1. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Better, Cheaper, Faster Board-CEO Partnership for Change Ellen Chaffee, AGB Fellow and President Emerita, Valley City State University (slides 1-38) Rick Staisloff, Vice President for Finance And Administration, College of Notre Dame of Maryland (slides 39-60) ASSOCIATION OF GOVERNING BOARDS NATIONAL CONFERENCE, ORLANDO, 2010

2. Association of Governing Boards of Universities and Colleges. All Rights Reserved. State-Level Relative Hardship 2

3. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Goals for the Workshop 1.Understand strategic finance as a context for achieving long-term institutional sustainability 2.Learn new strategies and tools for dealing with current challenges

4. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Agenda Changing Landscape in Higher Education A Strategic Finance Approach Reducing Cost and Increasing Productivity Break Strategic Finance: CFO Perspective New Tools for New Decisions Wrap Up

5. Association of Governing Boards of Universities and Colleges. All Rights Reserved. CHANGING LANDSCAPE OF HIGHER EDUCATION

6. Association of Governing Boards of Universities and Colleges. All Rights Reserved. The Changing Landscape of Higher Education We CANNOT do What we MUST do If we KEEP doing What we USUALLY do

7. Association of Governing Boards of Universities and Colleges. All Rights Reserved. What we MUST do “By 2020, America will once again have the highest proportion of college graduates in the world” - President Obama, 2/24/09

8. Association of Governing Boards of Universities and Colleges. All Rights Reserved. And there’s consensus on that To increase the percentage of Americans with high-quality degrees and credentials to 60 percent by the year 2025 Currently: 39% Lumina Foundation for Education

9. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Knowledge-Economy Work Force

10. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Can we go on this way?

11. Association of Governing Boards of Universities and Colleges. All Rights Reserved. State funding: 3% Tuition: 3% above CPI Student aid: 4% Expenditure per student : 1-2% above CPI Recent Revenue/Expense Trends

12. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Tuition Expend/FTE State Approp CPI Our Business Model is Not Sustainable

13. Association of Governing Boards of Universities and Colleges. All Rights Reserved. State Financials: Gaps could approach 7% of spending - “The Lost Decade” of state funding Source: Don Boyd (Rockefeller Institute of Government), 2009 *

14. Association of Governing Boards of Universities and Colleges. All Rights Reserved. We cannot go on this way HITTING HOME: Quality, Cost, and Access Challenges Confronting Higher Education Today, Travis Reindl, www.makingopportunityaffordable.orgwww.makingopportunityaffordable.org

15. Association of Governing Boards of Universities and Colleges. All Rights Reserved. The Change Process Expert Secure Disruption Turmoil Transition Vagu e Scary New State

16. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Board-President Relations in Times of Change Find common ground on how much/what kind of change. Trust AND verify, both ways. Early and often. Keep roles clear and support each other. Define the North Star and navigate by it.

17. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Brainstorm Is your university feeling these pressures? What are some of the barriers to dealing with them?

18. Association of Governing Boards of Universities and Colleges. All Rights Reserved. STRATEGIC FINANCE

19. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Strategic finance is aligning financial decisions —regarding revenues, creating and maintaining institutional assets, and using those assets— with the institution's mission and strategic plan. What is Strategic Finance?

20. Association of Governing Boards of Universities and Colleges. All Rights Reserved. In graphic terms… Mission Strategic Plan Financial Decisions

21. Association of Governing Boards of Universities and Colleges. All Rights Reserved. The New Bottom Lines Core Issue Balanced Scorecard Kaplan and Norton/et al Good to Great Collins/Staisloff/et al Is the organization doing the right things and doing them well? Quality, effectiveness, customer satisfaction Mission Does the environment want/need what the organization does? Financial stability and strength Market Is the organization ensuring that revenues exceed costs? Operating efficiency, internal processes Margin Is the organization investing in its own future? Learning and growthMomentum YES What’s the cost/benefit of improvement in this?

22. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Importance of ALIGNMENT and Tracking Progress Strategic Finance (Momentum, Margin) Actions Strategic Indicators Communication Information Analysis Course Correction Strategic Goals (Mission, Market)

23. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Strategic Indicators (North Star Proxies) (examples) More students –Enrollment growth by in/out of state Affordability –Net tuition/median household income –Total financial aid/Total tuition revenue Accessibility –Enrollment growth by race, income, transfer status Efficiency –Cost per SCH by program, by site, by delivery Effectiveness –Retention and graduation rates

24. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Removing the brick wall More graduates Affordable Effective Efficient Accessible

25. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Current Institutional Responses Increase efficiency Increase administrative productivity Leverage stimulus money protectAPLU survey just out: “The survey results indicate that "universities are striving to protect the core education mission of their institutions.” What’s missing from this picture?

26. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Missing in Action? Progress to strategic goals Growth Quality improvement Academic productivity Innovation Development of a sustainable business model David Wiley, BYU, http://davidwiley.org/

27. Association of Governing Boards of Universities and Colleges. All Rights Reserved. What do institutions need? Growth by substitution Greater cost containment Greater productivity Clear expectations Innovation LEADERSHIP $

28. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Roaring Out of Recession Companies that recovered well from past recessions: Used multi-faceted strategies that were highly customized to their own circumstances Focused on operating efficiency, market development, and asset development Reduced employee numbers as little as possible Continued to invest in asset development, marketing, and new product/ market development Ranjay Gulati, Nitin Noharia, and Franz Wohlgezogin, “Roaring out of Recession,” Harvard Business Review, March 2010. 28

29. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Reducing Cost and Increasing Productivity *

30. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Cost Effective: Cost Reductions + Productivity Costreductions Cost reductions = Permanent structural reductions in spending Productivity improvements Productivity improvements = Increase in output (learning, research, jobs), without changing admissions or spending * From paying $1 for X To paying $1 for X + 2 From paying $1 for X To paying $0.75 for X

31. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Examples of Cost Reductions Reduce high cost/low demand programs Address retirement eligibility Reduce growth in health care cost Consolidate administrative functions Reduce spending on non-revenue producing athletics Restructure debt Restructure faculty compensation and rewards (use turnover to substitute teaching faculty for research faculty) Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

32. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Examples of Productivity Improvements Increase in student retention and graduation Reduce excess credits for the degree Increase credit-by-exam Increase distance-based learning programs Increase proportion of graduates who meet goals for critical learning Increase proportion of students who remain – and are employed – in state Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

33. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Building Cost-Effective Institutions Reduce administrative costs Tackle ‘automatic’ cost increases Reengineer curricula Reengineer course delivery Eliminate, innovate, or consolidate high cost/low demand programs Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

34. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Learning Productivity Students come to college fully prepared (no remediation) Accelerated learning Minimize “rework” and reduce credits to degree Improve rates of course completion Encourage use of assessment/”test out” options Learning in the workplace/credit for experience Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

35. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Improving Affordability & Choices Commit to average undergraduate tuition growth no more than CPI, with increased need-based aid Allow differential tuitions for high cost/demand programs Experiment with low priced options Greater on-campus employment opportunities for students Reduce time to degree Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

36. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Implications for Leaders Re-imagine your business model to create long- term sustainability Support change in approach to budget building –Examine old habits and conventional wisdom about costs –Focus on big picture, and progress on achieving strategic goals –Commit to institutional innovation –Examine long-term implications of current decisions Strategies for Tough Times, Dennis Jones and Jane Wellman, November 19, 2009

37. Association of Governing Boards of Universities and Colleges. All Rights Reserved. From Steve Jobs to YOUR Job 20 th Century was one of technological innovation 21 st Century must be one of institutional innovation David Wiley, BYU, http://davidwiley.org/

38. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Speed Dating – Strategic Finance Around the table, 1 minute each: Give an example of an effective change (at your institution or another) that represents a strategic finance perspective

39. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Strategic Finance?

40. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Magic Formula Mission + Market + Margin = Success

41. Association of Governing Boards of Universities and Colleges. All Rights Reserved. “Tried and True” Reporting Budget to Actual –Quarterly –Year over Year Comparison –Projections –Multi Year Rolling Budgets Financial Statements –Quarterly Audit –Annual Focus must be on what the numbers mean, more than on the numbers themselves

42. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Financial Ratios Build off of the audit What are the numbers telling us? Debt Rating Central Question – Are we financially healthier this year than last?

43. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Financial Ratios

44. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Strategic Indicators Strategic Indicators - Measures institutional performance in key areas How do you know if you have the right ones? –Focus on important issues –Impact decision making –Understandable –Come from available data –Must have trend, benchmark, and target –Few in number Peer Group vs. Competitors Importance of Telling the Story

45. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Dashboard Indicators – Notre Dame Student Faculty/Student Staff Ratio Rev. and Exp. by Source Cost per FTE Age of Facility/Deferred Main. Participation in Annual Fund Endowment per FTE Enrollment by Program – HC and FTE Matriculation Graduation Rate Diversity Tuition Discount

46. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Is This a Strategic Finance View? Importance of the “Reality Check” – Where are we right now? However, these tools are backward looking New tools are needed for us to look forward and to act strategically Shift from input focus to output focus

47. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Top 12 programs account for 89% of credit hours Activity Drivers Nursing Biology Religious Studies Religious Studies Pharmacy Education Business Communication Arts English Modern Foreign Language Philosophy Psychology Math 1,903 904 786 813 1,227 1,330 873 6,991 861 799 798 667 4% 35% 4% 3% 9% 4% 7% 6% 4% CHM HISCST ARTPHY MUSPOLHSV PED Anchor 4 Programs = 57% Core 8 Programs = 32% Other 9 Programs = 11% Each 2% or < 47

48. 90% of prospects originate from the top 12 majors 48 Total prospects by major Median 1,169 48 Demand – What Do People Want?

49. Yield 49 Median 33%

50. Association of Governing Boards of Universities and Colleges. All Rights Reserved. # of Prospects vs. Yield (accepted to enrolled) High # Prospects/Low YieldHigh # Prospects/High Yield Low # Prospects/Low Yield Low # Prospects/High Yield Median Yield 33% Median # Prospects 1,169 BioBio High 10,681 Low 162 BusBus EDUEDU NursingNursing PsychPsych Pol Sci CommComm ArtArt ChemChem CriminCrimin EnglishEnglish EnginEngin Comp Sci InternatInternat HistoryHistory High 55% Mod For Lang Lang MathMath RadiolRadiol PhysicsPhysics Rel Study StudyRel PhilosPhilos EconEcon ElevateYield Elevate Yield Maximize 50 Low 0%

51. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Net Revenue Modeling Net Revenue Modeling - By Division UGPT UGAcceleratedGraduateEng Lang InstTotal Revenue15,686,4862,481,4463,999,99410,266,637464,20732,898,770 Tuition Discounting5,656,57740,0260876,15806,572,761 Discounted Revenue10,029,9092,441,4203,999,9949,390,479464,20726,326,009 Total Discount %36.06%1.61%0.00%8.53%0.00%19.98% UGPT UGAcceleratedGraduateEng Lang InstTotal Discounted Revenue10,029,9092,441,4203,999,9949,390,479464,20726,326,009 Direct Costs8,284,3161,277,6691,554,4352,874,851347,93314,339,204 Net Revenue1,745,5931,163,7512,445,5596,515,628116,27411,986,805 Net Revenue %17%48%61%69%25%46% Percentage of Total Revenue Base UGPT UGAcceleratedGraduateEng Lang InstTotal Discounted Revenue10,029,9092,441,4203,999,9949,390,479464,20726,326,009 Total Direct and Allocated Cost9,954,5832,366,8283,149,6687,858,580347,93323,677,592 Net Revenue75,32674,592850,3261,531,899116,2742,648,417 Net Revenue % - FY 20080.8%3.1%21.3%16.3%10.1% Net Revenue % - FY 20072.1%18.8%28.8%25.0%16.5% Net Revenue % - FY 20065.5%23.0%20.0%25.0%16.0%

52. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Student Credit Hours per FTE Faculty FY 2008 National Norm FY 2008 + 45 +30 +15 -20 -50 -80 -110 -140 -170 BioBio BusBus EduEdu NursingNursing PsychPsych CommComm ChemChem EnglishEnglish MusicMusic Comp Sci HistoryHistory ForeignLangForeignLang MathMathRel Study StudyRel PhilosPhilos ArtsArts Health Phy Ed Health Source: CND Delaware Instructional Cost Study 52 More efficient than market standard Less efficient than market standard

53. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Direct Instructional Expenditure per FTE Student FY 2008 National Norm FY 2008 +$12,000 +$10,000 + $8,000 +$6,000 +$4,000 +$2,000 -$2,000 -$4,000 -$6,000 -$8,000 -$10,000 -$12,000 BioBio BusBus EDUEDU NursingNursing PsychPsych CommComm ChemChem EnglishEnglish MusicMusic HistoryHistory ForeignLangForeignLang Rel Study StudyRel PhilosPhilos ComputerComputer Health Phy Ed Health More efficient than market standard Less efficient than market standard MathMath Source: CND Delaware Instructional Cost Study 53

54. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Sample Financial Decision Matrix Grow We will evaluate, dialogue then organize decisions into four buckets SunsetRedesign Maintain/ Manage Cost 54 MissionDemandConversionContributionEfficiency ProgramMission# ProspectsYieldCredit HoursStudent Cr Hr/FTE Faculty A Yes> 5,000>33%> 1,000Above Benchmark B Yes< 1,000< 33%> 500At Benchmark C Yes> 1,000< 33%> 500Below Benchmark D No< 1,000< 33%< 500Below Benchmark

55. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Reallocating To Areas Of Strength Focus on what you will stop doing Reallocation allows institutions to: Create new areas of growth Strengthen core programs Invest strategically without new funding stream Reinvent themselves Budget shortfall as opportunity

56. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Business Plan Pro Forma –Develop a model Relation to mission Market analysis Competition –Test Externally

57. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Business Plan – Cost Analysis Enrollment Projections - 3 years –cannibalization –working backwards Revenue –Adjusting gross for discounts and financial aid –Grants, Fees, etc. Expense Projections – 3 years –new and reallocated –divesting –existing faculty costs –Use of Debt Breakeven – How long until we get there? Mark-up – How much above cost do we want to achieve

58. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Business Plan - Advantages –Sets the bar –Creates Milestones – Go/No Go –Resources identified up front –Builds accountability

59. Association of Governing Boards of Universities and Colleges. All Rights Reserved. How Will We Know When We Have Arrived? Feedback Loops Go back to: –Business Plans –Strategic Indicators However beautiful the strategy, you should occasionally look at the results. Sir Winston Churchill

60. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Speed Dating #2 – Strategic Finance Each member of your table has 1 minute to share the following: How would your role or your president-board relationship need to change in order to support a strategic finance approach?

61. Association of Governing Boards of Universities and Colleges. All Rights Reserved. AGB Support

62. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Now What Do I Do? Be an advocate for mission/market/margin opportunities Insist on seeing the data behind the decisions Focus on what the numbers are saying Have the courage to ask the hard questions Regularly review the mission and market return from new initiatives Develop joint board committee meetings and activities – Example Finance and Academic Support rotation between board committees Consider having a Board-Executive Strategic Finance workshop on campus (more info: 3:00 this afternoon)

63. Association of Governing Boards of Universities and Colleges. All Rights Reserved. Evaluations, Please

64. Association of Governing Boards of Universities and Colleges. All Rights Reserved. To continue the dialogue... Dr. Ellen Chaffee, Senior Fellow Association of Governing Boards of Universities and Colleges ellen.chaffee@gmail.com 701-840-1780 or 202-296-8400 Rick Staisloff, Vice President for Finance and Administration College of Notre Dame of Maryland rstaisloff@ndm.edu 410-532-5340 64