Higher education finance leaders face declining enrollment, rising labor costs, inflation and decreased funding from state, federal and donor sources as the top challenges expected to have the greatest financial impact on their institutions over the next five to 10 years, according to a recent Syntellis survey.
While strong, agile financial planning processes are essential as higher education leaders plan for an uncertain future, many institutions are ill-equipped to confront the challenges ahead.
Sixty percent of finance leaders said higher education is behind most industries in adopting modern budgeting and planning tools, the Syntellis survey found. Consequently, many institutions continue to rely on outdated technology. For example, nearly 50% still use spreadsheets for forecasting and tuition projections, and nearly a third use spreadsheets for budgeting.
Colleges and universities also need accurate and timely data to manage through an unstable environment, yet most respondents identified this as a deficiency. Specifically, 85% said their organizations should do more to leverage financial and operational data to inform strategic decisions.
To combat current and future challenges, higher education leaders must be willing to go against the grain and set aside historical practices that can hinder progress. The following are three proven steps to help colleges and universities remain agile and make smart, data-driven decisions.
Overhauling the once-a-year planning cycle
Volatility in higher education in recent years drove a shift away from traditional annual budgeting and financial planning cycles. The economic environment is constantly in flux, and higher education leaders need the ability to identify and respond to changes as they occur. Finance teams should conduct monthly forecasts to monitor revenues and expenses relative to budget.
At the same time, many higher education boards want institutions to develop comprehensive three-, five- or 10-year financial plans to anticipate challenges and map a clear path forward. In building these plans, finance teams should conduct extensive scenario modeling to project the potential impacts of various challenges or combinations of challenges on their institutions.
Developing consistent processes and periodic check-ins allows colleges and universities to remain agile and maintain stronger, more sustainable financial plans.
Build a solid foundation with reliable data
Higher education leaders must embrace data-driven planning with accurate, reliable and timely data to make informed decisions and effectively guide their institutions forward. This sometimes requires them to overcome resistance to change that plagues many institutions. In today’s climate, colleges and universities cannot afford to stick with the status quo.
Data can drive a variety of financial planning and budgeting decisions. Leaders can use internal and external data to monitor financial performance relative to goals and benchmarks. They can better project the effects of specific shifts, such as a 3% drop in enrollment or a 5% decline in endowments. They also can model the implications of developing new partnerships, non-degree programs, or other initiatives.
Asked which areas of financial planning would benefit most from improved data and analytics, Syntellis survey respondents identified:
- Tuition and financial aid (49%)
- Program/Course-level profitability (49%)
- Enrollment (47%)
- Labor management (45%)
Prioritize effective financial planning tools
Even the best financial planning processes will fall short unless finance teams have the right tools to implement them. Yet many institutions are pulling back funding for new technology. Investments in new technology for college and university administrative functions surged 63% just two years ago but reversed course with a 17% decline in 2022, according to a Tambellini Group report.
Lower investments “reflect the magnitude and impact of the resource challenges almost every higher education institution faces, including staffing shortages, enrollment declines and overall economic uncertainty,” CEO Vicki Tambellini said in a press release.
While reducing spending is understandable in times of economic strain, leaders should balance it with the need to build more effective and efficient financial planning processes that could help their institutions save money, stay competitive and grow revenues long-term.
Higher education leaders should ensure their institutions have the right financial planning tools and processes as they continue to face unprecedented challenges that have driven many colleges and universities to close their doors in recent years. Finding the best path forward requires administrators and boards to step outside their comfort zones and embrace the benefits of new technologies, data and analytics that can help them guide their institutions through the gathering storm.