It’s no exaggeration to say that COVID-19 materially changed higher education. Preparing for the 2021-22 school year, institutions face the likelihood of reduced revenues and increased costs to ensure students’ safety and the quality of the institution’s academic offerings.
While sought-after colleges are experiencing surges in applicants, forcing a potential major upswing in waitlist rates, new data shows that community colleges are struggling with enrollment, missing more than half a million students.
In short, the pandemic exacerbated issues and accelerated decisions that higher education institutions were already facing. It has been an unprecedented crisis but has also presented an opportunity to transform.
Higher education finance leaders need to adapt and remain functional in the face of these compounding challenges to take advantage of this opportunity.
These hurdles have underscored the need for more dynamic tools and processes to increase agility and quickly respond to market changes and their potential financial impacts.
Moving forward and armed with new approaches, finance leaders will be in a better position to nimbly face financial and operational challenges associated with these changes by taking the following steps.
Ensure your organization has adequate liquidity
A key element to your financial planning will be quantifying your current resource position relative to the strategic requirements of the school year, whatever those may be as your institution plans for multiple scenarios. Striking the right balance of liquidity has never been more of an immediate necessity as you seek to create a buffer against the higher risk of substantial cash requirements that 2021-22 will present.
When evaluating major projects or initiatives, universities that have a strong understanding of their financial position can easily evaluate funding strategies with varying levels of reserves, debt and gifts. Keeping a pulse on what resources are readily available will need to be combined with data-driven projections of short- and long-term financial factors to confidently meet unforeseen expenses.
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There is no one-size-fits-all approach to achieving the right liquidity, but a few factors to consider include:
- Calculating your capacity for debt and what borrowing options are available to your institution’s circumstances, such as bonds or lines of credit. This is highly dependent on credit rating and overall creditworthiness.
- Forecasting the amount of costs you’ll be able to recover through government and private grants.
- Reviewing donor gift agreements and projecting the potential income from existing and upcoming campaigns.
- Accurately projecting individual projects to determine the capital expenditure needed and assess ability to shift timelines based on available resources.
Be proactive about containing labor costs
As you focus on budget recovery, you need to maintain resiliency and prepare for both near-term and long-term changes in market conditions. With application and enrollment revenue harder to predict and plan for, you will need to balance the books by spending less rather than banking on earning more.
Tactics for cost containment vary in extremity, from wage and non-critical hiring freezes or delays or early retirement incentives to discretionary spending reductions or elimination. None of these decisions are easy, but can be less painful to implement as you choose cost-cutting options based on robust data rather than emotion or opinion.
For example, when it comes to salaries and determining whether to keep certain positions or delay filling vacancies, there are complex human aspects involved to consider. You need to take a sophisticated approach to salary and benefits planning that leverages your institution’s human resources data, driver assumptions about future rates, and budget input.
When you have all available data and know exactly what your compensation budget will be, you can plan both by position (for stable and highly compensated roles) or by job type (for more variable roles, such as student workers).
Maintain a willingness to invest in new tools
New tools, technologies and initiatives can often come with up-front costs, but when the right investments are chosen, the ROI has proven to be strong in the long run.
One of the most popular investments organizations across industries are making right now is automation. In the case of higher education financial planning, automating manual processes can drive efficiency across the institution and quickly provide leaders with the KPI tracking, operational, financial, and third-party data needed to facilitate informed, objective decision-making. The faster you can complete tasks or generate data, the more capable you will be to make urgent decisions that may have lasting consequences.
Another technological investment to consider is enterprise performance management systems. The robust scenario modeling some solutions provide can give you an understanding of how operational decisions across functions and departments impact financial health.
This level of financial transparency, combined with powerful automation solutions, enables more accurate budgeting and scenario modeling, which are critical to responding to evolving campus needs.
Implement scenario modeling
If you’re unfamiliar, scenario modeling is the process of using data to examine a range of potential futures rather than just planning for one. With so many variables in higher education, there are an infinite number of situations you need to be able to predict and have a game plan for managing.
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By implementing scenario modeling both at the unit or initiative level and organization-wide, you can quantify the potential financial impact of enrollment results, changes in tuition revenue, financial aid costs, and revenues from auxiliaries such as housing, athletics and student fees.
Older technology and data management processes often slow down an organization’s ability to model these scenarios quickly and efficiently. According to a recent report, about half of higher education institutions are still using cumbersome spreadsheets for scenario modeling—as well as other key financial processes like budgeting, forecasting and tuition projections—even though they are notoriously labor-intensive.
To be equipped to make fast decisions with the most up-to-date data, adopting more forward-thinking technology is imperative.
Evaluate new tools and avoid manual modeling when possible. Identify which software systems provide critical data integrations and functionality to help you dynamically compare multiple scenarios that mix and match the baseline models, initiatives, and drivers you’ve developed. What takes you days today to model manually can take mere minutes with the right tools.
While we hoped for a quicker end to the disruptions caused by the COVID-19 pandemic, the need to deal with its impacts — including safety measures and profound economic effects—highlights the importance of planning for the unknown. Even after we return to some sense of ânormalcy,â your finance team will need to be nimble, agile, and prepared for whatever comes your way.
The 2021-22 school year is the time to not just implement sound financial planning practices but to establish a strong team culture of agility and adaptability so that your school is prepared to take on any future challenges.
Kermit S. Randa is the CEO of Syntellis,Â a provider of financial planning software.Â