How one institution avoids over-committing resources for new programs

By Ashley Delamater

In the face of tightening budgets, uncertain enrollments, and declining tuition revenue colleges and universities need new strategies for growth. Many institutions are confronting this challenge by launching new programs. But often, new programs launched don’t achieve their enrollment goals or experience “profitless growth” due to errors in the program design and launch process .

One of the hardest mistakes to avoid is committing inflexible, fixed resources before a new program has demonstrated demand.

Committing fixed resources to new programs ignores the challenge of meeting enrollment goals

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Predicting demand for programs is inherently uncertain. Deans of continuing, online, and professional education —who constantly build and launch new programs—admit that they rarely get demand projections exactly right. As one director at a comprehensive public university put it, “There’s no secret formula. We use the information we have to make our best guess of actual program enrollments. Sometimes we’re close, but we’re rarely spot on.” One chief-business officer tested how often new programs at his institution have exactly met their enrollment targets. While he noted some programs came close to their targets, they never saw the exact enrollments they expected. In fact, of the eleven most recently launched programs, 55% of programs missed their enrollment targets.

The problem with committing fixed resources upfront is that it becomes difficult to repurpose those resources if the program fails to meet expectations. For example, one institution we spoke with launched a program requiring new faculty and a specialized lab to be built. When it was clear after three years that the program might never breakeven, the institution tried and failed to close the program and was left with expensive resources that couldn’t be repurposed.

Building program sunset procedures into the launch process creates a financial safeguard

To avoid this situation, institutions need to make it easier to sunset underperforming programs and limit their fixed investments in the programs until they see how the market responds.

American University overcame this challenge by developing upfront sunset provisions for new programs. Faculty and administrators agree upfront on financial targets that new programs must meet within three years or face closure. At the end of the pilot phase, leaders mainstream successful programs into the operating budget, and discontinue funding for those that don’t hit their targets. The process helps prevent underperforming programs from becoming long-term financial burdens.

Upfront Sunset Provisions

At American, most new programs agree to a 2-to-1 income to direct expenses ratio target. However, targets vary based on program type, location, and direct cost requirements.

Sample New Budget

Under this process, American has sunset 10% of new programs launched. While this number may seem small, it demonstrates that the process works in two key ways. First, the potential for program closure ensures faculty take the targets seriously, and they work hard to make sure their programs are competitive. At the same time, academic and financial leaders have demonstrated their willingness to end funding for new programs that fail and reallocate resources to more mission-critical activities.

Cost minimization efforts before launching new programs reduces the chance of profitless growth

In addition to setting clear financial targets, institutions should evaluate how to minimize costs while designing potential programs. For example, to minimize instruction costs, examine faculty workload data to identify existing faculty who can teach in the program. To avoid administrative costs, consider granting course releases for program administration rather than hiring a new FTE. For facilities, if you can’t find existing space to use, lease space instead of building new. If you need a software license, find out if the institution already has one before adding a new contract. For additional proven tactics for minimizing costs, see the table below.

Expense Table

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