From commencement to e-learning, higher education has overcome many challenges caused by the COVID-19 pandemic, but chief financial officers are facing their own unprecedented challenges.
In addition to dealing with the immediate financial needs and fallout of the crisis, finance leaders must find ways to close major budget gaps and develop sophisticated plans for financial recovery. This is a time when CFOs must employ leadership and financial management skills to help reshape their institutions’ objectives and strategies, balancing reduced capital capacity with investment ideas to address a future different from any environment higher education has known previously.
Navigating colleges and universities through COVID-19 changes requires a new kind of financial leader. CFOs must be equally comfortable managing short-term finance operations issues, evolving and maximizing data to track and model financial impacts, and challenging their institutions’ strategies to reshape their future course.
Defining roles and responsibilities
Financial leaders cannot wait for the current uncertainty to clear before planning for the future; a CFO must simultaneously play the very difficult roles demanded for the now, near, and far.
Now: Financial first responder. As is true for all of management, the primary role of campus CFOs right now is to provide whatever support faculty and academic leaders need to address the immediate demands of the pandemic. In that way, they can focus on caring for staff, faculty, students, and campus communities.
CFOs should work urgently to ensure the availability of financial resources to support current operating needs, as well as needs associated with ongoing strategic initiatives. They should talk with banks to build liquidity resources in the face of rapidly deteriorating cash flows resulting from the loss of room, board and auxiliary revenue streams. The CFO must lead this strategic effort to position the institution to address short-term uncertainty. Even if there is a cost to maintaining liquidity sources in the short term, having such reserves to help support cash flow will be essential for the next several months.
CFOs also need to quantify the precise financial impacts of the pandemic—working to closely monitor and track incremental COVID-related expenses and losses. This will help in: securing government assistance; quantifying the pandemic’s impacts to boards, executive teams and other stakeholders; and identifying the financial gap for the institution.
Finally, CFOs should focus on projecting near-term scenarios to understand the potential for debt covenant and credit rating issues, and to address such issues moving forward.
Near: Financial recovery planner. Planning for a post-COVID environment requires CFOs to be comfortable accepting some level of uncertainty, while conducting rigorous scenario modeling. Building flexible and sensitive financial plans is more important than ever to enable institutions to adapt to various potential future realities.
How long colleges and universities will be coping with the impacts of COVID—and the longer-term impacts on enrollment—is unknown. Some organizations are planning for lower tuition revenue due to fewer out-of-state and international student enrollments next term, and most are exploring how to enhance online learning if campuses remain closed to students in the fall.
Organizations shifting to recovery mode will simultaneously have to focus on:
- Filling significant budget gaps widened by the pandemic
- Assessing the pandemic’s financial and operating toll
- Continuously modeling operating scenarios based on different enrollment projections, course delivery methods and auxiliary revenue streams
- Attracting students who might prefer enrolling at an institution closer to home, cannot participate in a campus tour or may be financially impacted by the economic downturn
- Offsetting potential declines in state appropriations, gifts, and investment income with alternate revenue sources or expense reductions
While finance leaders still must do a fair amount of blocking and tackling during this period, they also need to begin developing financial recovery processes.
Higher ed’s “new normal” will create significant need for financial leaders who are fluent in the use of data, analytics, and flexible tools. Looking toward both the near- and far-term, administrators must continue to focus on forecasting cash flow and developing operating and balance sheet projections. The institution will correctly look to financial leadership to understand the comprehensive implications associated with how long the current crisis lasts and how fast the institution can recover under various circumstances. CFOs will need to recast the institution’s financial plans based on various scenarios and continue to do so as more information and analysis are available.
As strategic leaders, CFOs should regularly reforecast to quickly assess performance and improve organizational agility. Regular reforecasting processes can help identify potential issues related to liquidity, credit ratings or debt covenants, and provide flexibility for the institution to respond with mitigating actions. Ongoing, intense focus on progress compared to internal benchmarks (based on financial planning targets) will be essential for financial leaders to ensure that their institution’s recovery stays on pace. Transparent sharing of these data will highlight areas of success and opportunities for improvement—and provide essential proof points on which leaders can focus as they communicate internally and externally with debt holders and other stakeholders.
Over the next several months, higher ed leaders have an opportunity to take a hard look at operations, and to develop and implement considerable process improvements. Finance leaders will need to drive the assessment of broader changes to traditional higher education models spurred by the pandemic. For example, institutions will need to assess courses and academic programs that are not profitable to decide whether continued investment is warranted. Historically, higher ed institutions have shied away from these tough conversations. They can no longer afford to do so.
CFOs will need to work hand-in-hand with other executives to determine what pre-COVID-19 strategies and capital projects can continue in a post-COVID-19 environment. It is likely that many traditional strategies will no longer fit or will need accelerating (e.g., increased online learning). Regardless, financial leaders must be both creative partners and financial advisors to operational leaders. Moreover, they will need to charge their staff to “get in the field” to best support leaders at all levels.
Far: Advocate for innovation. The COVID-19 crisis has accelerated significant changes to course delivery models. How long, or even whether, those changes will continue remains to be seen. A key role of future-focused CFOs will be helping their organizations adapt to a new educational paradigm, with all-new expectations from students, parents, faculty, staff and the community.
CFOs will need to actively partner with the rest of the leadership team to help conceptualize and develop new revenue sources and priorities that will emerge as a result of new market expectations. It will fall to the CFO to challenge historic structures and processes, and to step forward as a strategic leader. At the same time, CFOs will need to ensure their institutions have the data and analytic support needed for new processes as they evolve.
Becoming the agile leader
Consistent across all of these timeframes is the need for CFOs to balance compliance and disruption, leveraging data in new ways to enable operational leaders to build sustainable plans in the face of significant change. It is a role that requires courage, confidence and boundless competence. CFOs must simultaneously be a source of inspiration and stability to the entire institution.
On a continuing basis, CFOs must ensure their institutions effectively measure and track results versus internal and external KPIs. At a fundamental level, CFOs will be responsible for driving data and analytics for their institutions. Collecting and analyzing enrollment and operating data will be critical to helping institutions keep on track.
COVID-19 has accelerated many disruptive components of the internet economy that colleges and universities have been forced to adopt. It is time for higher ed leaders to move faster, think more creatively and be more agile in transforming their organizations.
Campus finance administrators at all levels can drive the change institutions need. The entire campus community needs CFOs to perform at their highest levels—they are depending on it. By stepping forward with a renewed data-driven agility, CFOs can help their organizations, their teams and their communities as they evolve into a post-COVID environment.
Kermit S. Randa is chief executive officer of Kaufman Hall Software.
