Upstate New York College Collaboration Innovation and Collaboration Ron Salluzzo October 6, 2015

Starting at the Beginning Why Innovation and Collaboration go together: Investment amounts, best practices, scope of activity What makes your institution different? Not historically, but now What will differentiate your institution in 10 years? Considering impact of demographics, economics, institutional financial health and market strength Once you know what to do: What is the best way to deliver

Level Setting: Why this time is different External Regional Demographics High school graduation rates Birth rates by broad categories Regional economics Program interest alignment issues Family economics in Western New York Market anger…. (don’t discount this as a driver)

Level Setting: Why this time is different Internal Cost of academic programs Cost of non-academic programs Growing demands for services

Small College Closures Poised to Increase (Moody’s 9/25/2015) Closures and merger activity will increase as the sustained impact of revenue declines intensifies. A majority of small colleges have failed to achieve sustained revenue growth and trend will continue. The smallest colleges will continue to lose market share as the largest achieve growth. The smallest colleges have inefficient cost structures with net tuition revenue funding only three-quarters of educational expenses. While many small colleges are under stress, some will continue to thrive. (But this isn’t Lake Wobegon…)

A Key Misalignment in Many Institutions This is the battle of aspirations fighting incrementalism. Incrementalism is death by a thousand cuts. Incrementalism will fragment investment resources. Misallocation of investment resources will kill strategy and innovation. “You've got to be very careful if you don't know where you are going, because you might not get there.” —Yogi Berra

Driving Forces in Organizations: How it usually works Driver should be mission and strategy, finances reflect only affordability.

Driving Forces in Successful Organizations: How it should work Multiyear planning Winning the strategy discussion Simplifying budget processes as strategy implementation Everyone on the same page Reduction in execution risk “If you want to predict the future, create it.” —Abraham Lincoln

Profile of Long Term Successful Institutions Academic profile Undergraduate student base > 3,000 Average enrollment in programs > 100 Distribution of graduations by major Under-enrolled majors making up less than 30% of offerings Premier institutional programs will always represent the plurality of graduates, it is the under-enrolled programs that will diffuse investments. Graduate programming, with margin Retention rates stable and growing, graduation rates stable and growing.

Profile of Long Term Successful Institutions Financial profile Composite Financial Index* of at least 3.5 over a period of years Operating margins of at least 4%. Retained wealth, as measured by expendable resources, of at least 40% of operating size. Debt capacity to meet strategic needs. Age of facility that is reasonably up to date. Operating profile Student to Faculty ratio that is stable and larger. Student to Administrative staff that is stable and larger. Number of square feet per student that is rational and controlled. Technology investments that are consistent and rational. * From Strategic Financial Analysis for Higher Education, 7th Edition

Appendix – Some Statistical Data

Some Statistical Data as a Takeaway Moody’s Data In 10 years leading up to 2014, there were 80 closures and mergers. Projected to triple in the next 10. Number of smaller institutions with less that 2% revenue growth rate rose from < 10% in 2006 to 50% in 2014. There is a growing trend of enrollment shift toward larger institutions: Program investment, student life, capital facilities, robust online offerings. Inefficient cost structures due to inability to leverage fixed costs over a bigger population of students. Increasing regulatory and personnel costs are drivers, pension costs as well at public institutions. Institutions with specific niches and strong endowments will continue to thrive.

Some Statistical Data as a Takeaway Academic Data* Average enrollment per major > 100 undergraduate students Overall enrollment > 3,000 total undergraduate students Graduation rates need to exceed predicted rates Offerings should correlate with national program interests Retention rates > 80% Graduation rates > 65% * If targeting an operating margin of about 4% in tuition dependent institutions.

Some Statistical Data as a Takeaway Demographic Data* Northeast region high school graduations will decline 10% between 2014 and 2024. New York State high school graduations declining 7% between 2014 and 2019. National birth rates declined 9% from 2007 to 2013. Enrollment shifts in four year institutions from 2000 to 2014 have emphasized for-profit and public institutions: For profit institutions +425% Four year public +120% Four year private +30% * Based on NCES and NYS data

Some Statistical Data as a Takeaway Financial and Operating Data (for Tuition Dependent Institutions) Direct cost per credit hour < 35% of net tuition revenue per credit hour Student-to-faculty ratio > 15:1 Student-to-administrative personnel ratio > 9:1 Facility square footage per student, per APPA studies is 300 sq. ft.(fiscal 2013) Overall financial health of a CFI > 3.5, operating surplus >4%, expendable wealth > 40% of total expenses Debt Capacity > 100% of expendable wealth (measured by viability ratio) with an age of facilities of less than 14 years