Revenue growth at most colleges and universities has slowed significantly since the recession, and revenues are actually declining at a growing share of institutions as a result of state budget cuts and pressures on net tuition revenue. While cuts to administrative costs are a necessary part of the solution, they will not be sufficient to get back on the path to financial sustainability. Universities—even those with strong finances—must find ways to continue to enhance academic excellence and student success despite limited new funds.
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A major barrier to adjusting to the new financial reality is the belief that any reduction in academic resources must necessarily reduce quality. Excellence in instruction and scholarship clearly require significant investments of faculty time and other resources, but the relationship between costs and quality is not linear. Excess spending on the proliferation of courses, specializations, and programs spreads resources more thinly across a broader array of activities, reducing quality by diverting funds from institutional priorities while at the same time producing a level of complexity that creates barriers to student success. Reallocating resources from activities that are not aligned with student success, academic excellence, or institutional mission can improve outcomes even without additional revenues.
Reducing proliferation to enhance quality
EAB research has identified five primary drivers of academic costs and capacity:
- Section offerings
- Course offerings
- Course completion rates
- Curricular complexity
- Faculty course loads
These areas offer the greatest opportunities to realign academic resources while maintaining or enhancing quality. Analyzing the 'microeconomics' of academic units in each of these areas can often identify targeted opportunities to realign costs in ways that can avoid the negative impact of across-the-board budget cuts or the elimination of entire academic programs.
Academic decision support
Better data on the cost, capacity, and quality of academic programs should be used to supplement rather than replace the judgment of academic leaders. Providing academic decision makers (especially deans and chairs) with improved data enables them to better understand the tradeoffs and the opportunity costs implicit in every resource allocation decision.
Achieving this goal, however, requires overcoming the limitations of existing data systems as well as providing incentives to reward academic units for improved performance. This is an incremental and ongoing process, however, not a short-term solution. The slow pace of change at universities makes it even more critical that every decision be made in the light of its long-term implications for quality and financial sustainability.
Findings from the study
Section 1: An Unsustainable Financial Model
The cost of education has outpaced the public's willingness to pay. Federal and state governments are looking for ways to slow or reduce public support for higher education, while families are demanding lower tuition prices.
Paradoxically, while the public sees higher education as more expensive than ever, many universities are struggling with flat or declining revenues. State support and tuition revenue are no longer growing at pre-recession rates. In fact, at a significant share of institutions, revenues per student are declining due to state cutbacks and growing financial aid costs. Learn more.
Section 2: The Cost-Quality Myth
Quality instruction and scholarship clearly require significant investments of faculty time and other resources, but the relationship between cost and quality is not necessarily linear. More spending does not always equal greater quality. Variations in program costs, for example, do not necessarily correlate with program quality and often have more to do with a mismatch between instructional capacity and student demand. Learn more.
Section 3: Reducing Proliferation to Enhance Quality
Campuses that have seen the best results have focused not on across-the-board cost cutting but on reallocating existing resources from low demand and low impact activities to higher demand and higher impact activities. They see efficiency as a means to improve quality and ultimately to build a sustainable financial model. Learn more.
Section 4: Academic Decision Support
While many institutions have performed some of these analyses, few if any have comprehensively addressed all areas of opportunity across all academic units. Four major barriers stand in the way. While many faculty fear that such a data-informed process reduces academic decisions to rigid equations and takes power away from faculty, institutions that have pursued these approaches thoughtfully have found that they actually put faculty at the center of the decision-making process, enabling an open and honest discussion of institutional priorities and necessary tradeoffs. Learn more.