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Understanding strategic finance and strategies for dealing with scarce resources, presentations for an all-day workshop. Audience is executive officers of a university system
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Strategic Finance and the USC System Organization Task Force
University of South Carolina
Ellen Chaffee and Buzz ShawEllen Chaffee and Buzz ShawJanuary 29, 2010
Agenda
• Introductions
• Strategic FinanceIntroductions
Strategic Finance • Strategic Finance
• What is Most Important?
L h
Strategic Finance
Most Important
Lunch
Discussion • Lunch
• Continue discussion
f h
Discussion
Strategic Change
Hard Work
Lessons Learned • Options for Strategic Change
• Doing the Hard Work
Lessons Learned
• Lessons Learned
Ground Rules
• It’s your showIntroductions
Strategic Finance• Everyone is equal
• No relevant topic is excluded
Strategic Finance
Most Important
Lunch
Discussion• No discussion is ended
• Respect each other and the time
Discussion
Strategic Change
Hard Work
Lessons Learned• Have fun
Lessons Learned
Goals for the Day
• Understand strategic finance f T k F
Introductions
Strategic Finance as a context for Task Force work
D l ti l f
Strategic Finance
Most Important
Lunch
Discussion • Develop an action plan for the Task Force
Discussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
USC Task Force Goals
• More students, especially S h C li i
Introductions
Strategic Finance South Carolinians
• Better affordability
Strategic Finance
Most Important
Lunch
Discussion • Better accessibility
• Better efficiency
Discussion
Strategic Change
Hard Work
Lessons Learned • Better effectivenessLessons Learned
STRATEGIC FINANCE AND THEWhy?
STRATEGIC FINANCE AND THE UNIVERSITY SYSTEM
The Conundrum
We CANNOT doIntroductions
Strategic Finance
What we MUST do
If we KEEP doing
Strategic Finance
Most Important
Lunch
Discussion If we KEEP doing
What we USUALLY do
Discussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
What we MUST do
Introductions
Strategic FinanceStrategic Finance
Most Important
Lunch
Discussion “By 2020, America will once again have the highest proportion of college
graduates in the world”
Discussion
Strategic Change
Hard Work
Lessons Learned graduates in the world
‐ President Obama, 2/24/09
Lessons Learned
And there’s consensus on that
To increase the percentage of A i i h hi h li
Introductions
Strategic Finance Americans with high‐quality degrees and credentials to 60 percent by the year 2025
Strategic Finance
Most Important
Lunch
Discussion percent by the year 2025Discussion
Strategic Change
Hard Work
Lessons Learned
Currently: 39%
Lumina Foundation for EducationLessons Learned Lumina Foundation for Education
“More students, especially South Carolinians”
Knowledge‐Economy Work Force
Introductions
Strategic FinanceStrategic Finance
Most Important
Lunch
DiscussionDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
Can we go on this way?
Introductions
Strategic FinanceStrategic Finance
Most Important
Lunch
DiscussionDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
State Financials: Gaps could approach 7% of spending ‐ “The Lost Decade” of state funding‐ The Lost Decade of state funding
Introductions
Strategic FinanceStrategic Finance
Most Important
Lunch
DiscussionDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
Source: Don Boyd (Rockefeller Institute of Government), 2009 *
Recent Revenue/Expense Trends
• State funding: 3%Introductions
Strategic Finance• Tuition: 3% above CPI
• Student aid: 4%
Strategic Finance
Most Important
Lunch
Discussion
• Expenditure per student :
Discussion
Strategic Change
Hard Work
Lessons Learned p p1‐2% above CPI
Lessons Learned
Our Business Model is Not SustainableOur Business Model is Not Sustainable
320 Years of Trends
2.5
AFFORDABILITY GAPTuition
1.5
2
STATE FUNDS GAP
TuitionExpend/FTEState Approp
1
CPI
0.5
0
Start Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18 Y19 Y20
We cannot go on this way
Introductions
Strategic FinanceStrategic Finance
Most Important
Lunch
DiscussionDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
ome,
Hitting Ho
Reindl
What is Strategic Finance?
Strategic finance is aligning financial decisions regarding
Introductions
Strategic Finance financial decisions—regarding revenues, creating and maintaining institutional
Strategic Finance
Most Important
Lunch
Discussion maintaining institutional assets, and using those assets with the institution's
Discussion
Strategic Change
Hard Work
Lessons Learned assets—with the institution s mission and strategic plan.
Lessons Learned
In USC Task Force terms: Creating a system that can serve morestudents as well or better at an affordable price through increased p gefficiency and effectiveness.
What is Strategic Finance?
Introductions
Strategic Finance MissionMissionStrategic Finance
Most Important
Lunch
DiscussionDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
In other “words” . . .
Introductions
Strategic Finance
More graduates, especially from SC
Strategic Finance
Most Important
Lunch
Discussion Efficient
Accessible
Discussion
Strategic Change
Hard Work
Lessons Learned
Affordable
Effective
Efficient
Lessons Learned
The New Bottom Lines
Core Issue Balanced ScorecardKaplan and Norton/et al
Good to GreatCollins/Staisloff/et al
Is the organization doing the right things and doing them well?
Quality, effectiveness, customer satisfaction
Mission
What’s the cost/benefit of improvement in this?
Does the environment want/need what the
Financial stability and strength
Market
What s the cost/benefit of improvement in this?
organization does?
Is the organization i th t
Operating efficiency, i t l
Margin
YES
ensuring that revenues exceed costs?
internal processes
Is the organization Learning and growth Momentum
What’s the cost/benefit of improvement in this?
investing in its own future?What’s the cost/benefit of improvement in this?
Task Force Charge/Bottom Lines( h h l f h l / f l?)(which elements of our charge are most relevant/powerful?)
Mission/QualityPrograms and their locations
Introductions
Strategic Finance Programs and their locationsDistance educationAccreditation and regulationDemand analysis
Strategic Finance
Most Important
Lunch
Discussion MarketEfficiency
Student capacity by campus, by programEase of transfer
Discussion
Strategic Change
Hard Work
Lessons Learned Ease of transferTuition rates; tuition/state revenue mixData consistencyTrue cost of attendance
Lessons Learned
LearningFaculty and staff workforce
Campus contribution to economic valueF ltFaculty governance
Importance of ALIGNMENT and Tracking Progressp g g
Strategic Finance
Strategic Goals
(Momentum,Margin)
St t i
(Mission, Market)
Strategic IndicatorsCommunication
Information
ActionsAnalysisCourse Correction
Task Force Strategic Indicators( )(examples)
• More studentsEnrollment growth by in/out of state
Introductions
Strategic Finance – Enrollment growth by in/out of state• Affordability
– Net tuition/median household incomel fi i l id/ l i i
Strategic Finance
Most Important
Lunch
Discussion – Total financial aid/Total tuition revenue• Accessibility
– Enrollment growth by race, income, transfer
Discussion
Strategic Change
Hard Work
Lessons Learned status• Efficiency
– Cost per SCH by program, by site, by delivery
Lessons Learned
• Effectiveness– Retention and graduation rates
From Steve Jobs to YOUR Job
• 20th Century was one ofIntroductions
Strategic Finance • 20 Century was one of technological innovation
Strategic Finance
Most Important
Lunch
Discussion
• 21st Century must be one of
Discussion
Strategic Change
Hard Work
Lessons Learned 21 Century must be one of institutional innovation
Lessons Learned
David Wiley, BYU, http://davidwiley.org/
DISCUSSION
What are the most important action it f th T kitems for the Task Force?
Introductions
Strategic Finance
Most ImportantMost Important
Lunch
Discussion
Strategic ChangeStrategic Change
Hard Work
Lessons Learned
Introductions
Strategic Finance
Most Important Lunch!Lunch
Discussion
Strategic Change
Lunch!
Hard Work
Lessons Learned
Introductions
Strategic Finance
Most Important Discussion ContinuesLunch
Discussion
Strategic Change
Discussion Continues
Hard Work
Lessons Learned
STRATEGIC FINANCE CHANGEHow?
STRATEGIC FINANCE CHANGE
Current Institutional ResponsesCurrent Institutional Responses
• Increase efficiencyIncrease efficiency
• Increase administrative productivity
• Leverage stimulus money
Introductions
Strategic Finance
Most Important• Leverage stimulus moneyLunch
Discussion
Strategic Change
• APLU survey just out: “The survey results indicate that "universities are t i i t t tt t th d ti
Hard Work
Lessons Learned
striving to protectprotect the core education mission of their institutions.”
Missing in Action?g
• Progress to strategic goalsIntroductions
Strategic Finance
• Growth
• Quality improvement
Strategic Finance
Most Important
Lunch
Discussion Quality improvement
• Academic productivity
I ti
Discussion
Strategic Change
Hard Work
Lessons Learned • Innovation
• Development of a sustainable
Lessons Learned
business model
David Wiley, BYU, http://davidwiley.org/
What do institutions need?
• Growth by substitutionIntroductions
Strategic Finance
• Greater cost containment
• Greater productivity
Strategic Finance
Most Important
Lunch
Discussion Greater productivity
• Clear expectations
I ti
Discussion
Strategic Change
Hard Work
Lessons Learned • InnovationLessons Learned
• LEADERSHIP
Reducing Cost and Increasing ProductivityReducing Cost and Increasing Productivity
31 *
Cost Effective = Cost Reductions + ProductivityCost Effective Cost Reductions Productivity
CostCost reductionsreductions =Productivity Productivity
improvements improvements =
Permanent structural d ti i di
ppIncrease in output
(learning, research, jobs), reductions in spending
( g, , j ),without changing
admissions or spending
32 *
Examples of Cost ReductionsExamples of Cost Reductions
• Reduce high cost/low demand programs g / p g• Address retirement eligibility• Reduce growth in health care cost• Consolidate administrative functions• Reduce spending on non‐revenue producing
thl tiathletics• Restructure debt • Restructure faculty compensation and rewards• Restructure faculty compensation and rewards (use turnover to substitute teaching faculty for research faculty)
33 *
Examples of Productivity Improvements p y p
• Increase in student retention and graduationIncrease in student retention and graduation
• Reduce excess credits for the degree
di b• Increase credit‐by‐exam
• Increase distance‐based learning programs
• Increase proportion of graduates who meet goals for critical learning g g
• Increase proportion of students who remain –and are employed – in stateand are employed in state
34 *
Building Cost‐Effective InstitutionsBuilding Cost Effective Institutions
• Reduce administrative costsReduce administrative costs
• Tackle ‘automatic’ cost increases
Introductions
Strategic Finance
Most Importantincreases
• Reengineer curriculaLunch
Discussion
Strategic Change
• Reengineer course delivery
• Eliminate, innovate, or
Hard Work
Lessons Learned
, ,consolidate high cost/low demand programsp g
slide 35 *
Learning ProductivityLearning Productivity
• Students come to college fully g yprepared (no remediation)
• Accelerated learning
Introductions
Strategic Finance
Most Important
• Minimize “rework” and reduce credits to degree I t f l ti
Lunch
Discussion
Strategic Change• Improve rates of course completion• Encourage use of assessment/”test out” options
Hard Work
Lessons Learned
out options• Learning in the workplace/credit for experiencep
slide 36 *
Improving Affordability & ChoicesImproving Affordability & Choices
• Commit to average undergraduateCommit to average undergraduate tuition growth no more than CPI, with increased need‐based aid
Introductions
Strategic Finance
Most Important
• Allow differential tuitions for high cost/demand programs
Lunch
Discussion
Strategic Change
• Experiment with low priced options
• Greater on‐campus employment
Hard Work
Lessons Learned
opportunities for students
• Reduce time to degree
37 *
Implications for LeadersImplications for Leaders
• Re‐imagine your business modelRe imagine your business model to create long‐term sustainability
• Support change in approach to
Introductions
Strategic Finance
Most Important Support change in approach to budget building – Examine old habits and conventional
Lunch
Discussion
Strategic Change
wisdom about costs– Focus on big picture, and progress
hi i i l
Hard Work
Lessons Learned
on achieving strategic goals– Commit to institutional innovation
38 *
Where are you headed, and how will you get there?y , y g
Strategic Finance
Strategic Goals
(Momentum,Margin)
St t i
(Mission, Market)
Strategic IndicatorsCommunication
Information
ActionsAnalysisCourse Correction
“It is not necessary to h S i l i tchange. Survival is not mandatory.”
Introductions
Strategic Finance
Most Important y
W Ed d D i
Lunch
Discussion
Strategic ChangeW. Edwards DemingHard Work
Lessons Learned
David Wiley, BYU, http://davidwiley.org/
Introductions
Strategic Finance
Hard Work
Strategic Finance
Most Important
Lunch
Discussion Hard WorkDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
Introductions
Strategic Finance
Lessons Learned
Strategic Finance
Most Important
Lunch
Discussion Lessons LearnedDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
Introductions
Strategic Finance
Evaluations Please
Strategic Finance
Most Important
Lunch
Discussion Evaluations, PleaseDiscussion
Strategic Change
Hard Work
Lessons LearnedLessons Learned
ResourcesResources
• HITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl, www.makingopportunityaffordable.org
• Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009
CAUSES of Strategic Indicators( )(brainstorm on flip chart)
• Enrollment growth by in/out of stateIntroductions
Strategic Finance• Net tuition/median household income
• Total financial aid/Total tuition revenue
Strategic Finance
Goals/Charge
Most Important
Lunch
• Enrollment growth by race, income, transfer status
Lunch
Discussion
Strategic Change
Hard Work• Cost per SCH by program, by site, by delivery
Hard Work
Lessons Learned
• Retention and graduation rates