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Financial transparency is the ‘one ring to rule them all’ but few HEIs have it

Posted by  Austin Laird

Managing a commercial entity with no visibility over finances is like trying to thread a needle in the dark, yet research reveals many higher education institutions are still operating like this despite escalating commercial competition, stakeholder accountability and consumer expectations, writes Unit4’s product director for higher education, Austin Laird.

Surveys, reports and studies  can be dull and we know they get misinterpreted. Three reports this year, however, have made for interesting reading and no-one can mistake the message coming from PA Consulting, PwC and Inside Higher Ed (with Gallup) about possibly the biggest issue facing higher education institutions (HEIs) worldwide.

Half of CBOs have zero financial transparency

The first of the reports, the 2018 Survey of College and University Business Officers  —  A study by Inside Higher Ed and Gallup in the US, reveals that more than half of institutions do not have the data and other information they need to make informed decisions about performance. The study goes on to show four out of ten chief business officers (CBOs) feel they don’t have the data to evaluate the performance of courses, staff and student information system.

Visibility into finances is perhaps the single most important aspect of any consumer-driven business. And the need for financial transparency is critical to every aspect analyzed by the CBO report: mergers and consolidations, institutional debt, endowment income, tuition freezes and multi-campus systems. How can any institution run effectively without absolute certainty over every aspect of its business?

“Competitive market for earned income”

Higher Education is increasingly being recognized as a commercial market. As such, the second report that caught my eye this year as a must read for HEIs is PA Consulting’s 2018 survey of UK vice-chancellors, Forecasts of storms: University heads’ outlook for UK higher education.

The point it makes is that the higher education policy and market context has changed “beyond recognition,” from a “centrally funded, planned and protected” sector to a “competitive market for earned income” according to prospective students and business partners.

It adds, unfortunately, that universities themselves have actually changed “remarkably little [since 2009].” Experts at PA Consulting say that, in direct contrast to a decade ago, today HEIs must “swim or sink in a resolutely consumer-led market, with little prospect of government help if things go wrong.” (Here’s a summary of that report.)

That’s a sobering thought.

‘No transparent view of costs’

And here’s the third study: Align in Higher Education — financial stability in uncertain times. PwC’s white paper urges HEIs to develop a “robust financial model” for this future, but warns that “many universities do not actually have a transparent organization-wide view of their costs and whether they are truly aligned to strategic goals.”

It’s no surprise that PwC believes institutions can “no longer afford to operate in this way.” (Here’s a blog about that white paper, in which PwC warns the financial stability of higher education is “under significant strain” as HEIs find themselves with an increasing cost base while struggling to adapt to change in a global marketplace.)

Global mega trends

What’s alarming in the PA Consulting survey is that almost every single vice-chancellor (94 percent) cites their top priority as “protecting financial viability and security.” Of course, this is a survey of UK institutions, while the CBO survey talks about those in the US. But finance is finance, regardless of currency, and the same mega trends are evident in both UK and US institutions, as well as those in the rest of the world.

Enrollments are down, competition is up. HEIs find themselves in a global, commercial market where non-traditional students are the norm and expectations are sky-rocketing. They must upgrade the student experience by being available anytime, on any device via intuitive interfaces. They must serve non-traditional needs with creative learning models, or risk losing out to disruptive competitors eager to take their place.

Alongside this trend, the focus on accountability and transparency has never been greater. Funding models are evolving to focus on outcomes, and HEIs must prove their value through success indicators to regulators, accreditors and consumers.

“Outdated IT and inflexible processes”

The need for new economic models is an urgent one. New skills — including the ability to analyze finances, create reports and forecast impact quickly — are increasingly necessary. HEIs need modern digital tools that will allow them to change with the game, and quickly.

PA Consulting’s report highlights “some concerns” over “outdated IT systems and inflexible processes.” It finds one in three HEIs are looking to efficiency gains from their administrative operations. And investments in improved IT systems were identified as “priorities across the sector.”

The CBO survey shows more HEIs are considering mergers with another college or university. More than a quarter have had “serious discussions” about consolidating programs or services, and half of them believe they should combine administrative functions or academic programs. The majority of these (four out of five) see the primary benefits as a reduction in expenses. And two out of five believe it will “take the institution to the next level” in terms of enrollment.

Yet, the same survey shows a quarter of CBOs run financial reports quarterly and two thirds monthly, but less than one tenth of them run them weekly. With an enterprise resource planning system for higher education, this reporting could be done as often as necessary, anytime, anywhere at the touch of a button, with almost zero training and in self-evident, visual user interfaces, like dashboards that mimic social tools.

One ring to rule them all

Without financial transparency, how can any decision about mergers or revenue-generating activities be made confidently? How can any leader make the crucial decisions needed to evolve new economic models?

How will they know if existing financial models are effective now, or be able to model the future impact of mergers or tuition fee increases on enrollment and projected revenue? In order to survive, institutions are going to have to start acting more commercially. Financial transparency is the one ring to rule them all. Get this right and the rest will follow.

Having financial transparency is arguably the single most important thing affecting higher education today. Not having clear, real-time visibility over it may have been okay a decade ago, when funding and protection was plentiful, but not in today’s climate.

Reporting, analytics and 360-degree visibility at the touch of a button may seem like luxuries, but they are already available in the latest enterprise technologies. And it’s time HEIs learned about their capabilities, not just for institutional effectiveness, growth and research excellence but for the benefit of the students (customers) they serve.

It just might be one of the game-changing strategies referred to in the CBO report that helps HEIs stay afloat in this new market and thrive in the coming storms.

Austin Laird

Product Director Higher Education