By Matthew Soldner
This post is the first in a series introducing three background papers prepared for a roundtable on financial data in higher education convened by ACE and the TIAA Institute. The report from the convening, Evolving Higher Education Business Models, is also available for downloading.
Institutional leaders—along with most students, families, educators and advocates—know that colleges and universities today face a number of challenges, from access to college costs to attainment to student debt. We also all understand that these challenges are anything but simple. Most solutions involve realigning scarce institutional resources, implementing promising but as of yet not fully proven practices, and strengthening existing activities to meet institutional mission with integrity—all in the face of changing student populations, technologies and workforce needs. But because of very real data limitations, institutional leaders often find themselves ill-prepared to address these pressing challenges.
In recent work colleagues and I have done as part of ACE’s larger effort to rethink business models for higher education, we have identified three things senior leaders need to know as they navigate one small part of the challenges facing their campuses: institutional spending, and how spending relates to cost and student outcomes.
First, leaders must be able to compare their institution to its peers on key financial and outcomes metrics. Luckily, many of these data are available to institutions as part of the U.S. Department of Education’s Integrated Postsecondary Education Data System, or IPEDS. The Department’s Data Feedback Report (DFR) web tool provides an easy way to start the benchmarking process on any of the seven core expense categories collected by IPEDS, such as expenses for instruction, student support and research (see Figure 1, from a custom IPEDS report for Kansas State University).
Figure 1: Core expenses per FTE enrollment, by function: Fiscal year 2014
But simply knowing how an institution compares to its peers on one or more spending metrics is only part of the picture. Once spending in a particular area is singled out for further study, the question becomes not “how much” but instead “why.” Given the complexities of institutional finance, answering that question is difficult in the best of circumstances. But it is made worse by two related problems.
The first problem is conceptual: what an institution spends on an activity is not necessarily related to what that activity actually costs. Cost is “what it takes” to produce a good. And although our typical metrics for cost are monetary, dollars and cents aren’t the actual inputs of production: talent, effort and material are.
The second problem is practical: Because most off-the-shelf campus finance systems track accounting transactions, not the complete cost of delivering an educational program or activity, the data chief financial officers and analysts need to make accurate determinations of what is truly driving cost—or more likely spending, its simplified, monetized cousin—are not readily available.
Several campuses are beginning to dig into the problem of measuring cost, as compared to simply focusing on spending. Among the most well-known efforts is the University of California, Riverside’s (UCR) move to implement activity-based costing. Under the leadership of its vice chancellor for Planning and Budget, Maria Anguiano, the institution has dramatically increased the quality and amount of cost data available about teaching and learning activities at Riverside. By all accounts, the work is not finished, and it has not been easy. But UCR’s progress demonstrates that it is possible to bring better data to bear about cost and spending and what factors might be driving both.
Finally, and perhaps most importantly, campus leaders need to know how to best marshal the resources at their disposal to meet institutional mission. To demonstrate just how challenging this can be, I often offer up the following scenario that any campus leader would be pleased to face: Imagine you are the provost working at a regional institution, who one day walks in to the office to find she has received a major gift of $1 million for the express purpose of improving student graduation rates. What data do you turn to on campus to help you choose how best to use that windfall?
Faced with the prospect of conducting a true cost-effectiveness analysis, most campus leaders simply shake their head.
The truth is, of course, that most campuses have shortfalls, not windfalls. This makes the issue of cost-effectiveness all the more imperative. But here too, leaders lack the data needed to make evidence-based decisions. As noted above, we rarely know how much would need to be spent to fully deploy an intervention, not to mention how much that intervention truly costs. Even if that was known, we have far too little rigorous evidence about most interventions’ efficacy to have a good sense as to what might work if it could be afforded. The Department of Education’s What Works Clearinghouse is the nation’s definitive source for “what works in education.” As of April 2016, it had reviewed more than 11,300 studies in an attempt to surface just this sort of efficacy data. Fewer than 300 addressed topics related to colleges and universities.
Institutions have routinely faced the need to do more with less, but there is the sense among many campus leaders that the challenges they face today are more arduous than ever before: fewer than five in ten chief executives report confidence that their current business model will be sustainable over the next decade, as do only four in ten chief business officers. To make the tough choices that will lie ahead, they’ll need better information about institutional spending and how that spending can be leveraged to support the students and communities they serve.