Short and Long Term Strategies to Thrive in the Current Environment

• 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.