Leaders of both private and public higher education institutions have shown incredible fortitude, flexibility, and vision in addressing the challenges of the pandemic this past year — on top of what has been several years of uncertainty in fiscal challenges.
Higher education enrollment dropped dramatically in 2020, and fall 2021 rates declined by an additional 3.2 percent, according to the National Student Clearinghouse Research Center. Now more than ever, education leaders must modernize financial planning and analysis processes to remain viable today and in the future. If you want your institution to truly thrive, you’ll need more dynamic forecasting and scenario analysis capabilities to make informed, data-driven decisions so you can anticipate and respond to whatever the future holds. Consider the following best practices for long-range planning and agility.
Compare forward-looking models to current plans
Financial modeling begins with the current budget or strategic plan. A mix-and-match approach to assumptions allows leaders to examine conservative and aggressive scenarios individually or in conjunction with other scenarios. Assumptions can include revenue increases or decreases, historical actuals, enrollment changes, economic factors, wages, interest rates, capital markets, and much more.
Long-range plans encompass a range of possible future states over several years that reflect assumptions, allowing leaders to understand the potential positive and negative financial impacts of any initiative or series of initiatives. For example, a new program may need significant initial investment and a time horizon of a few years before the investment results in higher enrollment and revenues. Modeling a new scenario should be as easy as changing inputs, running the report, and comparing it side-by-side with previous models in terms of impacts on the balance sheet, income statement, and cash flow statement. If this process involves numerous spreadsheets or more than 10-minutes of work at your institution, you will benefit dramatically from adopting modern technology designed for this purpose.
Account for all funds in models
Long-range plans should include a full set of financial statements, including a GAAP-based statement of activities, balance sheet, and cash flow statements. Since decisions can affect how ratings agencies view an institution’s creditworthiness, rigor in long-range plans is critical.
The base case scenario should show an institution’s financial outlook for the next 5-10 years, given current trends and including all funds, debt capacity, capital plans, and cash flow. Depending on the initiative, key drivers could include increased wage costs, additional revenues, new or reduced employee benefits, better classroom utilization, or changes in state appropriations.
Scenarios aggregate the various driver inputs to determine changes to the baseline scenario over different time periods. The analysis should include an income statement, balance sheet, cash flow projections, debt capacity, and key ratios. Modern processes make it easy for your team to consider multiple scenarios in tandem, and to change drivers on the fly in response to questions, comments, new information, and other factors.
Measure and monitor KPIs and benchmarks
According to the Syntellis 2021 Higher Education Financial Technology Trends report, only half of colleges and universities currently use financial key performance indicators (KPIs), which lags other uses for KPIs, including enrollment (80 percent) and academic data (73 percent).
Among institutions that track and report financial KPIs, common data points encompass revenue/productivity, credit ratings agency, and administrative or academic cost benchmarks. Many college and university finance teams say they struggle to access reliable data and create reports that non-finance leaders can understand.
When crafting long-range plans to share across the administration, you’ll need to integrate data from source systems — general ledger, student information system, etc. — and combine that with economic, benchmarking, and credit agency data to create a complete financial picture. Sleek charts and graphs make it easy to visually demonstrate performance against benchmarks, so leaders can better understand the impacts of today’s decisions over the next several years.
Improve transparency to support decision-making
Aggregating disparate data on a common platform, accounting for all funds, and including KPIs and benchmarks are critical factors to effective long-range planning. Reporting functionality ties the other elements together to bring transparency and logic to decision-making, helping stakeholders understand changes over longer timespans than the annual budget.
As you adjust processes to accommodate long-range planning, this may necessitate further digital transformation. These considerations require modern tools that can compare scenarios to show the impact of each on cash flow, utilization, debt capacity, or any other metric — a feature that spreadsheets can’t emulate. Look for a long-range planning solution with integrated budgeting and forecasting functionalities — this will ensure efficient, accurate, and secure planning processes.
Robust forecasting and scenario modeling can take much of the guesswork out of long-range planning, leaving more time for finance leaders and governing boards to focus on the strategic business decisions that will position their institutions for continued success both now and over the long term.
To learn more about performance management solutions, visit syntellis.com.