Friday, July 12, 2013

College CFOs Increasingly Concerned about Sustainable Operations

The 2013 Inside Higher ED Survey of College and University Business Officers surveyed 457 chief financial officers at universities and found less certainty about the sustainable future of higher education. The numbers aren’t dismal but do move into the realm of raising eyebrows and thinking of solutions. In particular, a lower percentage of CFO’s believe their organizations are financially sustainable and a higher percent are taking on debt to run operations. 

-27% strongly agree that they are confident about the sustainability of their institutions financial model.
-21% believe for-profit education (lower page of report) is sustainable while 51% believe elite schools are sustainable.
-49% of polled officers have experienced increases in healthcare premiums.
-92% say that retaining current students is a large part of their strategy.
-45% believe that technology is or will help them reduce operating costs.
-59% stated they were well informed about their jobs before taking them.
-3% believe their institutions should take on more debt and 21% strongly agree that their institutions have taken on more debt to finance operations.
-Few business officers believe faculty are realistic about financial challenges. 

The vast majority of the colleges polled were traditional universities. In order to overcome some of these challenges 37% indicated that they would recruit more international students. The report does not indicate this, but such colleges are limited by legislation on doing so to any great extent. However, online colleges can better offer virtual coursework in other countries through the Internet. There may be some legislative hurdles in these countries but these are not impossible to overcome. Online universities have greater opportunities to expand their markets overseas and create global universities of the future.

The report does highlight the growing concern with the financial sustainability of future traditional education.  Executives appear to be nervous about finding new sources of revenue. Some have opted for fundraising while others have decided that using technology is their best approach. Yet the numbers are particularly low indicating there is no concise strategy in meeting these challenges. It would appear decision makers are still unsure of what is the best approach.

More frightening is the increasing use of debt to fund operations.  When needed this can be a successful short-term strategy but when it becomes chronic there is an inherent problem with cash availability and profitable operations. It is often beneficial to use this strategy during times of transition and restructuring  and not necessarily as an ongoing practice. Doing so indicates that an established entity  is paying interest on monies it should already have available or does not have enough flexibility at the end of the budget year to build a cushion for times when revenue is not coming in (i.e. during semesters). They are paying a premium for operational costs. 

You may obtain your own copy of the report HERE

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