If your institution has ever attempted a margin analysis for an academic operation, like the one we deliver with Program Economic Analysis (PEA), you know it can be challenging to know where to start. There are many drivers of “profitability” (margin) in academic programs, including faculty payroll dollars, number of class sections taught, and enrollment, to name a few. When we work with clients, we start by helping them identify goals—first at the institutional level and later at the program level. If a program is running in the red, it may mean there are not enough students to sustain the costs of running that program. It also might mean that the program could run with fewer course sections, cutting back on instructor or adjunct payroll. It could also mean several other things, and there are too many to name here.
Wouldn’t it be helpful to know where to make changes to help the program meet these goals?
In this month’s edition of our PEA use case series, we dive into a forthcoming feature of our PEA: What If Scenario Analysis.
What If Scenario Modeling: Validating Your Strategy
Let’s start with a simple example that we’ve detailed in a previous edition—replacing a faculty line. Assume you have a chemistry department at your institution. The department has fewer than 10 students. It does not support the general education curriculum. Its contribution margin is around 25%, well below the median for chemistry departments at similar institutions, which you can learn through PEA’s new benchmarking feature. You suspect you’ll have to sunset this program unless that margin comes up, so you’ve set a three-year margin goal of 40%. Then, you get the news that one of your tenured faculty, whose annual compensation is approximately $150,000 after benefits, is retiring at the end of this academic year. You have a decision to make! Do you replace this person? Surely, you’ll save some expense since you’re likely to hire someone at the assistant level for closer to $100,000. But what if you didn’t replace this line at all, or reallocated it to a different program?
With our What If feature, you can test a few different scenarios. The margin impact to:
- The chemistry program and to the institution as a whole, if you:
- Replaced that retiring faculty member with a more junior faculty member.
- Did not replace the line at all.
- Backfilled the retiring faculty member’s courses at an adjunct rate.
- A growing program and to the institution as a whole, if you reallocated that line elsewhere.
This feature takes four possible decisions (potentially overlapping) and allows you to model each one, a vital tool for validating and communicating your strategy to stakeholders on your campus. In addition, using PEA, you’ll be able to model the impacts of other drivers. For instance, maybe you should replace that faculty line if you’re going to recruit 10 new students to the chemistry program next fall. Or, maybe you could avoid replacing that line if you were able to condense your chemistry schedule and offer eight fewer sections. These data have sat in PEA for years.
At Forvis Mazars, we recognize there are many moving parts on the academic side of the house. That’s why we built PEA, and that’s why we continue to invest in upgrades to this product after nearly a decade on the market. We listen to understand our clients, and right now, they’re telling us they need a way to understand whether their ideas will work with evidence-based data.
Interested in learning more about how PEA’s insights can help you chart a more holistic and evidence-driven academic strategy that enhances your competitive advantage, drives sustainable financial health, and helps you live out your mission? Request a demo with our higher ed team today!