The nation’s colleges and universities stand at a crossroads between continued recovery from the initial pandemic shutdowns in early 2020 and the need to plan now for future success.
According to the 2022 Syntellis CFO Outlook for Higher Education report, nearly 70% of college and university finance professionals believe their organizations will be financially stable over the next decade. That confidence is also reflected in the stable outlook from Moody's Investors Service, which projects a 4%-6% increase in higher education operating revenues in 2022.
While higher education leaders are breathing a collective sigh of relief that the worst of the pandemic has passed, the sector still faces considerable and systemic challenges. Dozens of institutions started the spring semester online as the Omicron variant raged. Other challenges include decreased funding, increased costs, workforce shortages, and fluctuating enrollments caused by the so-called “demographic cliff,” which is projected to drive sharp declines in traditional college-age students over the next several years.
Undergraduate enrollment in fall 2021 dropped by more than 3% versus fall 2020, according to the National Student Clearinghouse Research Center. Since 2019, undergraduate enrollment has fallen 6.6%, equalling more than 1 million missing students. Reasons include continued online education, the robust economy siphoning off students, and the devaluation of education.
To confidently plan for the future, institutions must adopt modern financial planning and scenario modeling tools. However, a vast majority (84%) of higher education finance professionals believe their organizations should do more to leverage financial and operational data for more informed decisions.
The CFO Outlook for Higher Education shows what challenges the industry faces and what institutions are doing to surmount them.
Institutions Show Planning Resiliency During Pandemic
Many colleges and universities adopted in-year forecasting to respond to budget pressures during the height of the pandemic. The frequency of forecasts has increased in response to continued volatile industry trends. Just over half (51%) of respondents to the Syntellis survey said their organizations forecast quarterly, compared to 38% in 2019. The percentage of those forecasting once or twice a year has increased from 24% in 2019 to 31% in 2021.
More frequent forecasting shows efforts by finance leaders to stay ahead of economic and industry volatility seen over the last two years. In-year forecasting helps finance leaders model the future and track performance using updated revenue and expense information so they can respond quickly to changing conditions.
College and university finance professionals increasingly use scenario modeling to inform near-term decisions. Nearly two-thirds (63%) said they would use it to model the impacts of internal and external drivers over the next 1-5 years, while more than half (53%) said they would use scenario analysis to make go/no-go decisions. Long-range planning from 6-10 years out lags in adoption, with just 19% indicating they plan to model the impacts of internal and external drivers over a longer timeframe.
With enterprise performance management (EPM) technology, finance leaders can quickly build new scenarios, mixing and matching assumptions and initiatives to provide a range of possibilities for analysis, alignment to strategic plans, and consideration by the C-suite or Board of Directors.
Demographic Cliff Looms Large
Scenario modeling helps institutions model the impacts of new program offerings or alternative strategies to combat the effects of the demographic cliff, the top-ranked enrollment challenge cited by respondents to the Syntellis survey.
Fifty-one percent of finance professionals cited the demographic cliff as the chief concern with the greatest financial impact on their institutions over the next 5-10 years. The level of concern about the demographic cliff was highest at community colleges, as 88% of respondents from two-year institutions say it will have the greatest impact over the next 5-10 years.
The demographic cliff has been expected since the 2008 recession, with a significant drop in births during that time translating by 2025 to as much as a 15% drop in freshmen enrollment that will continue for years. Another demographic cliff is expected by 2037, reflecting the 4% drop in births during 2020, which accelerated to 8% fewer by De.
Despite improved forecasting and increased use of scenario planning, many feel higher education has significant room for improvement. A growing majority of finance professionals believe the sector is behind other industries when it comes to adopting modern budgeting and financial planning tools — 63% indicated higher education was lagging, up from 55% in the prior year’s survey. Just 7% said higher education was ahead of most industries.
As emerging demographic realities come to the fore, institutions will need to adjust their enrollment strategies to win against other institutions, carve out a niche in the market, attract more adult students, or otherwise find new revenue streams. This reality underscores the need for unified scenario modeling and long-range planning to take the guesswork and indecision out of critical decisions.
Spreadsheets Not Suited to Complex Scenarios
While institutions are forecasting more frequently, few survey respondents feel their current solutions provide the agility that today’s market conditions demand. Thirty-one percent feel their institutions lack the right budgeting and planning tools to respond quickly to changing conditions.
A significant percentage of organizations continue to rely on spreadsheets for key financial processes:
- 57% use spreadsheets for scenario modeling
- 57% use spreadsheets for forecasting
- 40% use spreadsheets for budgeting
Spreadsheets are time-consuming and tedious to build, prone to errors, and not robust enough to quickly run multiple scenarios to model different courses of action.
A quarter of organizations have advanced to using cloud-based performance management applications for budgeting, while 16% use such applications for forecasting. Transactional accounting/ERP systems are the third most common system used for budgeting, as indicated by 19% of survey respondents.
More than eight in 10 respondents (84%) believe their organizations should do more to leverage financial and operational data to inform strategic decisions, and 25% said the pandemic revealed reporting and analytics as a gap at their institutions.
Pulling data from multiple sources into a single report remains the most significant financial reporting challenge for colleges and universities nationwide, as cited by 41% of respondents. The second most common challenge was accessing clean, consistent, and trusted data (18%). Taken together, these challenges show that higher education institutions continue to struggle with reliable data integration.
Despite a heavy reliance on technology to facilitate social distancing and other mitigation efforts during the pandemic, higher education has yet to accelerate the adoption of modern financial planning, data, and analytics tools and processes. Far too many continue to rely on inadequate and outmoded spreadsheets and other inefficient tools that pose more difficulties than solutions.
Institutions should invest in modern EPM technology to quickly respond to changing conditions by running new scenarios, mixing and matching assumptions and initiatives, and leveraging financial and operational data to inform strategic decisions. Scenario modeling can strike a critical balance between near- and long-term priorities to help identify and address current and emerging opportunities.
Download the 2022 Syntellis CFO Outlook for Higher Education report to learn how more than 130 finance professionals from four-year, two-year, public, and private colleges and universities view the state of the industry and chart the challenges and opportunities higher education faces.