Higher education enrollment dropped precipitously in 2020, and fall 2021 rates declined by an additional 3.2%, according to the National Student Clearinghouse Research Center.
The fiscal uncertainty wrought by the pandemic has created challenges for public and private colleges and universities of all sizes. To confidently plan for the future, leaders must modernize financial planning and analysis processes. In order for your institution to truly thrive, you’ll need more dynamic forecasting and scenario analysis capabilities to make informed, data-driven decisions — so you can anticipate and respond to whatever the future holds. Consider the following best practices for long-range planning and agility.
Compare Current Plan to Possible Future States
Financial modeling begins with the current budget or strategic plan. A mix-and-match approach to assumptions allows leaders to examine conservative and aggressive scenarios individually or in conjunction with other scenarios. Assumptions can include revenue increases or decreases, historical actuals, enrollment changes, economic factors, wages, interest rates, capital markets, and much more.
Long-range plans encompass a range of possible future states over several years that reflect assumptions, allowing leaders to understand the potential positive and negative financial impacts of any initiative or series of initiatives. For example, a new program may need significant initial investment and a time horizon of a few years before the investment results in higher enrollment and revenues.
Modeling a new scenario should be as easy as changing inputs, running the report, and comparing it side-by-side with previous models in terms of impacts on the balance sheet, income statement, and cash flow statement. If this process involves numerous spreadsheets or more than 10 minutes of work at your institution, you will benefit dramatically from adopting modern technology designed for this purpose.
Full Financial Statements Bring Rigor to Long-Range Plans
Long-range plans should include a full set of financial statements, including a GAAP-based statement of activities, balance sheet, and cash flow statements. Since decisions can affect how ratings agencies view an institution’s creditworthiness, rigor in long-range plans is critical.
The base case scenario should show an institution’s financial outlook for the next five to 10 years, given current trends and including all funds, debt capacity, capital plans, and cash flow. Depending on the initiative, key drivers could include increased wage costs, additional revenues, new or reduced employee benefits, better classroom utilization, or changes in state appropriations.
Scenarios aggregate the various driver inputs to determine changes to the baseline scenario over different time periods. The analysis should include an income statement, balance sheet, cash flow projections, debt capacity, and key ratios. Modern processes make it easy for your team to consider multiple scenarios in tandem, and to change drivers on the fly in response to questions, comments, new information, and other factors.
KPIs and Benchmarks Critical to Success
According to the Syntellis 2021 Higher Education Financial Technology Trends report, only half of colleges and universities currently use financial key performance indicators (KPIs), which lags other uses for KPIs, including enrollment (80%) and academic data (73%).
Among institutions that track and report financial KPIs, common data points encompass revenue/productivity, credit ratings agency, and administrative or academic cost benchmarks. Many college and university finance teams say they struggle to access reliable data and create reports that non-finance leaders can understand.
When crafting long-range plans to share across the administration, you’ll need to integrate data from source systems — general ledger, student information system, etc. — and combine that with economic, benchmarking, and credit agency data to create a complete financial picture. Sleek charts and graphs make it easy to visually demonstrate performance against benchmarks, so leaders can better understand the impacts of today’s decisions over the next several years.
Transparency Supports Decision-Making
Aggregating disparate data on a common platform, accounting for all funds, and including KPIs and benchmarks are critical factors to effective long-range planning. Reporting functionality ties the other elements together to bring transparency and logic to decision-making, helping stakeholders understand changes over longer timespans than the annual budget.
As you adjust processes to accommodate long-range planning, this may necessitate further digital transformation. These considerations require modern tools that can compare scenarios to show the impact of each on cash flow, utilization, debt capacity, or any other metric — a feature that spreadsheets can’t emulate. Look for a long-range planning solution with integrated budgeting and forecasting functionalities — this will ensure efficient, accurate, and secure planning processes.
Robust forecasting and scenario modeling can take much of the guesswork out of long-range planning, leaving more time for finance leaders and governing boards to focus on the strategic business decisions that will position their institutions for continued success both now and over the long term.
Get a demo to see how Axiom Long-Range Planning can your institution plan more confidently.
A version of this article first appeared in USA Today.
What do you see as the biggest barrier to enrollment right now?
The biggest barrier to enrollment was ignited by the pandemic but it has been around for a while: higher education’s value proposition within its existing delivery model. The pandemic caused more students to think critically about their financial situations and many realized the value of remote learning, which offers significant cost savings by living at home rather than on campus. Now, many aren't interested in giving that up to enroll in on-campus classes. This rapid transition has changed the student experience and eroded traditional campus offerings, while illuminating significant questions about the higher education model for the first time in a century.
In your opinion, what is one of the most important investments Higher Education can make to bounce back from the pandemic?
To remain functional as we move through the pandemic, higher education institutions must look ahead to stay agile and nimble, ready to respond to changing variables.
One of the most important investments higher education institutions can make is in financial planning, specifically scenario modeling, at the unit or initiative level and organization-wide. This allows leaders to quantify the potential financial impact of factors such as enrollment results, changes in tuition revenue, financial aid costs, and revenues from auxiliaries like housing, athletics, and student fees.
Enrollment rates are currently at an all-time low. However, scholars are also concerned with the expected plunge in enrollment coming within the next 5 years as a result of the low birthrate after the 2007-2008 recession. What do you think will be essential for colleges and universities in preparation for this predicted downturn?
Preparing for this downturn is where long-range planning and scenario analysis come into play. A mix-and-match approach to assumptions allows leaders to examine conservative and aggressive scenarios individually or in conjunction with other scenarios, including whether or not there is a decrease in enrollment. Other factors to consider with scenario analysis include revenue increases or decreases, historical actuals, economic factors, wages, interest rates, capital markets, and much more.
By considering multiple scenarios in tandem, higher education leaders can best inform planning and decision-making and prepare for the best — and worst — outcome.
Flint Brenton is the Chief Executive Officer at Syntellis Performance Solutions, where he oversees all strategic plans and priorities to deliver on Syntellis’ promise of elevating customers’ financial performance. With a successful track record as CEO of high-growth companies for nearly two decades, Flint most recently served as President and CEO of Centrify, where he accelerated growth through product innovation and enhanced sales execution. He had held CEO positions and directed engineering teams at many leading technology companies, and is a member of the Board of Trustees at the University of Mount Union. Flint holds a B.A. in Accounting from Mount Union College and a Master’s in Business and Public Management in Finance from Rice University.