It’s no secret that higher education is at a crossroads. Several strategic issues are on the horizon to note, including the impact of generative AI (genAI) on program demand, uncertain or inconsistent federal funding, upskilling/cross-training the higher education workforce, and industry consolidation. These are just a few of the items discussed in our recent webinar, “Strategic Thinking in Uncertain Times: Partnership, Programs, & People.”
With this kind of revenue uncertainty, there is a stronger-than-ever business case for developing high-demand academic programs that serve students and communities. These programs will need to produce graduates with strong employment outcomes, as return on investment is a growing emphasis among students, parents, and legislators. A world where federal funding, even for things like research and development (R&D), is tied to student outcomes isn’t unimaginable. A scenario where strategic partners are attracted to your institution because of your reputation for academic rigor and workforce preparation is not out of bounds.
How Program Margins Create a Path Forward for Financial Health
For those institutions choosing to invest in new and innovative degree or credentialing programs, now is the time to understand how and when those programs contribute to your institution’s financial health.
Consider this, unless you are very wealthy, you would not buy an investment property in a market that was oversaturated without being able to articulate how that property’s value would increase in the near future and by what factor it will increase. You would not stack that new property with upgrades and add-ons for which you will not get a return on your investment. Still, another investor or grantor may find the property valuable or be willing to fund it for the benefit of the local community. This example illustrates that, at a minimum, higher ed professionals need to understand the costs associated with launching and operating academic programs and feel confident in forecasting their revenues over time.
For those institutions that have understandably focused on revenue diversification, volatility is likely to persist. The current administration has proposed specific conditions for federal funding or favor, and it is unclear whether another administration will adopt a different approach in the future. We know that charitable giving is down, investors are shy about higher education, and, in general, it can be challenging for most institutions to find meaningful partners in the private sector.
All of this contributes to an environment where your most reliable margins are in stable, high-demand, high-quality academic programs. Some of these programs will generate more revenue and incur higher costs than others. Based on our experience, this is feasible if higher ed professionals know where to look and are ready to find subsidies in other parts of their portfolio. So, how do you know where to look and respond accordingly?
Diving Deeper Into Program Margins With PEA
There are several aspects of our higher education practice that we are excited about. One is an increasing focus on building better budgets, which we recently highlighted in our recap of the Central Association of College and University Business Officers’ (CACUBO) annual meeting. Institutions seem eager to collect the right data to project into the near future. Another related focus is on analytics in higher education. We and others presented extensively on how to leverage financial data to drive strategic thinking among faculty and staff.
We suggest that institutions lean into these areas of emphasis for strategic financial planning. Tools like Program Economic Analysis (PEA) from Forvis Mazars and our financial and scenario modeling process can be used together to build your forward-looking budget for the next fiscal year. PEA is an industry-leading tool that shows financial margins for the entire institution and at every level down to the individual course section. We recently invested in a “what if” feature that helps institutions model the impacts of enrollment growth and payroll spending on projected future margins. Institutions that use a tool like PEA are better informed about what it takes to operate academic programs and can have more confidence in the inputs to their forecasting models.
Even if there was previously no business need for this type of tool, our professionals are confident that it may help you in the future. Remember, strategy is hard in uncertain times. Good data focused on building future capacity will be critical in strategic decision making.
Want to learn how PEA can help you future-proof your academic portfolio, build better budgets, and drive sustainable growth? Schedule a demo with our Higher Education Consulting team today and check out the other articles in our use case series to learn about the variety of ways that PEA can help provide strategic value to your institution.