Recently I asked six CFOs of Traditional Universities (TUs) in the United States and Mexico if they routinely produce reports on the actual cost and income of each program; the answer (for all but one) was “No.” The lone exception was the Mexican TU, which operates more like a Capitalized University (CU). I asked the American CFOs why didn’t they and their answer was very logical, because no one asks for them.
These reports are the primary metric of all operating data in an organization. It is usually the first aggregation, that is the summing of costs and income at the lowest level of operations, of a program’s fiscal record. It consists of 1) actual direct cost of instruction for the program the previous month, 2) allocated cost of overhead, and 3) other operating costs.
The report should also present income data such as, 1) units sold to students, 2) tuition and fees, and 3) state and local payments per capita. What is left over (at a CU) would be called “gross or operating profit” but at a TU would be called something like “contribution to operating budget” which is all TU’s are allowed to collect.
If there’s nothing left over and instead the program is losing money, then those who manage it must take action. One either raises income or cuts costs. If the program that is losing money has no market, the question becomes, is the university supporting the program because of the public mission and therefore is considered crucial? If the answer is no, then perhaps its time to close it. But there’s also the income side, if the program has a market, then the new marketing units of TUs should take a look at it, see if a greater number of students can be attracted and then proceed to market to them.
But if we don’t have any operating reports, how can we take remedial action? CU’s produce Operating Reports (as is the case at the Mexican university) every month, and these statements provide (in dollars and cents), the income and cost of each program. While my sample of six CFOs is not representative, from my own consulting I know that in the TUs, these reports are rarely produced.
TUs do not, therefore, have the basic building blocks for controlling costs at the Program or College level. At TUs, only when specifically requested by upper echelons, will CFOs produce these accountings, because of that, you can believe me when I tell you that they don’t know what programs cost and whether or not they contribute to overhead (make or loose money).
Why don’t the CPAs and financial consultants who work for universities, insist that their clients account for costs in this way? Simple answer, because they don’t care, it is outside of the scope of their intervention, not their job. OK then, why don’t Deans and Department Heads demand that they be given these data? Sometimes they do but the CFO who must authorize its production, is so high up the organizational ladder that few can get their requests heard.
Therefore, when Deans and Department Heads fail to ask and demand these data, the result is that no report is produced. How can any manager operate without these data? At most TUs that question has a simple answer, “by the seat of the pants.”
If we as managers of programs and colleges continue to manage program delivery using the “by the seat of the pants method”, augmented by the “political realities” method and synthesized into the “no one is responsible” method; we will end up with tuition rates that grow at 3-5 times the rate of inflation. Wait a minute, isn’t that what is happening now?
Next Post: What does Higher Eduction actually cost? Part 2