[2:16] Agenda Breakdown
- State of the Industry
- What is Strategic Planning?
- Short-Term Strategies
- Bridging the Gap
- Long-Term Strategies
[3:15] State of the Industry
- Negative financial outlook from Moody’s for second consecutive year
- Moody’s is also projecting a negative net tuition revenue
- Lots of schools have structural budget deficits.
- “Sticker Price” is one of the main drivers why students do not choose to attend a university
- Same students cannot find enough information about applicable financial aid
- For schools, it’s important to know how much financial aid is coming directly from endowment funds vs. outside funds.
- Financial Planning is not highly regarded as important by College and University Financial Leaders (Most leaders rank their institution at 6.1/10 for planning effectiveness)
- Most planning is done as a reaction to financial exigency
- Most planning is done to appease creditors
- Most planning is done to get out of a budget issue
[12:32] What is Strategic Planning?
- “Strategic planning is a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is or is not as well as what an organization does or does not do.”
- Budget contributes to the plan in the first few years, and a successful plan should contribute back to the budget outside of those initial years
- A CFO should be an enabler. Instead of abandoning a project due to lack of revenue, a CFO’s first reaction should be to find the revenue required.
- Most overlooked construction linked with increased enrollment is Faculty Offices.
- Chabotar found a striking relation between endowment PER STUDENT and overall school ranking (raising enrollment is not always the solution to revenue increases)
- Budgeting and Financial Planning need to happen simultaneously
- Budgeting without a plan, you are budgeting to nothing. No way to set priorities
- Planning without a Budget leads to an apparent disconnect between revenue and reality
- “Don’t allow Analysis Paralysis to get in the way of planning a budget”
[21:18] Principals of a Strategy Focused Organization
- High-level overview of how to think about, implement, and manage a strategy focused financial institution.
- Link financial decisions to the mission and strategic direction of the organization
- Determine the total costs of major goals and priorities
- Link the annual budgeting explicitly to the multi-year program and financial plan
- Pay attention to the human resources needed for strategy to succeed
- Promote benchmarking and market comparisons
- Maintain flexibility by developing “what if” scenarios and contingencies
- Persistently evaluate assumptions, actuals, and outcomes
[33:27] Strategies to “Right the Ship” in the Short-Term (Expense Reduction)
- “Think of it like a prize fighter with one glove labeled ‘Expenses’ and the other labeled ‘Revenues’”
- Lead with Expense Reduction Strategies followed by Revenue Increase Strategies
- Easy place to start is to defer maintenance because “Nobody speaks for the buildings” however, this can lead to greater costs down the line
- Important expense reductions are recurring, for example, cutting a position means savings year-over-year as opposed to cutting a capital improvement project
[40:50] Strategies to “Right the Ship” in the Short-Term (Revenue Increase)
- If you increase enrollment to increase revenue, be very careful about student quality
- Exercise: “For each percentage you can lower your tuition discount at your institution, how much do you save?
- Increasing endowment spending should only be used as a last resort since it dilutes future endowment availability
- You can “Right the Ship” in the short term if you have the discipline to follow a strict plan or guide
[49:38] Expense Reduction Strategies Visualized in Whitebirch [Synario]
- Example includes effects on Operating Margin when cutting Staff Headcount, Salary Expenses, and Non-personnel growth
- “A lot of success using models like this at a board meeting. Board members have lots of ideas, and so do people in the community. They can actually see live what happens when you change this or change that.”
- The CFO is not running the model, but leading the committee. Often times, a faculty member will be driving the model.
[55:45] Bridging the Gap – Revenue Increase Strategies Visualized in Whitebirch [Synario]
- This example is focusing on declining operating margin and possible ways to correct it through increased enrollment and adjusted discount rate.
- Budgeting process is typically very detailed. Many schools have between 5000-10000 different financial items within their budget. Does this level of detail need to be included in a 5-10 year budgeting plan?
- The detail should never bog down the financial statement or model
[1:05:07] Sensitivity and Scenario Analysis
- For those who are unsure how to begin their model, you can start with a pessimistic scenario, an optimistic scenario, and a baseline or expected scenario.
- Good practice to plan your budget to be pessimistic and then add to the budget during the year (stay lean and mean)
[1:07:50] Long-Term Planning Visualized in Whitebirch [Synario]
- This example includes two scenario analyses centered around Expansion (optimistic view) and Reduction (pessimistic view)
- Layered cuts with expansion cases to create contingency plans around budgeting constraints
- Many schools have become panicked and tend to make important strategy decisions without appropriate data.
[1:17:19] Thriving in the Current Environment
- Short term and long term strategies are linked. Don’ want to play to one or the other and be ignorant of the effects.
- Transparent plans for community buy-in
- Enhanced tools to manage multiple inputs or scenarios provided by board rooms, stakeholders, or employees.