Facing financial challenges? You’re not alone. Many institutions are grappling with the need to increase revenue and reduce costs. But traditional cost-cutting measures, such as slashing programs, can often do more harm than good, damaging your brand and ultimately hurting your bottom line.
Why? Because these cuts often fail to consider the web of cross-subsidies in a university ecosystem. They overlook the hidden revenue generators, the underutilized resources, and the potential for strategic reallocation to fuel future growth.
There’s a smarter way.
Understanding Program Economics
To truly grasp your institution’s financial health, you need more than a surface-level budget review. You need a granular understanding of your program economics – a deep dive that breaks down revenue, costs, and margins at the program, department, course, and section level. This approach reveals the financial contribution of each program, factoring in:
- Tuition revenue, net of discounts: Understand the actual revenue generated by each program after accounting for scholarships and financial aid.
- Faculty costs: Accurately assess instructional costs by considering faculty salaries and the proportion of their time dedicated to teaching specific courses for all the courses a student takes, not just those in their major.
Why is this important? Cutting programs based solely on perceived value or size can be a costly mistake. Many programs, even small ones, are contribution positive, meaning they generate more revenue than their direct instructional costs. Eliminating these programs may seem like a quick fix, but it ultimately reduces your institution’s overall margin and can lead to further financial strain.
The Power of Departmental Analysis
Instead of focusing on program cuts, understanding your economics empowers you to analyze costs at the department, course, and section level. This approach allows you to:
- Identify and eliminate under-enrolled, contribution-negative courses: Cutting these courses reduces cost without affecting enrollment, revenue, or brand.
- Optimize faculty workload: By strategically reducing or combining course offerings, you can right-size faculty workload and potentially reduce reliance on adjuncts. Always remember, your least expensive instructor is a full-time faculty member who is not fully applied – their cost to teach an additional course may be zero.
- Optimize Outcomes: The most expensive faculty member is usually not the one with the highest salary; it is the one that causes the most students to drop out of your college. Each drop-out costs you tens of thousands of dollars in future tuition.
- Reinvest savings in growth initiatives: Redirect the resources saved from these cuts into program innovation and other growth strategies, ensuring long-term financial stability. This might include developing new programs, enhancing existing offerings, or investing in marketing and recruitment efforts.
Uncovering Hidden Cost Savings Through Faculty Time Allocation
Understanding your economics goes beyond program and departmental analysis to uncover hidden cost-saving opportunities. By analyzing faculty time, you can:
- Reclaim unaccounted-for time: Identify faculty time that’s not dedicated to instruction, research, or administrative duties. This “unspecified” time usually costs a college or university over a million dollars – dollars that can be redirected to teaching or other productive work.
- Optimize release time: Calculate how much you spend on release time and ensure the work still exists and is worthwhile. Streamline release time to free up faculty to do what they do best – teach your students or better align the time with other institutional priorities.
A Data-Informed Path to Financial Sustainability
PES Economics provides the data and insights you need to make informed decisions about cost reduction, avoid the pitfalls of indiscriminate program cuts, and ensure your institution’s long-term financial health.
Ready to take control of your institution’s finances? Contact Gray DI today for a personalized demonstration of our Economics solution.
