1. Economics, Finance, & Strategy Michael Townsley, Ph.D.

2. Agenda Economics and Finance Threats Facing Institutions Enrolling < 1,000 Students New Hurdles Strategic Planning

3. Economics & Finance Student Markets Competition Pricing, Discounts & Subsidies Financial Equilibrium Model Internal Investments

4. Markets - Structure Competition Definition – colleges competing for the same applicants. Income, high school GPA, SAT scores, parental education, and degree aspiration. Brand Name Price Elasticity

5. Markets and Pricing Quality and Price Matrix Pricing Within the Market Number of Competitors How Students Choose College Student Mobility among Competitors Type of Competitors – Selective, Public Cost Structure of Competitors

6. Quality – Price Matrix

7. Students and Pricing Students use posted price as a proxy for quality, but negotiate for best net price. Students making late choices interested only in lowest posted price

8. Pricing & Discounts Higher education prices below cost of production. Price ƒ { enrollment,investments, other income, compensation, internal, and external expenses} Discounts shaped by competition. Discounts determined by wealth.

9. Competitive Practices If the college or program provides quick and simple transfer policies – Attracts students from competitors and from community colleges. Student attrition increases. Prices become more competitive – colleges forced to discount beyond first year.

10. Markets & Cost Structure Cost Structure is shaped by Price competition, Size & academic ability of student pool, Costs of programs offered, Services offered to the student, Rate of increase of fixed costs.

11. Financial Equilibrium Equilibrium Depends On: Marginal Short & Long-Term Growth Rates. Revenue One Year Rate => Revenue Five Year Compound Rate. Revenue One Year Rate => Expense One Year Rate. Revenue Five Year Compound Rate => Expenses Five Year Compound Rate. Net Tuition Rates of Growth Are Positive.

12. Small Colleges Finances Enrollment and Net Tuition Revenue and Expenses Assets Per Students Unrestricted Net Assets to Liabilities Percentage Reporting Deficits

13. FTE & Net Tuition (Index Year 1998)

14. Revenue & Expenses (100 K)

15. Assets Per Student

16. Unrestrict. Net Assets:Liabilities (standard = 2.0)

17. Percentage Reporting Deficits

18. Enrollment Growth Branding New Markets and New Programs Partnerships for Growth Use Location As Value Aggressive Market Driven Leadership Use Training & Certificates as Building Blocks to Degrees

19. Beat the Competition Who are your competitors? What is their financial condition? What are their strengths? What is happening in the market – What do students want? What strategic changes are competitors making? How can you add value to your programs?

20. Strategy Where is the College going? How will it get there? What are the College’s strengths, weakness, opportunities, and threats? How will the College build its financial resources? Strategy requires consensus and foresight.

21. New Hurdles – Competition What is your competition doing? Pricing New Programs New Demographic or Geographic Markets New Delivery Systems New Competitors

22. New Hurdles - Uncertainties Government Support for Financial Aid Federal, State, and Private Grants Demographics within the existing student market Inflation – energy, benefits, etc. Cost of Replacement - Faculty

23. New Hurdles – Forecasts What happens to financial stability when the following factors change? Enrollment Tuition & Fees Other Revenue Sources Compensation & Benefits Other Expenses Capital Projects

24. New Hurdles – Big Questions What are the College’s 5 year goals? How will the College improve its competitive position? What are the new markets? How will the College increase revenue?

25. Strategic Planning Elements Fact Book Identifying Strategic Issues Use a Strategic Steering Committee Use Task Forces for project development Screening the Projects Implementing Strategy Monitoring & Responding to Future Events