2017 HIGHER EDUCATION OUTLOOK Leadership, Labor Cost, External - PDF document

4/18/2017 @BKDHigherEd 2017 HIGHER EDUCATION OUTLOOK Leadership, Labor Cost, External Environment & Resources April 18, 2017 @BKDHigherEd 1

4/18/2017 TO RECEIVE CPE CREDIT • Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group  Complete group attendance form with • Title & date of live webinar • Your company name • Your printed name, signature & email address  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided • If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar @BKDHigherEd Nick Wallace, CPA Adam Smith Director Director nwallace@bkd.com asmith@bkd.com Kimberly Marshall, CPA Makayla Matheson, CPA Senior Manager Senior Manager kjmarshall@bkd.com mmatheson@bkd.com 2

4/18/2017 AGENDA • Review survey results & insights on the following areas surveyed  Leadership  Labor cost  External environment  Resources & allocation @BKDHigherEd ABOUT THE SURVEY • More than 230 respondents • 50/50 split of private vs. public schools • Four surveys sent throughout year  About 10 questions each @BKDHigherEd 3

4/18/2017 LEADERSHIP Address Tough Decisions @BKDHigherEd LEADERSHIP – EXPECTED CHANGES & DESTABILIZATION • 62% of those surveyed agreed or strongly agreed they were going to face a period of time where significant, hard to replace faculty & staff were going to require replacement @BKDHigherEd 4

4/18/2017 SHARED GOVERNANCE • Key question – what will you do to sustain leadership needed to navigate destabilization ahead amid expected leadership changes? • One helpful scenario for navigating disruption due to key leadership changes is having great leaders who communicate & manage well together Level of satisfaction with Shared Governance System @BKDHigherEd SHARED GOVERNANCE • Private universities were more likely (60%) to have satisfactory systems of shared governance than public universities who agreed they had satisfactory systems at only 55% of the schools • But what about the other 40% – which camp is your institution in? How can you impact this issue by helping maintain a good system or getting a bad system on track? @BKDHigherEd 5

4/18/2017 SHARED GOVERNANCE Reinvigorating Shared Governance* • Questions for CFOs & their advisors  What is the tone of meetings when financial information is shared & faculty are present or represented?  Does timing of distribution of financial information allow time for deliberation/consultation with faculty (especially when the news isn’t so good)?  Do the financial reports speak the language of the faculty? Are they understandable?  Is the CFO accessible to faculty to promote good relationships & collegiality?  Has the feedback mechanism for faculty giving voice to issues or concerns been thought through & tested as a successful system? * From AGB Webinar (October 7, 2016) on CFO contribution to shared governance @BKDHigherEd HOW STRONG IS YOUR BOARD? • Most believe strong boards & equally strong board committees are essential to institutional success • Results of the survey shown below demonstrate that almost half (49%) felt their board committee performance needed improvement @BKDHigherEd 6

4/18/2017 HOW STRONG IS YOUR BOARD? • Table demonstrates the survey responses regarding board selection, evaluation & retention • Key question – who will take steps necessary to improve board committee performance & board member selection, evaluation & retention efforts? @BKDHigherEd LABOR COSTS Managing Your Largest Cost @BKDHigherEd 7

4/18/2017 LABOR COST – MANAGING YOUR LARGEST COST • Pressures to control costs are at very high levels • Vast majority of institutions (72%) are intensifying efforts to reduce labor costs @BKDHigherEd LABOR COST – MANAGING YOUR LARGEST COST • Higher education has many obstacles & hurdles to control or reduce labor costs • One of the basic hurdles is having insufficient cost information • 63% haven’t analyzed academic costs  Nearly two-thirds of respondents have yet to analyze their academic costs & review corresponding revenues & margins, i.e. , specific data by course, professor, program & department Key Questions: Who will take the steps to analyze academic program revenues, costs & margins? Once analyzed, what steps will you take to make changes? @BKDHigherEd 8

4/18/2017 LABOR COST – MANAGING YOUR LARGEST COST Various strategies being employed by institutions to reduce labor costs • Key Question: Salary freezes were used least to reduce labor costs • Cost & price structure of higher education is under scrutiny As you reduce labor costs, how will • you track the effect on academic Calls for greater transparency between cost & price • quality ? Significant cost differences between programs • @BKDHigherEd LABOR COST – MANAGING YOUR LARGEST COST • Of the institutions surveyed, 73% increased 2017 faculty wages by no more than 2%. No increase was given by 23% of the schools surveyed • Compensation increases have been marginal for several years & in many cases not keeping up with inflation @BKDHigherEd 9

4/18/2017 EXTERNAL ENVIRONMENT Thriving Amid Many Challenges @BKDHigherEd EXTERNAL ENVIRONMENT – SURVEY FOCUS AREAS • Job demand • Cost containment • Revenue enhancements • Negative publicity @BKDHigherEd 10

4/18/2017 JOB DEMAND – SURVEY RESULTS • 53% surveyed said the industry could do a better job providing academic programs that meet needs of today’s economy Work skills @BKDHigherEd COST CONTAINMENT – SURVEY RESULTS • 95% said that the industry was either average or needed to do better with cost containment @BKDHigherEd 11

4/18/2017 COST CONTAINMENT – MARGIN ANALYSIS • Understand true costs & revenues at various levels  School  Department  Major  Class  Faculty member • Help leaders identify underperforming programs as well as successful programs • Key resource in helping to determine academic offerings, develop enrollment strategies & assist in resource allocation @BKDHigherEd REVENUE ENHANCEMENTS – SURVEY RESULTS FROM ANNUAL OUTLOOK PROJECT @BKDHigherEd 12

4/18/2017 REVENUE ENHANCEMENTS – COPING STRATEGIES • Analyzing trends – ClientLink • Traditional budget-cutting strategies may not be best option • New strategies  Mission shifts – graduate programs (private universities)  Expand – branch campuses  Mergers  Restructuring/sharing resources @BKDHigherEd NEGATIVE PUBLICITY – SURVEY RESULTS • 44% experienced negative publicity in the last 24 months • Top two areas  Athletics  Administration • Mitigate risk  Ensure comprehensive risk assessment process in place @BKDHigherEd 13

4/18/2017 RESOURCES & ALLOCATION Finding Balance Between Financial Sustainability & Mission @BKDHigherEd RESOURCES & ALLOCATION – FINANCIAL MODELING • Does your financial model achieve financial sustainability? • 42% of respondents to our survey agree they’re confident about the sustainability of their institution’s financial model through the next 10 years @BKDHigherEd 14

4/18/2017 RESOURCES & ALLOCATION – NEW REVENUE • Are you fulfilling your responsibility to lead an intergenerational institution? • Many institutions are seeking new revenue streams. Our survey shows 59% of institutions have engaged in a search for new revenues outside of academic programs @BKDHigherEd RESOURCES & ALLOCATION – REVENUE SIDE STRATEGIES • Approximately 12% of institutions haven’t considered revenue side strategies in their business model • How will you organize & discover new revenue streams? @BKDHigherEd 15

4/18/2017 RESOURCES & ALLOCATION – PROGRAM PRIORITIZATION PROCESS (PPP) • Key questions  Have you reviewed your programs or prioritized your academic programs to manage program cost?  How should program prioritization be adapted on your campus for maximum positive impact? @BKDHigherEd RESOURCES & ALLOCATION – PROGRAM RESOURCES & ALLOCATING FUNDS Institutions are looking for • ways to reallocate their resources & creatively cut costs. If spending cuts aren’t the answer, what is? Of those surveyed, 90% were • looking for new resources for program budgets 72% were gaining those • resources from reallocated program budgets or from increased program revenues @BKDHigherEd 16

4/18/2017 RESOURCES & ALLOCATION – CAPITAL FUNDING FOCUS Institutions have • acknowledged the need to fund capital improvements to stay competitive Of the institutions surveyed, • 68% said they have adequate debt capacity for facilities if needed 30% anticipate the capital • funding focus for the next five to 10 years will be on new construction, remodeling existing facilities & deferred maintenance @BKDHigherEd QUESTIONS? HigherEducation@bkd.com @BKDHigherEd 17