Program Economic Analysis (PEA) is, first and foremost, a visualization tool. It helps you identify patterns in your data and highlights drivers of economic performance so that you can determine how best to address issues at the course, department, college, or institutional level.
However, its visual versatility has another benefit—it distinctly demonstrates the economic realities of your operations so that you can tell a useful story for your constituents.
In our conversations with higher education leaders, we have found that faculty and staff sometimes struggle to sift through the “noise” about their institution’s economic performance. They are often exposed (intentionally or unintentionally) to metrics that don’t tell the full story, such as:
- Size of the endowment or large contributions
- Enrollment growth
- Posted tuition and fees
- Executive compensation relative to faculty and staff salaries
- Capital spend on non-academic buildings
- Use of external consultants
While all of these items impact the bottom line, they have little to do with the academic operations, which are often primary sources of revenue and expenses. The following metrics give a clearer picture of all the functions required to run an institution:
- Discount rate
- Net tuition versus gross tuition
- Benefit rate
- Non-teaching expenses associated with delivering specific programs
- Student and academic support expenses
- Athletic expenses
- Operation and maintenance of plant and other general institutional overhead expenses
PEA can visualize these metrics for you so that you can tell your institution’s financial story and productively control the narrative. For instance, your academic programs might generate $12 million in margins after accounting for faculty salaries and benefits. However, that number is closer to $10 million after accounting for program accreditation, equipment, publishing fees, dues, and travel. On top of that, considering academic advisors, librarians, and the tutoring center, the number is closer to $9 million. Finally, bringing in utilities, debt service, admissions, marketing, and deferred maintenance may reveal that you’re not generating any margin at all. You may even have a budget deficit.
You can find all of this on your PEA Summary KPI dashboard.
A deficit doesn’t mean you’re going to close—and that sentiment should be explained through your financial statements. Still, a deficit does indicate that you need to be strategic about allocating faculty lines or launching new programs. For instance, you might not be able to afford that new STEM building, or, perhaps, faculty will need to continue acting as academic advisors. Or it could be that you need the faculty’s help recruiting new students or that the library will need to consider sharing resources with the copy and print center.
In other words, spelling out the financial story through your PEA data helps people understand which factors are controllable or uncontrollable. This storytelling process is often energizing rather than discouraging. It can help your team identify ways to grow revenue and manage expenses.
Check out the other articles in this series to learn about the variety of ways PEA can provide strategic value to your institution. Our higher education consultants are ready to help your faculty, staff, and board with financial literacy training and other PEA services.
For more information, reach out to a professional at Forvis Mazars.