The time is now for higher education Chief Financial Officers (CFOs) to step up and shine. College and university executives across institutions are making incredible strides to adapt to changing conditions, but CFOs face unique challenges.
Huge budget shortfalls from lost room, board, and auxiliary revenue streams require immediate attention, but financial challenges will continue into the next few budget cycles and require sophisticated plans for financial recovery. CFOs must employ leadership skills as well as financial management skills to help reshape their institutions’ objectives and strategies based on the “new normal.”
Navigating colleges and universities through the now, near, and far of an industry forever changed by COVID-19 requires a new kind of financial leader. CFOs must be equally comfortable managing short-term finance operations issues, evolving and maximizing data to track and model financial impacts, and challenging their institutions’ strategies to reshape their future course.
The following sections look first at CFOs’ evolving roles and responsibilities, and then the leadership qualities required to execute effectively on those responsibilities in these critical times.
Defining Roles and Responsibilities
Financial leaders cannot wait for the current uncertainty to clear before planning for the future. In this environment, a CFO must simultaneously play the very difficult roles demanded for the now, near, and far:
Now: Financial First Responder
As is true for all of management, the primary role of higher education CFOs right now is to provide whatever support faculty and academic leaders need to address the immediate demands of the pandemic. In that way, they can focus on caring for staff, faculty, students, and campus communities.
CFOs should work urgently to ensure availability of the necessary financial resources to support current operating needs, as well as needs associated with ongoing strategic initiatives. They should talk with banks to build liquidity resources in the face of rapidly deteriorating cash flows resulting from the loss of room, board, and auxiliary revenue streams. The CFO must lead this strategic effort to position the institution to address short-term uncertainty. Even if there is a cost to maintaining liquidity sources in the short term, having such reserves in place to help support cash flow will be essential, at least for the next several months.
CFOs also need to quantify the precise financial impacts of the pandemic—working to closely monitor and track incremental COVID-related expenses, as well as COVID-related losses. This will help in securing government assistance, in quantifying the pandemic’s impacts to boards, executive teams, and other stakeholders, and in identifying the financial gap for the institution. Finally, CFOs should focus on projecting near-term scenarios to understand the potential for debt covenant and credit rating issues, and to address such issues moving forward.
Near: Financial Recovery Planner
Planning for a post-COVID environment requires CFOs to be comfortable accepting some level of uncertainty, while conducting rigorous scenario modeling. The ability to build flexibility and sensitivity within financial plans is more important than ever to enable their institutions to adapt to various potential future realities.
How long colleges and universities will be coping with the impacts of COVID, and the potential for longer-term impacts on enrollment, is unknown. Some organizations are planning for lower tuition revenue due to fewer out-of-state and international student enrollments next term, and most are exploring how to enhance online learning if campuses remain closed to students in the fall.
Organizations shifting to recovery mode will simultaneously have to focus on:
- Filling significant budget gaps widened by the pandemic
- Assessing the pandemic’s financial and operating toll on the institution
- Continuous modeling of operating scenarios based on different enrollment projections, course delivery methods, and auxiliary revenue streams
- How to attract students who might prefer enrolling at an institution closer to home, cannot participate in a campus tour, or may be financially impacted by the economic downturn
- Offsetting potential declines in state appropriations, gifts, and investment income with alternate revenue sources or expense reductions
While finance leaders still must do a fair amount of blocking and tackling during this period, they also need to begin thinking more long term. CFOs must develop financial recovery processes to implement now and continue post-COVID.
Higher education’s “new normal” will create significant need for financial leadership that is fluent in the use of data, analytics, and flexible tools. Looking toward both the near- and far-term, finance leaders must continue to focus on forecasting cash flow and developing operating and balance sheet projections for the institution. The institution will correctly look to financial leadership to understand the comprehensive implications associated with how long the current crisis lasts and how fast the institution can recover under various circumstances and recovery plans. CFOs will need to recast the institution’s financial plans based on a variety of scenarios and continue to do so as more information and analysis is available.
As strategic leaders, CFOs should regularly reforecast to quickly assess performance and improve organizational agility. Regular reforecasting processes can help identify potential issues related to liquidity, credit ratings, or debt covenants, and provide flexibility for the institution to respond with mitigating actions. Ongoing, intense focus on progress compared to internal benchmarks (based on financial planning targets) will be essential for financial leaders to ensure that their institution’s recovery stays on pace. Transparent sharing of these data will highlight areas of success and opportunities for improvement and will provide essential proof points on which leaders can focus as they communicate internally and externally with debt holders and other stakeholders.
Over the next several months, CFOs also should look to enhance processes. Higher education leaders have an opportunity to take a hard look at operations, and to develop and implement considerable process improvements. Finance leaders will need to drive the assessment of broader changes to traditional higher education models spurred by the pandemic. For example, institutions will need to assess courses and academic programs that are not profitable to decide whether continued investment in them is warranted. Historically, higher education institutions have shied away from these tough conversations — they can no longer afford to do so.
CFOs will need to work hand-in-hand with other executive leaders to determine what pre-COVID-19 strategies and capital projects can continue in a post-COVID-19 environment, and which need to change completely. It is likely that many traditional strategies will no longer fit or will need accelerating (e.g., increased online learning). Regardless, financial leaders must be both creative partners and financial advisors to operational leaders. Moreover, they will need to charge their staff to “get in the field” to best support leaders at all levels of the institution.
Far: Advocate for Innovation
The COVID-19 crisis has accelerated significant changes to course delivery models. How long, or even whether, those changes will continue remains to be seen. A key role of future-focused CFOs will be to help their organizations adapt to a whole new educational paradigm, with all-new expectations from students, parents, faculty, staff, and the communities in which they operate.
CFOs will need to actively partner with the rest of the leadership team to help conceptualize and develop new revenue sources and priorities that will emerge as a result of new market expectations. It will fall to the CFO to challenge historic structures and processes, and to step forward as a strategic leader. At the same time, CFOs will need to ensure their institutions have the data and analytic support needed for new processes as they evolve, and that those resources are used effectively.
Becoming the Agile Leader
Consistent across all these timeframes is the need for CFOs to balance compliance and disruption, leveraging data in new ways to enable operational leaders to build sustainable plans in the face of significant change. It is a role that requires courage, confidence, and boundless competence. CFOs must simultaneously be a source of inspiration and stability to the entire institution. This includes their own staff members — many of whom likely have never encountered the type of large-scale disruption currently underway—as they learn and hone their own skills by watching leaders perform in this unprecedented time.
On a continuing basis, CFOs must ensure that their institutions are effectively measuring and tracking results versus internal and external KPIs. At a fundamental level, CFOs will be responsible for driving data and analytics for their institutions. Having the right tools, and collecting and analyzing enrollment and operating data, will be critical to helping institutions keep on track.
It likely will be some time before there is clarity on the shape of higher education’s “new normal,” but the new expectations of financial leaders already are beginning to form. COVID-19 has accelerated many disruptive components of the internet economy that higher education institutions have been forced to adopt. Higher education already is behind many other consumer-oriented industries. It is time for higher education leaders to move faster, think more creatively, and be more agile in transforming their organizations.
Higher education finance leaders at all levels can drive the change institutions need. The entire campus community needs CFOs to perform at their highest levels—they are depending on it. By stepping forward with a renewed data-driven agility, higher education CFOs can help their organizations, their teams, and their communities as they evolve into a post-COVID environment.
Action items for the future-focused CFO:
- Identify, understand, and inventory the needs of the President and other executive peers as recovery begins. Teams likely will need different support than they have in the past.
- Evaluate how financial teams can become more agile by implementing flexible methodologies like regular reforecasting.
- Monitor opportunities for operational improvement and recovery progress through the use of established KPIs.
- Conduct finance team meetings to gather insights on how current systems and data tools can be pushed for incremental value or identify needed training to maximize use.
- Identify high-potential staff members who are fluent in the use of information tools and can help operational leaders plan for recovery.