Labor the Majority of College and University Costs
Facing increasingly tighter budgets, colleges and universities are exploring any and all principled methods to control costs. Clearly, labor comprises the vast majority of costs at all institutions, often 60% to 70% of operating budgets. So, while there are other meaningful cost savings opportunities, few institutions will be able to significantly impact costs without addressing labor.
Administrative Cuts Increasingly Common, but Ineffective
To date, most institutions have sought to reduce administrative labor costs before touching the academic core. There are sound financial and mission-related reasons institutions may choose to avoid faculty layoffs and focus cuts on administration. However, institutions too often cut administrative staff because it is more expedient, not because it is right answer. Further, indiscriminant administrative cuts can cause significant damage to the institution, including drops in staff morale, negative impact on productivity and risk compliance, and potential negative press.
Most troubling, labor cuts often do not ultimately achieve the intended savings. At roughly two-thirds of institutions that cut labor, labor costs grew faster in the three years following the cut than the three years before the cut.
Achieving Sustainable Labor Savings
Rather than enacting painful and ineffective cuts, institutions should pursue principled and sustainable savings by slowing labor cost growth or “bending the cost curve.” In this approach, leaders make important structural and operational changes now to slow growth going forward.
Clearly, administrative labor savings depend on actions at the unit level, such as meeting new budgets and improving productivity, but there are three vital steps to slowing cost growth only an executive can take:
- Build cross-silo staffing resources that help local leaders cost effectively fill gaps
- Prioritize and reallocate staffing dollars across silos to reflect institutional priorities
- Incentivize unit leaders to actively find labor savings in their own units
Resources to Bend the Labor Cost Curve
To help business executives slow administrative labor growth, this report provides 12 executive best practices to implement the necessary cross-silo tools and incentives to achieve meaningful savings.
Download Our Related Infographic
Our infographic provides 100 cost rebasing tactics to help institutions find principled and sustainable ways to reduce costs without painful and often ineffective labor cuts.
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