US universities warned: Your business models are unsustainable

Do you study in the United States? Do you think your university is financially well run? New research may change your mind.

According to recent research, nearly half of financial planning staff at US universities do not have faith in the current business models at their institutions. The research found 47 percent of staff believe the model is “not sustainable for the next five to 10 years”.

Chicago-based management consulting firm Kaufman Hall conducted the study in August and September 2017. More than 180 higher education professionals – who have some involvement in the budgeting process and financial planning at their university – were surveyed.

Nearly two thirds of respondents (66 percent) claimed they are unable to keep on top of quickly-changing financial circumstances using the current processes in place at their institution. Additionally, 64 percent believed higher education was behind most industries in “adopting modern financial planning practices and tools”.

Almost half of financial planning staff at US universities believe that the current business model at their institution is “not sustainable for the next five to 10 years” https://t.co/ogr7Ch7sNy

— Ellie Bothwell (@elliebothwell) November 27, 2017

Speaking to The Times Higher Education, Tony Ard, vice-president of higher education software at Kaufman Hall, said the findings confirm there is unrest. There is a “growing recognition from people within higher education, and specifically in finance offices, that at the micro-level we probably can’t grow our way out of these financial challenges”.

Approximately 43 percent of respondents said the current length of the budget cycle at their institutions limits them. They are unable to react to changing circumstances and make informed decisions. An alarming 82 percent of respondents claimed their budgeting cycle takes over three months to complete. An additional 34 percent said it takes more than six months.

Ard, speaking to The Times Higher Education, said the problems in sustainability for universities’ business models stems from “flat demographic trends around high school graduates”. It is also affected by a lack of funding allocated to public universities and the “challenges with growing tuition revenue”.

“There has been a lot of scrutiny on published tuition rates,” Ard claimed. This has caused concerns over the “average family’s ability and willingness to pay what it perceives as a high tuition rate”.

The vast majority of college and university trustees (92%) believe that higher ed's business model needs to change. Learn more about what trustees consider barriers to change in the AGB 2017 Trustee Index: https://t.co/RZ8Dh1smpQ pic.twitter.com/B6tsnEiL1O

— AGB Guardians (@AgbGuardians) November 15, 2017

Ard appreciates it is difficult for universities to “influence their costs in the short run” as they are reliant on people and facilities.

When the results are based on just those working for two-year community colleges and non-profit universities, the figure rises from 47 percent to 50. When based on respondents from both public and non-profit private four-year universities, it decreases to approximately 45 percent.

Ard claimed it is likely universities with “very strong brand names will be fine”, however other universities are likely to struggle and face merging, or even closure.

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