Innovation in Expense Management

According to a 2018 University Business survey, controlling costs is one of the top two institutional priorities, with 72 percent choosing controlling costs as a top priority. More than half (59 percent) say controlling costs will become more of a priority in the current year.

Another research report commissioned by the Council of Independent Colleges (CIC)² found that all presidents who responded to their survey reported they are pursuing some form of cost containment and reduction. Common methods include leaving positions open or reducing staff, freezing salaries and restructuring or closing programs.

When we asked higher education leaders to share the innovative ideas their institutions are exploring or implementing to control costs, 25 percent responded with ideas related to expense management in the following ways.

CHANGES IN BUDGETING & LONG-TERM STRATEGIES

One university reported implementing a budgeting strategic plan to target each separate college within the institution and challenge them to become individually financially sustainable by fiscal year 2021. This institution has six colleges with one that was fairly new. Under the existing approach, each college reported independently but a focus on individual college/campus selfsustainability was not a priority.

In this new model, the individual colleges reviewed their revenues and expenses and worked independently to make changes needed to become self-sustainable. To support the debate and decisions, the finance department supplied spreadsheets showing individual data for the colleges with enough detail to determine if each was self-sustaining. At the beginning of the process, some of the colleges did have low-performing areas. These were researched and decisions were made to move financial performance in a more positive direction.

This project is ongoing, but the school believes this plan is beginning to yield results that will help long-term. The next step in this project is to meet again with the deans of the colleges to review current status and possible changes that might be needed. The review plan also includes adjustments to the allocation model. Sharing ideas and plans to adjust strategies is an important part of this initiative.

INCREASING VOLUME & SHARING SERVICES

According to the CIC research publication “Innovation and the Independent College” (March 2018), five colleges in Ohio worked together to reduce library-related costs.

These colleges were facing substantial costs as there was a need to expand the library materials as well as possibly construct new facilities. The colleges were able to join forces and share a collection. This process did occur over time and eventually other savings were realized, including sharing employee positions. The collaboration also worked out so well that they were able to team up in other areas such as risk management, auditing, emergency preparedness, environmental health and safety and Title IX compliance.

Another example of a long-term strategy relates to sharing services for IT. According to “Innovation and the Independent College,” eight colleges that used the same general ledger system joined together to share services related to hardware and software support and also technical personnel. The article noted the process took time and quite a bit of effort, but it’s anticipated that “the institutions saved $1 million.”

Sharing ideas and plans to adjust strategies is an important part of this initiative.

DATA VISUALIZATION TOOLS FOR ACADEMIC PROGRAM ANALYSIS

As schools make budget adjustments and long-term shifts relating to academic programs, many are using data visualization tools to help evaluate programs. For example, some are using margin analysis software to determine an institution’s revenue associated at the college, department, program and course levels. By seeing the associated direct costs of delivering the academic programs, schools find they’re able to better create an environment that encourages strategic thinking, facilitates communication and assists in resource allocation and decision making.

Oklahoma State University Institute of Technology found success in using data visualization to evaluate programs, saying “Contribution margin analysis has been a gamechanger in getting our university’s leadership involved, improving efficiencies and solving financial issues.”

Lourdes University in Ohio said “Contribution margin analysis provided management with critical trends data that helped the focus of their conversation move from cutting costs to gaining a confident perspective of other dynamics.”

CHANGES IN EMPLOYEE BENEFITS

Several survey respondents are joining insurance consortiums to save employee benefit costs. They believe joining other institutions lowers costs and increases purchasing power. Others are considering self-insured options. Long-term impact is a key concern with this choice. According to “Innovation and the Independent College,” several colleges in Western New York formed a health care purchasing consortium. Joining this group allowed for better health care plan options and cost savings. When health care costs rose rapidly between 2009 and 2016, members were able to achieve no increases in premiums and no significant changes in benefits.

ENERGY SAVING PROGRAMS

Fourteen percent of BKD survey responses for managing costs related to energy saving program ideas. Several schools reported moving to installing low-energy LED lighting. Schools doing LED upgrades reported they anticipated 10 to 15 years of useful life, resulting in energy savings that will increase over the years, including less maintenance costs. They recognized significant up-front cost but over time survey respondents expected the change to pay for itself.

One school indicated its facilities services department is collaborating with the college of engineering and is working on building energy audits. These energy audits would result in short- and long-term energy savings, as well as provide practical experience for students.

Other energy saving programs mentioned by our survey respondents include installing low-flush toilets, installing low-flow shower heads and using solar roofs.

REORGANIZING PERSONNEL

One respondent discussed the implementation of a faculty productivity model. This was a provost-led project with the goal of analyzing all faculty to determine the time allocated to research, teaching and other faculty functions. This project started in 2016 and used spreadsheets to accumulate the data. The provost worked with deans and department heads to obtain the information and develop the model.

EVALUATING SPACE & LEASES

One university indicated a project is underway to review space and leases utilized and eliminate any unnecessary space. Another survey response indicated a plan to look at the various campuses to evaluate square footage being actively used.

A school in California reported opting to share property with a neighboring institution instead of building a new building on its campus. For both schools, collaborating was the best strategy. However, one challenge this plan faces is that it could take 12 to 18 months to develop the plan to share the space, along with additional time before the space is ready for occupancy. According to University Business (January 2018), two other schools in Tennessee and Colorado have taken this approach and this concept could include sharing buildings or a whole campus.

Technology also can be a factor when reviewing space and leases for any necessary changes, as new technology, e.g., Skype, can allow a classroom setting to be mobile and allow connectivity and interaction no matter where you are. Using such technology has some schools considering having less on-site classroom space.

ELIMINATING WASTE

Seven percent of survey responses related to eliminating waste. The study “Innovation and the Independent College” found that “75 percent of colleges and universities have now eliminated trays in their dining halls in an effort to decrease the waste of food.” A benefit is that students may be more selective about their food options and how much they consume. The study also found that one school used this method and “eliminated almost 11,000 pounds of food waste, a reduction of 28 percent.” The report notes that benefits like this can catch the eye of potential students and may have a positive effect on enrollment.

INNOVATION SUMMARY

1. Keep working on cost control.
2. Use data to find areas of costs to manage, including academic programs.
3. Energy savings can move the needle and be done with off-balance-sheet financing.
4. Consider shared services.

Read more about how colleges and universities are innovating in expense management by downloading our 2019 Higher Education Outlook.

²Mission-Driven Innovation: An Empirical Study of Adaptation and Change among Independent Colleges (2015), James C. Hearn and Jarrett B. Warshaw