with job applications.  The only exception she is willing to consider is for government employees seeking a security clearance.

There does seem to be an incongruity in the ubiquitous use of credit ratings in connection with the hiring decision.  After all, a person who desperately needs a job has likely exhausted all of his or her financial resources and may have lost a house or car while attempting to find the next opportunity.  Job losses and medical disasters can wreak havoc on a credit score, essentially taking away possibilities that would be afforded those who have better credit but may be less qualified.  There are also any number of positions where credit status is just not relevant.  Is she onto something here?

Digging deeper, the credit report does seem to have some merit and it appears that the Senator is unfamiliar with the ways businesses use these scores or the grace they afford those with event-related degradation.  Most of those which I am familiar only require credit reports on those who assume significant responsibilities or who will be handling or accounting for large sums of money.  Some of these positions have to be bonded, meaning that a bond agency will want to have some idea of the risk involved before assigning a rate.  Without a credit report, bonding rates will skyrocket, under the presumption that all applicants have poor credit.

I’ve witnessed companies presuming the best of job applicants when a credit report showed a pattern of responsible use of debt, interrupted by what was clearly a disruptive event.  That is, a company understands the impact of a job loss, medical crisis or being victimized by a divorce.  I do not want to think that our representatives in government presume businesses to be full of cold-hearted managers, desirous of finding any way possible not to hire, well, anybody. Indeed, experience tells a different story.

If a careful analysis is performed, it will likely be found that those with the kinds of life-altering events that presage a diminished credit score represent but a portion of the population with bad credit.  And, one will also find that businesses tend to be gracious toward the truly disadvantaged.  Candidly, most with low credit scores are “deadbeats,” having willingly overextended themselves (and, no, it is not the fault of the credit provider) or merely been reckless in their handling of money matters.  It is true that the way a person handles their personal obligations reflects how they will manage their affairs at work.  Again, I am exempting those with event-based bad credit, commenting instead on the majority who are in trouble due to bad decisions and/or habits. We dare not give the 80% a pass because of the 20% who deserve one.

Getting rid of credit score-based hiring decisions will also inappropriately disadvantage those who have been responsible with credit; those who live life with a buffer and are willing to say “no” to tempting offers from aggressive lenders.  At a minimum, banks and other financial institutions should use credit scores when evaluating an employee.  Beyond that, I suggest that anyone who either sells product, collects funds or accounts for transactions should not be overly tempted to steal.  The credit report is a good mechanism to ferret out such people.  It’s just good business and it is fair, particularly when event-based bad credit is accommodated.

Running a report on everyone does seem excessive to me and should only be done when the organization’s entire operation involves bondable positions.  Some identification of where such a report is appropriate is worth introducing into the conversation and there seems to be an opening for the US Chamber to propose some voluntary guidelines.  Reasonable standards, adopted by most businesses could very well blunt an initiative that is not well considered.  If the seeking of a security clearance merits a credit report, surely there are other positions in the commercial world that are similarly benefitted.

With financial institutions needing to be rid of the characters who brought us the meltdown five years ago, it will be hard to stem the impact of employee greed caused by a barrage of bill collectors.  To protect all of society, it seems imprudent to categorically eliminate the credit report as an evaluative tool for those prospective employees who have significant responsibilities.

This is certainly worth a discussion but I see the current proposal as a ruse to stick business with risky employees in the name of higher employment amongst those who are not all that prudent with their financial affairs.  Call it another idea from our government that flies in the face of reasonableness.  Added to this the recently stated desire to eliminate criminal background checks.  In the end, government becomes viewed as an “other” entity, not interested in protecting the citizenry and promoting an agenda that makes them look better in the short run.

What do you think?

A Great Synopsis of Higher Education’s Challenges

Click on the title above (“A Great Synopsis …”) to access this article.  I think you will find it interesting.

Published in April of this year, the experience of many this fall shows the issues identified to be greater, affecting more institutions who were heretofore considered to be higher in the food chain.  While I see a lot of challenges out there, I believe there are solutions to meet those challenges.  The question is whether institutions are open to new ways of thinking or if salaries and benefits will continue to erode to make the budget balance.

Detroit’s historic bankruptcy filing this week gives us all pause for thought.  The blogosphere has no shortage of opinions on why the city had to resort to such a drastic action.  People blame unions, auto manufacturers, the one or two percent of highest earners, even the federal government.

Most who have had responsibility for an organization or two recognize that the blame falls squarely on management.  One could argue that the voters who put management in place shoulder a good deal of the blame but there is little evidence that choosing one way or another at the voting booth would have altered this outcome materially.

Here’s a chart that symbolizes the challenges of managing Detroit.  Detroit population  It is based on US Census Data and is in a PowerPoint format.  The first half of the 20th century saw a meteoric rise in its population, first with the growth of the auto industry and then in the 1940s when the needs of the war department commandeered all of that industrial capacity.  The fifties and sixties were prosperous in the region but those who could afford to relocated to the burgeoning suburbs.  Twin energy crises of the 1970s leveled a major blow to the auto industry, shrinking population all the more, with another bout of that same malady occurring between 2000 and 2010.

The decline that began in the 1950s became a rout.  Government was always a step behind.

What can we learn from this when it comes to managing higher education?  I believe plenty.  We have already seen how an economic downturn affects the family’s willingness and ability to pay.  Increasing levels of debt are an uncomfortable truth that haunts the industry.  And the modern day equivalent to the flight to the suburbs could be the growth of non-traditional programs, online offerings, community colleges and the MOOC.

The question I wish could be asked of those who were in charge of Detroit in the 1950s is whether they understood why the city was beginning its decline.  I do not have an exhaustive set of data on this but it would seem that the 20 year period from 1950 to 1970 should have been instructive to city planners.  Perhaps they thought that industrial expansion would save the city, relying on tax receipts from growing businesses while the residential population declined.  Maybe they were too consumed with trying to take care of what appears to be a decline in economic prosperity of residents during that time.  The state or federal government may have been a source of greater support to stem the tide of a declining tax base.

By the end of the 1960s the decline in population had become a race for the exit.  Riots in the later 1960s followed by the lost decade of the 1970s had to be too much for the city to bear.  And so it went.

Am I suggesting that higher ed is in the equivalent of Detroit in the 1950s?  I don’t see this as universally true but, in some quarters or segments, it could be.  As a group, smaller, private institutions are struggling to contend with declines in traditional enrollments.  Larger institutions, offering greater amenities and program breadth, are hard to compete with, particularly when higher prices seem to correlate with a more significant campus.  Then, even if the net price is higher for the larger institution, the amount of grant money, given in the form of flattery, becomes very attractive to the incoming student and his or her proud parents.

And healthier institutions are not sitting still.

I attended a church strategic planning session this past week and found the ending comment by the facilitator to be spot on.  A church begins with a vision, followed by enthusiastic growth, meeting of people’s spiritual, physical and social needs, the addition of ministry-related programs and, finally, a more significant organizational structure – and a building.  It declines in much the same way when vision goes away and the support for each component erodes.  A dying church only has its structure – or a building – to represent what it once was.

The challenge for churches that are in the last days of their existence is to avoid the desire to return to the past.  That is, rather than attempting to go backward by re-adding formerly robust programs and then attempting to meet people’s needs, the rebirth of a church requires beginning with a new vision.  The Bible says that without a vision, the people perish.  An interpretation of that is that a visionless institution leads to anarchy.  Not a pretty picture and certainly an unsustainable approach to growth.

I thus conclude this with the encouragement for a higher ed institution to honestly assess its current performance within the context of the market.  Are you growing?  If so, the vision should reflect that and identify strategies that fill in the created gaps created by growth.  Have you struggled?  Don’t feel compelled to create a vision that is unattainable or overly optimistic.

Establish a realistic, measurable vision that allows for reasonable goal-setting.  Supporting strategies should accommodate the emerging trends of higher education, including adult learners, online course offerings, accelerated calendars for traditional students, the institution of popular programs and the physical needs of the institution.  And don’t forget to invest in the people who will be carrying out this process.  They need support and development to achieve even the most reasonable goals.  Program review is also needed so that those programs that are lagging are either adjusted or jettisoned to make room for more defensible ones.  Set milestone goals to be achieved each year and hold yourself to them by making people accountable for their piece of the plan.  This is hard work and may not look as wonderful as what has been prepared in the past. It’s not about egos.

In the end, we don’t want others to look back at this time in our institutional history and conclude that this or that obvious trend was obviously ignored.  It is a time for a new vision, for bold strategies, for accountability and for results.

It seems like I see a story of a student contending with a boatload of educational debt about every other day.  The latest from CNN Money is entitled “Student Loan Horror Stories” and chronicles five people with eye-popping debt and one guy who chose a state school over Cornell, leaving college owing nothing.

In this day of reader replies, I find myself perusing the comments with more interest than the often tainted articles.  Readers were merciless on the photography student who ran up six digit debt, only to “discover” upon graduation that she would not be able to earn enough in her chosen field to finance the loan payments.  She went on for a Master’s in marketing and now works in that field, purportedly making enough to cover her monthly loan payments.

While I am a fan of personal responsibility, it is clear that many of these young people agreed to begin borrowing huge sums of cash on or about their eighteenth birthday.  While I presume the requisite “counseling” occurred to satisfy federal regulations, it is unlikely that the gravity of their decision was explained to them.  We can harp all we want about personal responsibility but with enough of these stories floating about, higher ed will suffer reputational harm, similar what CPAs did in the aftermath of Enron and WorldComm earlier this century.  We can win the argument with, “Hey, we don’t force anyone to borrow,” and lose the battle.  Students like the last one in the article who brag about their subsidized state school will become all the more common.  Something, or things need to be done.

Some private institutions are carving out space for underserved populations who want an Associate’s degree but have no funds.  By pricing the program within the parameters of federal and state grants and with minimal loans (the $150 a month variety) they create the opportunity for a quality education in a nurturing environment.  The total cost of such programs?  About $16,000.

Reliance on local libraries, the internet and a lack of student accoutrements could be construed as negatives for these programs.  After all, the student lives at home and enters the classroom for ten hours a week or so.  It’s not the same as loading up the station wagon and heading off to Alma Mater College for four years of residential bliss.  For first generation students or those who have landed a flexible, good-paying job after high school (maybe in the family business), this is an option that deserves exploration.

The current growth in college online programs appears to be directed to the adult learner but that may be changing.  States are creating full curriculum – free of charge for students to complete a k-12 education at home.  With a growing number of students who have opted for high school under this kind of experience, it is conceivable that an online Associate’s or Bachelor’s degree is ripe for the traditional aged population.  Some pioneers are already making good use of this rapidly developing opportunity.

The bottom line here is that institutions of higher learning do not want celebrated graduation stories of students with six digit debt.  What has been explored here are ways to provide a basic education for lower cost and higher convenience.  This does not address the issues confronting higher education in its traditional configuration.  I’ll explore that at a later time – and get a few people exercised, I’m sure.

Stay tuned, my colleagues.