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WHAT TRUSTEES AND HEADS NEED TO KNOW
(AND SHOULD BE TALKING ABOUT)
JANUARY 10, 2015
Financial Sustainability
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
THE CHALLENGES
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Selected National Issues
Drastic increases in demonstrated need in recent years, including families who did not historically need assistance
Slow economic recoveryReduced enrollment/not at capacitySubstantial debt serviceIndividual faculty/staff compensation has not
increased at a sustainable pace…losing ground
Demand for student services continues to increase
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
The Financially Sustainable University
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Jeff Denneen and Tom Dreiler with Sterling Partners and Bain and Company
“Institutions have more liabilities, higher debt service, increasing expense without the revenue or cash reserves to back them up.”
“Operated on the assumption that the more they build, spend, diversify and expand, the more they will persist and prosper. But instead, the opposite has happened: institutions have become overleveraged.”
The Merry-G0-Round
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Tuition Increases
Beyond CPI
Increasing Financial Aid
Increasing Student Services
Faculty/Staff Compensatio
n
Values Proposition
DATA
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Source: NAIS Facts at a Glance
Tuitions Continue to Rise
NAIS Average Median Boarding tuition, 12th grade: $46,800
Median Day Tuition, 9th and 12th grade median: $22,700
2002 2013 (CPI Only) 2013 Actual Grades 9&12
Day 13795 17700 22700
Boarding 27400 34575 46800
$2,500
$7,500
$12,500
$17,500
$22,500
$27,500
$32,500
$37,500
$42,500
$47,500
Nati
onal
Media
ns
Gra
des
9 a
nd 1
2
Source: NAIS and U. S. Dep’t of Labor
Average yearly CPI increase for the past 12 years is 1.96%.
Think of your school. Have you had a tuition increase in any given year that was less than 2%?
It’s not just about affordability, but about managing expectations.
Tuition Increases: CPI versus Reality
2002 2013 (CPI Only) 2013 Actual
Grades 1 & 3 10912 13721 18212
Grades 6 & 8 12465 15673 20148
Grades 9 & 12 13795 17700 22700
$2,500
$7,500
$12,500
$17,500
$22,500
Axis Title
NBOA 2013 BUSINESS OFFICER SURVEY
Financial Aid Allocation Trends by Year 2013 2012 2011 2010 2009
survey survey survey survey survey More aid awarded to returning students 21.60% 23.30% 23.40% 32.80% 47.80%More aid awarded to new students 12.50% 13.50% 13.10% 13.30% 13.90% About the same allocation 62.10% 58.00% 58.80% 50.70% 34.40% Not sure/no response 3.80% 5.20% 4.70% 3.30% 3.80% Samples limited to those who were able to provide specific financial aid allocation data.
NBOA 2013 Business Office Survey, Baseline Results
Source: 2013 NBOA Business Office Survey Strategic Reactions
26.4% were going to increase the average class size but only 11.7 % did.
58.8% were going to decrease planned salary increases but only 32.3% did
Most popular Strategies-
•Increase average class size
•Increase teaching loads
•Increase employee contributions for benefits
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Source: 2013 NBOA Business Office Survey
Perceived Financial Health: National
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Critical
Much below average
Somewhat below average
Average
Somewhat above average
Much above average
Outstanding
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
1.0%
0.4%
8.3%
20.3%
27.8%
27.2%
11.9%
1.2%
2.2%
9.3%
20.7%
25.6%
24.9%
12.9%
Source: 2013 NBOA Business Office Survey
Present Expected at end of 13/14 SY
DISCUSSIONS AT YOUR SCHOOL
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Get Started!
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
No silver bullet and no one size fits all!Purposefully thought provokingIntentionally controversialConsider the following in the context of your
mission and culture…they MUST be your guideposts!
All opinions respectedNo sacred cows
NBOA’s Spectrum Project Report: High Performing Schools
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Summary in Net Assets, Nov/Dec 2014Qualitative and Quantitative research study
intended to reveal the “distinct characteristics of high performing independent schools.”
A mix of independent school leaders, NBOA staff and research experts from McKinley Advisors
Phase One: Define independent school financial health
Phase Two: Surveys – 167 NBOA Member Schools
Phase Three: In-depth telephone discussions with 20 schools
Headline…
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
“HIGH PERFORMING SCHOOLS: Focused on Outcomes, But Flexible in
Achieving Them”
Courtesy of NBOA
Common Traits Among High Performing Schools(courtesy of NBOA)
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Lean Fewer students Approx. half as many administrative, non-teaching
staffCollaborative and Focused on Clarity
Clear expectations Strive to build consensus Work hard to explain critical matters
Academically RigorousGuided (not governed) by the Strategic Plan
Have a strategic plan Guide to achieve the outcomes
Traits, continued (courtesy of NBOA)
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Debt-Averse Use debt very conservatively
Disciplined Endowment Draw Less likely to have altered in the last 5 years
Focused on Benchmarking Define success and measure it Benchmark against a cohort of a few local schools vs.
national Scrutinize enrollment trends in evaluating
performanceTop-Down Decision MakingQuality, not Quantity, in Budget Training
The Financially Sustainable University
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Liquidity issues arose because we succumbed to the “Law of More”
Must reverse the “Law of More” By Developing a clear strategy, focused on the core Reducing support and administrative costs Freeing up capital in non-core assets Strategically investing in innovative models
Focusing on the Core
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
“It is the area where they are clearest about the value they add.”
Differentiation pointIdentityCulture“the strategic anchor”
“In any industry, there are 3 primary paths to competitive advantage: differentiation (product), low cost (price) or structural advantage (process).”
Admin, Capital and Innovation
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Reduce support and administrative costs Cut from the outside in (build from the inside out) Look for economies of scale Outsource opportunities?
Free up capital in non-core assets Perhaps less of an issue for independent schools i.e. real estate, heavy facilities equipment, etc.
Strategically invest in innovative models ICS: BLinc
NAIS & ISM
“New Normal”Charge only what people can payDesign your program to that revenue number
“Full Steam Ahead”Charge what it costsCPI + 2 or more when needed
The New Discipline (NAIS)
Increase enrollment without increasing staff
“Sunset” an old program for every new one
Right size: re-think class size, workload, # of teacher specialists, assistants, school size
Devote 1/3rd of each fundraising dollar raised to endowment
21st Century Schools (ISM)
Decide whether you are a price, product, or process school (you can’t be all 3!)
Acknowledge that the 20th century “factory” model of education will not prepare students for the 21st century
Design a 21st century school that individualizes learning using technology
Dedicate 2% of your budget to faculty professional development
The “P”s Definitions
A PRICE School:Differentiates itself on price aloneIs a price leader in it’s area (lower)Typical student:faculty ratio 16:1Can charge average tuition of $7,000When something new is proposed, asks:
“what will this do to my price?”
Product Schools
A PRODUCT School:Assures that nearly all graduates will go on
to a selective collegePractices highly selective admissionTypical student/faculty ratio 10:1Can charge average tuition $20,000When something new is proposed, asks:
“what will this do to my college admissions?”
Process Schools
A PROCESS School:Has programmatic uniquenessPut students at a variety of academic levels
through curricular and co-curricular program tailored to student
Typical student:faculty ratio 8:1Can charge average tuition $25,000When something new is proposed, asks:
“does it make our program richer or more valuable to a wider market”
DEBATE THE PROPOSITIONS
Debatable Propositions
Purposely Controversial
Can take a stand: for or against
Can spark new thinking around both long-held beliefs or revolutionary concepts
Can eradicate “cherished theories”: things you believe, but have no evidence to support
RECOMMENDATION: gather data and respectfully debate based on facts
Linda Myers Dennison, CPA independent school sustainability [email protected]
For example…
1. The value of the smaller class experience is not as great as the cost.
or…
2. Financial aid should only be used in service of mission, not to increase enrollment.
and…
3. The cost of technology exceeds the value it provides.
how about…
4. Schools need to fully fund depreciation in order to ensure the long-term sustainability of their facilities instead of relying on philanthropic donations.
And don’t forget…
5. A school that stays within the 20th century educational paradigm--including keeping a 9-month academic calendar, considering enrollment a single-unit sale, ignoring true environmental sustainability, and ignoring virtual learning--will fail.
GATHER DATA!!! WHAT DOES THE
DATA SAY? DISCUSS FACTS!
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
BUT AS YOU DISCUSS…
Are You Tracking These Financial Indicators?
Revenue Diversity (NBOA and NAIS)
The gap the cost to educate a student at your school and
net tuition as well as Gross Tuition vs. Net Tuition (NBOA Financial Position Survey)
Financial Aid and Tuition Remission as a % of gross tuition revenue (NBOA Business Office Survey, Financial Position Survey and school’s own data)
Expendable Financial Resources: the “reserve” which a school has on hand to cope with a short-term financial shock. Expendable financial resources provide a way for a school to invest in new programs or facilities. (NBOA Financial Position Survey)
Market Demographics (NBOA and NAIS)
FTE / Student Ratio (NBOA and NAIS)
Demographics- An example
2012 projected 2017Connecticut 6,407 10,330 New Jersey 15,094 25,180 New York 23,290 38,415
Families with one or more children aged 14-17 and income over
$350,000
Source: NAIS Demographic Center
You need to know your region.What are the trends in terms of students: Kindergarten bust or Middle School explosion.
What about income levels? Where are the families who are most likely to attend your school?
AND REMEMBER…
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Adaptability
“Executives today face two competing demands. They must execute in order to meet today’s challenges. And, they must adapt what and how things get done in order to thrive in tomorrow’s world. They must develop ‘next practices’ while excelling at today’s best practices.”
Harvard Business Review July/August 2009
Timeless Principles vs. Daily Practices
“How we deal with change differentiates the top performers from the laggards. But first we must know what should never change. We must grasp the difference between timeless principles and daily practices. Again, most sustainable change is not about change at all but about discerning and conserving what is precious and essential.”
-Harvard Business Review July/August 2009
What Makes Your School Unique?
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Why Indian Creek? Why now? All constituents: students, faculty, parents…do they
answer the same? Is it mission/culture consonant?How do you define success?
NOT just financial: programmatic, personnel, others ICS: Cohorts, Organizational Learning
Can you change something in your business model and achieve greater “success”?
Adaptability in School Culture
Create a culture that embraces “courageous conversations” and depersonalizes conflict
Create common language to discuss sensitive issues
Create an environment that allows for experimentation (without recourse)
Distribute leadershipMobilize the community to generate
solutionsCollaboration!
Facilitating Change
Conversation may start because of constrained resources
Discuss/identify core mission, values, and timeless principles
Review the school’s current budget to ensure alignment or to discuss realignment and steps required– no sacred cows!
Amount of budget is not a value indicatorEncourage “experiments”Collaborate on results
Something to Consider
“Embrace Disequilibrium. Without urgency, difficult change becomes far less likely. But if people feel too much distress, they will fight, flee, or freeze. The art of leadership in today’s world involves orchestrating the inevitable conflict, chaos, and confusion of change so that the disturbance is productive rather than destructive.”
Harvard Business Review, July/August 2009
Leading the Independent School Way…
• Lead by Example• Build Teaming through Information and
Communication• Be Inclusive as Appropriate• Understand & Anticipate the Changing
Environment• Explain Issues in English• Give Credit When Due• Don’t Tolerate Discourtesy • Look “Outside” for Solutions
My Contact Information
Linda Myers Dennison, CPA independent school sustainability strategist [email protected]
Linda Dennison
Director of Finance and OperationsIndian Creek [email protected]
READ MORE ABOUT IT
NBOA’s High Performing Schools, Net Assets, November/December 2014. The Financially Sustainable University, Jeff Denneen and Tom Dreiler, Bain and
Company 2012. NBOA’s Report on Independent School Financial Sustainability, a whitepaper
summarizing the discussions, ideas, and follow-up steps from the conference Igniting the Vision, an NBOA PowerPoint presentation summarizing the major points
from the conference Direction? Full Steam Ahead, the ISM and Measuring Success PowerPoint presented
at the conference by Terry Moore, Director of Consultants, ISM (see below for additional slides, “Full Steam Ahead Part 2”)
Debatable Propositions by NBOA—the original six debatable propositions shared at the conference
IAFM Reading Material, a collection of key papers and articles on financial sustainability
The New Normal: A Game-Changing Model for Financially Sustainable Schools by Patrick F. Bassett, President, NAIS. NAIS members can click on the link above, log in, and download the presentation.
Full Steam Ahead Part 2: Cutting-Edge Research and Opinion for Excellent Independent Schools by ISM and Measuring Success. Available for free public download.
Igniting the Vision: What Will Make Your School Financially Sustainable? A presentation summarizing the work of IAFM
READ MORE ABOUT IT
Lipton, Mark. Guiding Growth, How Vision Keeps Companies on Course, Harvard Business School Press, Boston, MA. 2003.
Berry, Leonard L. Discovering the Soul of Service, The Free Press, A Division of Simon & Schuster, Inc. New York City, NY. 1999.
Blanchard, Kenneth and Peale, Norman Vincent. The Power of Ethical Management, William and Morrow Company, Inc. New York City, NY. 1988.
Drucker, Peter F. Managing the Non-Profit Organization, HarperCollins Publisher, Inc. 1990.
Bernardin, John H. (2003) Human Resource Management: An Experiential Approach Third Edition. McGraw Hill Irwin.
George, Bill; Sims, Peter; McLean, Andrew N. and Mayer, Diana (2007) Discovering Your Authentic Leadership. Harvard Business Review, February, 129-138.
George, Bill and Bennis, Warren G. Authentic Leadership: Rediscovering the Secrets of Creating Lasting Value, J-B AHA Press, 2004
My Go To Resources
My Colleagues!www.nboa.net
PD, Library, Toolkits, Data, Forums, Net Assets, Demographics
www.nais.org Library, Demographics, Independent School Magazine
www.shrm.orgHarvard Business ReviewBureau of Labor Statistics (CPI)CPA Letter Daily