Transcript Slide 1

Financially Sustainable Schools:
Six Steps to Re-engineering Your School’s Financial Future
Patrick F. Bassett, NAIS President, Mark Mitchell, VP for School Information Services,
and Corey McIntyre, Chief Financial Officer
6-Steps: Financially Sustainable Schools:
“Birthing” of Next Generation Model
Preliminary Steps: Form a Task Force! Meet 3 Times with an
NAIS facilitator: Create and test hypotheses.
1. Trend Analysis: What are your school’s five- and 10year trends?
2. Ratio Analysis: How do your school's "dashboard
indicators" benchmark against those of comparable
schools?
3. Financial Planning Assumptions: What are the basic
assumptions your school makes about its position in
the marketplace (“elasticity” of demand and pricing),
mission imperatives, and expectations for the future?
6-Steps: Financially Sustainable Schools:
High Stakes Planning
4. Data Markers of School Success: How does your
school measure success? What are the budget-related
factors that function as "proxies" for success?
5. Re-engineering Strategies: What are the "brutal
facts" about your current financial position? Where are
you vulnerable now or potentially in the future? What
strengths can you capitalize upon? What are your
means for diversifying income and containing costs?
6. Projecting Alternative and Preferred Financial
Futures: What are the likely, possible, and preferred
financial futures for your school, and what decisions
will you have to make to achieve your objectives?
6-Steps: Financially Sustainable Schools:
High Stakes Planning
The Charge:
 Mine data to project from trends and set goals for
shaping your future.
 Make decisions that less “opinion-rich” and more
“data-rich.”
 Right-brained thinking (A Whole New Mind ~Daniel
Pink): out of box creativity, pattern recognition, crossplatform applications.
Step 1: Trend Analysis
Step One provides a statistical base for assessing where the school has come from
financially and what the trends might suggest about the school's financial future.
Goal: To determine your school's financial trends in comparison to NAIS industrywide comparison groups.
Questions To Ask:

What are the five- and 10-year trends of your school in terms of the key financial
factors: admissions and enrollment; staffing size and compensation; giving and
endowment; overall income and expense streams?

What do your school's trends suggest about the future?

To what other schools should you compare yourselves and why?

How do your school's trends compare to your benchmark group trends? How
might external, community-wide trends impact your future and goals?
Tasks To Undertake:

Give your CFO/Business Manager the assignment, using your own school's
financial, enrollment, staff size, faculty compensation and giving data from the
benchmarking section of StatsOnline, to determine your school's five-year and
10-year trends, compared to those of your benchmark group and NAIS's national
data.
NAIS Data: 10-Year Trends
 Tuitions Up Dramatically: Median NAIS tuition
Up 30% in real dollars = CPI +3 (vs. college
tuitions, where net cost is stable)
Inelasticity of pricing? Moody’s Report. Some
schools haven’t hit the break point where
increased price dampens demand. Question: For
one’s mission OR market, are you seeing a price
break point in the near future?
 Enrollment Stable or Up (on average but not
everywhere): For schools that are full, enrollment
growth not an option to fund budget growth. But
Katrina made us wonder, “What is ‘full’”?
NAIS Data: 10-Year Trends
 Salaries Up Modestly (11.1% adjusted for
inflation): Question: What would marketcompetitive salaries be based on public school
averages to recruit nationally?
$35K starting; $50K median; $75K high (and
1/3 higher in high-cost urban markets)
Attrition: 10.1% NAIS; 11% US Businesses;
Schools: 16% public; 22.8% small privates.
NAIS Data: 10-Year Trends
 What’s Driving Increased Tuitions? Overall
staff up 31.8%. Student:Faculty Ratio = 8.6:1
Day and 7.1:1 Boarding. Class size
conundrums. Question: If you add a program,
what program will you sunset?
 Diversity up: Students of color to an average
of 20%; faculty of color to an avg. of 10.0 %;
20% of faculty of color seems to be the
“tipping point” for schools.
NAIS Data: 10-Year Trends
 Financial Aid--Grants Up but Numbers Flat:
SSS Applicants from families under $60K
declining; over $100K skyrocketing. Where is the
middle class? “Have Not”s vs. “Have a Lot”s vs.
“Don’t Have Nearly Enough”s
 Giving up Significantly (22%): Averaging
about $1200 gift from parents (65%), $6000 from
trustees (95%), $350 from alumni (20%), $750
from Grandparents (15%). How much more
giving capacity does your constituency have?
Sample Trend & Analysis
Sample NAIS School
Data-informed Questions To Answer
 If this were your school, would this growth rate (80% vs.
benchmark schools 40%) be sustainable over the next five or ten
years? If not, how will you explain slower growth in the
upcoming near future to faculty?
 What is funding the rapid rate of increase? Has tuition or
another revenue source risen as rapidly? Have other budget lines
taken a temporary backseat to the teacher salary priority of the
early 2000's?
 Has teacher efficiency (average class size, student-teacher ratios,
course load, etc.) grown as well? Has the school increased
enrollment significantly without significantly increasing faculty?
 What does the local or national labor market indicate as the
outlook for future faculty? Will the characteristics of the labor
pool show the need for even more aggressive or more moderate
growth in teacher salaries?
Step 2: Ratio & Variance Analysis
Step Two provides a snapshot of current key ratios as a basis for posing the
principal strategic financial planning questions.
Goal: To benchmark your school's key ratios against those of comparable
schools to determine where you exceed the norm and can use your relative
position advantageously, where you fall below the norm and can improve, or
where you deliberately ignore the norm and can articulate why.
Questions To Ask:

How do your school's "dashboard indicators" compare to those of similar
schools?

In a variance analysis, where and why do your ratios look different?

What are you doing that gives you a financially sustainable advantage?

What are others doing that give them better ratios and better results? How
can you emulate them?
Tasks To Undertake:

Give your CFO/Business Manager the assignment to develop a Dashboard
Indicators Report using NAIS's School Indicators / Financial Calculator
Data-informed Questions To Answer
 If this were your school’s data and your tuition and financial
aid per student is lower than your benchmark schools, are
you charging too little? If you charged more, could you
increase the number of students receiving aid and the aid
amounts?
 Since your annual giving per student and special events
income per student are lower than your benchmark schools,
how can you raise the bar among your constituents?
 While your "other income" outperforms your benchmark
schools, can you continue to grow in non-tuition, non-giving
sources of income?
 Even with a smaller budget, your salaries and benefits
expenses per student are competitive: Can you continue to
be so?
Data-informed Questions To Answer
 Since at the faculty level you are significantly more
efficient (higher student per faculty ratio) than your
benchmark schools, can you sustain this?
 While your faculty members have higher work load ratios,
they have lower average salaries. Is there a demographic
reason for this (e.g., a younger than average faculty)? Or is
this a time-bomb for you in terms of faculty morale and
competitiveness in attracting and keeping faculty?
 While you are overall more efficient in faculty, you are
less efficient in administrators and overall staff (fewer
students-to-administrators and students-to-staff): Why is
this the case? Is it an advantage for you or a potential area
to seek greater efficiencies?
 Your giving profile shows good participation among
parents and trustees, but lower average gifts, and your
alumni participation rate is extremely low: What's your
plan to improve on your performance in this arena?
Data-informed Questions To Answer
 Your admissions funnel is slightly less competitive
than that of your benchmark group, and your student
attrition is slightly higher: What does this suggest
regarding external and internal surveying and
marketing?
 Your non-compensation expense per student (i.e.,
program and instruction-related budgets) is nearly 25
percent lower than your benchmark group. Why? Is this
a concern or an opportunity?
 Your endowment per student is significantly lower than
your benchmark group. Can you improve this ratio?
Step 3: Ten Financial Planning Assumptions
 Step 3 helps a school to identify frankly its current financial
picture and prospects and then make the tough policy and
strategy choices to ensure a strong future financial position.
 Goals: To assess your school’s trend lines and benchmark
variances, determine “the brutal facts,” and make the necessary
policy choices to improve one’s particular market / mission
position and placement along a financial continuum (from
financial vulnerability to financial equilibrium).
 Questions To Ask: What are the basic assumptions your school
makes about the school's position in the marketplace, mission
imperatives, and expectations for future budget-related growth?
How do you bring these assumptions to light and examine them?
 Tasks To Undertake: Discuss and determine where your
school now finds itself on each of the following 10 financial
planning assumption continua. Where along each continuum
you would like to position the school in the future?
Financing Sustainable Schools: Ten
Planning Assumptions
1. Market Position & Pricing: Do you have high demand, an
affluent base, little sign of pushback on price, and no mission
imperative to keep tuitions low? Or, are you seeing a softening
of demand, attrition because of high pricing and tuition hyperinflation, a shrinking market of families who can afford your
school, or a change in mission-determined clientele?
Somewhere in between? Should your tuition increases be high,
(>CPI +2), moderate (<CPI +2), or low tuition (CPI or +1)?
2. Affordability: Is your tuition affordable by NAIS’s “15%”
definition of affordability (i.e., families in the top 15% of
family incomes in your region can, according to SSS formulas
adjusted for local cost of living, afford at least one child at full
pay in your school? Does a 15% band include the middle class,
and if not, does that matter to your mission?
Financing Sustainable Schools: Ten
Planning Assumptions
3. Tuition Dependency: Should your goal be to “charge
what it costs” so tuition pays for operations (and make
giving dedicated for capital purposes)? Or should your
goal be to diversify income to reduce your dependency on
tuition as primary income stream?
4. Staff Salaries: Do you believe that you must
benchmark compensation against the high end of NAIS
and suburban public school salaries? Or do you believe
the historic “climate advantage” independent schools
have enjoyed will allow us to attract and keep high
quality faculty at 10-20% “below market”? Will the
generation shift in teachers be a financial boon or
challenge?
Financing Affordable Schools: Ten
Planning Assumptions
5. Program and Staff: Should you add services,
program, and staff as demand for additional programming
increases? Or, should you freeze the growth of staff (since
it is the primary factor in driving increased costs and
tuitions)? Consider reducing staff through attrition or
“right”-sizing?
6. Class Size: Can you increase class size moderately
(and thereby increase productivity) without jeopardizing
your market position, the effectiveness of the program,
and the morale of the faculty? Are their other means by
which to increase productivity without increasing class
size? Or is class size limited by factors you can’t touch?
Financing Affordable Schools: Ten
Planning Assumptions
7. Facilities, Equipment & Technology: Should you declare a
truce? Retro-fit current facilities so that they conserve energy? Adopt
a “green” posture regarding all future building and renovation? Or
expand and renovate at will to secure market advantage?
8. Debt vs. Endowment: Should you mortgage the future via
attractive bond financing options (yielding immediate market
benefits, costs amortized over time, and expenses paid by those
benefiting from new facilities)? Or do you forgo building until pentup demand helps you build via fundraising? What is your debt-toendowment ratio, and how does it impact your liquidity and
financial strength? (<1:1?) What should your budget –toendowment:budget ratio be? (<1:1, after debt?) What’s the longterm financial sustainability strategy to reach the preferred
budget:endowment ratio?
Financing Affordable Schools: Ten
Planning Assumptions
9. Giving: Do you have the capacity to expand annual
and endowment giving significantly? Or are you
seeing the rate of increased giving flatten or decline?
Should you adopt policies on giving and budgeting
that would contribute annually to the growth of the
endowment?
10. Alternative Revenue Streams: Do you have
additional capacities to exploit your physical and
intellectual capital to generate significant new
revenues? Or do you think offering services to other
audiences will dilute focus and mission?
Step 4: Ten Data Markers of Success
(NAIS’s “Stake in the Ground” Approach)

Step Four will help you identify and set goals for success.

Goal: In the context of strategic sustainability the two most important
goals are achieving outstanding student outcomes combined with
institutional financial equilibrium.

Questions To Ask: How does your school measure success? What are
the budget-related factors that contribute to this success? By these
measures, how is your school doing relative to other schools? What
are the measurable proxies for successful schools?

Tasks To Undertake: Utilizing StatsOnline and the school's own
other data collection mechanisms, determine your school's position in
the arenas listed below, since each of these categories can be seen as
data equivalents or proxies for school success. What percentile are
you? Where do you want to be? It’s likely you’ll be at the a 25th
percentile in some variables and aspire to be at the median percentile
for those, and at the median percentile in others and aspire to be at
the 75th percentile for those, and at the 75% percentile in others and
aspire to be at the 90+ percentile for those.
Markers of Success: 2008-09
Defining “Greatness” for your Schools by
Using Data Proxies
Ten Markers of Success: Market Demand
1. Market demand: number of applications per acceptances
measure the market’s perception of the school’s success (high
ratio a proxy for reputational value). The higher the ratio, the
greater the pricing (tuition) flexibility.
Day Schools
Boarding Schools
Percentile(25)
1.2
Percentile(25)
1.3
Percentile(50)
1.6
Percentile(50)
1.7
Percentile(75)
2.2
Percentile(75)
2.0
Percentile(90)
3.4
Percentile(90)
2.8
Ten Markers of Success: Low Attrition
2. Low annual student attrition: measures stability of school and
satisfaction of parents (low percent a proxy for high stability
and satisfaction.
Attrition @ Boarding Schools:
Attrition @ Day Schools:
Percentile(25)
5.0%
Percentile(25)
3.0%
Percentile(50)
8.0%
Percentile(50)
9.5%
Percentile(75)
12.0%
Percentile(75)
16.3%
Percentile(90)
18.0%
Percentile(90)
25.3%
Ten Markers of Success: Giving
3. Generous giving: measures constituent loyalty (generosity as a proxy for
high support and attributed effectiveness).
Day Schools
Alumni %
Parent %
Trustee %
Alumni
Avg Gift
Parent
Avg Gift
Trustee
Average Gift
Percentile(25)
4.1%
49.0%
94.1%
$142
$560
$2,048
Percentile(50)
9.4%
65.1%
100.%
$275
$926
$3,738
Percentile(75)
17.3%
80.8%
100.%
$450
$1,524
$6,308
Percentile(90)
29.1%
92.0%
100.%
$692
$2,271
$10,528
Ten Markers of Success: Giving
3. Generous giving: measures constituent loyalty (generosity as a proxy for
high support and attributed effectiveness).
Boarding Schools
Alumni %
Parent %
Trustee %
Alumni
Avg Gift
Parent
Avg Gift
Trustee
Average Gift
Percentile(25)
8.6%
35.9%
87.9%
$288
$595
$3,203
Percentile(50)
14.5%
57.8%
100.%
$413
$928
$5,275
Percentile(75)
21.6%
69.5%
100.%
$626
$1,762
$9,389
Percentile(90)
30.7%
80.9%
100.%
$995
$2,305
$18,498
Ten Markers of Success: Faculty Salaries
4. Competitive Faculty Salaries: measures a school’s capacity to attract,
keep, and reward high quality faculty (salaries a proxy for competitiveness in
recruitment and high quality teachers)
Day Schools
Highest
Median
Lowest
Percentile(25)
$60,961
$42,284
$31,037
Percentile(50)
$72,000
$49,042
$35,325
Percentile(75)
$86,000
$57,000
$41,000
Percentile(90)
$101,220
$67,262
$46,563
Ten Markers of Success: Faculty Salaries
4. Competitive Faculty Salaries: measures a school’s capacity to attract,
keep, and reward high quality faculty (salaries a proxy for competitiveness in
recruitment and high quality teachers)
Boarding Schools
Highest
Median
Lowest
Percentile(25)
$58,500
$38,746
$28,735
Percentile(50)
$71,800
$49,229
$32,500
Percentile(75)
$89,000
$56,506
$37,881
Percentile(90)
$104,010
$62,520
$43,673
Markers of Success: Moderate Tuitions
5. Relatively moderate tuition and moderated annual tuition increases:
measure value in the value proposition (a proxy for comparative “affordability”
and moderated inflationary pricing).
Day Schools
Avg.
Tuition
Day Schools
% One
Year
Change
Boarding
Schools
Avg.
Tuition
Boarding
Schools %
One Year
Change
Percentile(25)
$13,188
5.0%
$33,850
5.0%
Percentile(50)
$16,659
5.9%
$38,000
5.5%
Percentile(75)
$21,327
6.9%
$41,233
6.6%
Percentile(90)
$27,074
8.6%
$42,906
8.1%
Markers of Success: Financial Aid
6. A substantial, stable, and sustainable proportion of students receiving
financial aid measures a school’s commitment to diversity (financial aid a proxy
for socio-economic diversity) balanced by financial prudence.
Day Schools:
Students on Tuition Assistance as
% of Enrollment
Tuition Assistance as % of
Day Tuition
Percentile(25)
15.3%
43.5%
Percentile(50)
21.0%
54.0%
Percentile(75)
29.2%
63.8%
Percentile(90)
39.1%
72.7%
Markers of Success: Financial Aid
6. A substantial, stable, and sustainable proportion of students receiving
financial aid measures a school’s commitment to diversity (financial aid a proxy
for socio-economic diversity) balanced by financial prudence.
Boarding Schools:
Students on Tuition Assistance as
% of Enrollment
Tuition Assistance as % of
Boarding Tuition
Percentile(25)
21.9%
60.6%
Percentile(50)
29.7%
72.9%
Percentile(75)
41.2%
82.9%
Percentile(90)
54.2%
97.2%
Markers of Success: High Productivity
7. Comparatively high student:faculty and student:total staff
ratios: measure workload productivity (a proxy for institutional
efficiency):
Day Schools:
Students:FTE Students:FTE
Faculty
ALL Staff
Percentile(25)
Percentile(50)
Percentile(75)
Percentile(90)
7.5
8.7
10.1
11.3
4.0
4.6
5.3
6.1
Markers of Success: High Productivity
Boarding Schools:
Percentile(25)
Percentile(50)
Students:FTE
Faculty
7.2
8.2
Students:FTE
ALL Staff
2.8
3.4
Percentile(75)
Percentile(90)
9.4
10.5
4.2
5.4
Markers of Success: Funding Professional
Development & Technology
8. Significant budget for professional development and technology: measures
commitment to human resources and innovation (a proxy for investment in
supporting a high-quality learning environment).
Day Schools:
Prof
Development
as % of
Expenses
Technology Budget as % of
Expenses
Percentile(25)
0.49%
0.73%
Percentile(50)
0.74%
1.15%
Percentile(75)
1.04%
1.76%
Percentile(90)
1.36%
2.51%
Markers of Success: Funding Professional
Development & Technology
8. Significant budget for professional development and technology: measures
commitment to human resources and innovation (a proxy for investment in
supporting a high-quality learning environment).
Boarding Schools:
Prof
Development
as % of
Expenses
Technology Budget as % of
Expenses
Percentile(25)
0.35%
0.71%
Percentile(50)
0.53%
1.12%
Percentile(75)
0.72%
1.92%
Percentile(90)
0.92%
2.81%
Markers of Success: Grow Endowment
9. Growing endowment: measures commitment to financial security
(a proxy for inter-generational equity and long-term stability).
Day Schools:
Endowment
per
Endowment
Student
Value
Value
Percentile(25)
$1,610,617
$4,047
Percentile(50)
$5,378,578
$11,401
Percentile(75)
Percentile(90)
$16,054,102
$37,802,992
$28,012
$51,159
Markers of Success: Grow Endowment
Boarding Schools
Percentile(25)
Endowment
per Student
Endowment Value Value
$5,134,888
$9,861
Percentile(50)
Percentile(75)
$16,049,060
$36,498,265
$31,878
$64,103
Percentile(90)
$69,609,969
$111,397
Markers of Success: Student Outcomes
10. Student outcomes measure overall success of mission
(persistence and graduation rates a proxy for effective
preparation academically and constitutionally to succeed
in future competitive academic environments):
Note: Student outcomes can be determined on a more extensive
basis by results on the NAIS Alumni Survey (and benchmarked in
part against other independent schools and against public school
results from the Annual College Freshmen Survey).
Step 5: Re-engineering Strategies
 Step Five entertains means by which to pursue your
strategic financial objectives.
 Goal: Based on the school’s planning assumptions and
target markers for success, determine which strategies are
the most likely to succeed for your school.
 Questions To Ask: What are the "brutal facts" about your
current financial position and your current or potential
financial vulnerability in the future? How do you develop,
adopt, communicate, and "sell" strategies that will ensure an
optimal financial future for the school? What strategies
should you adopt to secure financial equilibrium?
 Tasks To Undertake: Create a task force of entrepreneurial
board members, faculty, and administrators to consider
options to recommend regarding developing additional or
enhanced revenue streams and curtailing the growth in
expenses.
Strategies – Revenue Enhancement
 Grow enrollment (without growing staff)
 Capitalize upon intellectual property
 Calvert School (MD): curriculum for home-schoolers (net $1.5m/yr).
Now one version of website in Russian.
 Elmwood Franklin (NY): Achieve! Storefront Tutorials (projected
$100K/yr.)
 St. Richard's School (Indianapolis): auxiliary education center for
tutoring, technology, adult education, testing preparation (SAT),
GED
 The Norman Howard School (NY) -- EnCompass: Resources for
Learning struggling learner assessment, coaching, tutoring, college
LD assessment & guidance; training/consultation for schools;
community workshops and seminars.
 San Francisco School (CA): Kids Battle the Grown-Ups trivia game
co-authored by 6th graders. Net $70K royalties so far. 2nd game, Kids
Rule, now carried by Wal-Mart and Toys “R” Us.
(See WSJ 1/20/05 “Extracurricular Business”)
Strategies – Revenue Enhancement
 Full utilization of physical assets:
 Lake Forest Academy (IL): Outsourcing to Sodexho weddings
($500K/yr); sale of adjoining property to high-end developer for
endowment;
 Many schools: adult ed in evening; sports clubs during class time &
weekends (See the “Money” issue of Independent School-Fall 2003.)
 Georgetown Prep (MD): Luxury apartments on 3 acres of leased property
(Income = $1.3M year on 99-yr lease.)
 Hilton Head Prep (SC): Women's wellness Retreat (Summer Session for
Moms and their teenage daughters); also: homeschoolers can take one
course at the school for 1/5th tuition.
 Shattuck-St. Mary’s (MN): Building a golf course on adjacent property
and selling lots (Net $2M in first year). Development of five “centers of
excellence”: Hockey, soccer, the creative arts, etc.
Strategies – Revenue Enhancement
 Enhanced fundraising to build endowment
Serious deferred giving programs: e.g., most boarding
schools.
Grow endowment via a combination of allocating to
endowment 1/3rd of all capital campaign, annual giving,
and special event proceeds to endowment and/or a
commitment of 1-3% of annual budget contribution to
endowment.
Endowment Growth To Neutralize CPI+2
(Peter Aitken chapter in NAIS’s book on Affordability and Demand)
 Minimum Starting Point: school’s endowment the same size
or larger as its (balanced) annual operating budget. [1]
 Use a 3.5 percent endowment spending rule so from year one
of the new approach, the endowment draw initially contributes
3.5 percent of total operating revenue. [2]
 Expect the endowment managers to achieve an average 8
percent annual appreciation over the long term.
 Set the development goal of adding 3 percent annually to its
endowment through capital gifts. [3]
 Assume general inflation averages 3 percent.
 Keep the school’s budgetary inflation to 5 percent (CPI + 2)
Endowment Growth To Neutralize CPI+2
(Peter Aitken chapter in NAIS’s book on Affordability and Demand)
 Results: endowment draw as a percentage of total
operating revenue will increase by about 2.4 percent
annually.
– Over twenty years it would raise the endowment
contribution from 3.5 percent of total operating
revenue to 5.6 percent
– Over 50 years the endowment contribution would
increase to 11.3 percent of total operating revenue
– Over 100 years the endowment contribution would
increase to 35 percent.
– These increases represent relief for tuitions. Over
time, the school grows less tuition dependent and
more affordable.
Endowment Growth To Neutralize CPI+2
(Peter Aitken chapter in NAIS’s book on Affordability and Demand)
[1] The average value of the ratio of endowment market value
to annual operating revenue for 738 NAIS member schools
reported in 2006-07 was 1.5:1. The median value was 0.7:1.
[2] The average value of the percentage of endowment funds
transferred to operations for 752 NAIS member schools
reported in 2006-07 was 3.4 percent. The median value was
4.0 percent.
[3] The average value for endowment increase via capital gifts
(including pledges) for 54 large enrollment, NAIS member,
PS-12 or K-12 day schools that are institutional sponsors of
the Joint Research and Planning Office (JRPO) reported in
2006-07 was 4.9 percent. The median value was 1.5 percent.
Strategies – Containing Costs
 Increase “productivity”
student/teacher ratios: “case load”--# students or
class meetings--vs. “course load” approaches
“Breaking the Trade-Off between Efficiency and Service"
by Frances X. Frei, HBR Nov 2006: i.e., instead of “classic
accommodations” for “customer-introduced variability”
(i.e., issues of arrival, special request, capability, effort,
subjective preferences), brainstorm strategies that are lowcost/automated, that reduce the variability, that re-norm
behaviors, etc.). E.g., high fees for tardiness at after-school
pickup; online option for specialized course requests; etc.
 Moderate the arms race for new facilities
 Sunset a program every time you add one:
undertake periodic “sacred cow” hunts.
Strategies – Containing Costs
 Charge a la carte for additional services:
counseling, ESL, LD tutoring.
 Benchmark compensation packages: “Moneyball”
what to look for in hiring talent.
 Seek efficiencies via consortia purchasing and
outsourcing (maintenance, housekeeping, facilities
and food services, even grading)
Step 6: Projecting Preferred Scenarios
 Step Six will allow your school to experiment with
varying financial scenarios by projecting and adopting
a plan for an alternative and preferred financial future.
 Goal: To project varying financial alternatives,
experimenting with the major variables that determine
a school's financial bottom line.
 Questions To Ask: When you enter your school's
assumptions about growth in each key budget area into
the NAIS School Indicators/Financial Calculator, how
do the results project out over a five-year period?
Step 6: Projecting Preferred Scenarios
 Tasks To Undertake: Go to the NAIS StatsOnline site,
and enter your school’s financial planning assumptions
into the NAIS StatsOnline Financing Schools Calculator to
project, save, print, and debate several financial futures.
– First run: What if you changed nothing (i.e., projecting
your school's last five years' budgetary trends for the
next five years)?
– Second run: What happens when you project all of your
assumptions from Step Three (Financial Planning
Assumptions) into the calculator?
– Third run: What happens when you project all of your
goals from Step Four (Data Markers of School Success)
into the calculator?
– Fourth run: What would it take to make the five-year
projections "work" (budget balances or surpluses) to
address your assumptions and meet your success
markers to create your re-engineered and preferred
financial future?
StatsOnline Dashboard Indicators & Calculator
StatsOnline Dashboard Indicators & Calculator
StatsOnline Dashboard Indicators & Calculator
StatsOnline Dashboard Indicators & Calculator
Sample NAIS School, Anywhere, USA
Sample NAIS School, Anywhere, USA
Sample NAIS School, Anywhere, USA
First sample
projection based
on preliminary
assumptions.
Sample NAIS School, Anywhere, USA
Deficits in
Year 3?
Typical
Response:
Hit the
“back
button” to
increase
tuition
more.
Sample NAIS School, Anywhere, USA
Results:
Higher
tuition
income
stream…
.
…and good
surpluses for
five years. But
falling back
into the same
pattern of
hyper-inflationary
tuition
increases. The
challenge:
create surpluses
by changing
other variables.
The End
Appendix: Related Slides
Moody’s Update 2005
• “Moody’s continues to believe that the majority of independent schools in our
portfolio retain pricing flexibility and will continue to grow total net tuition
revenue and net tuition revenue per student. However, this pricing
flexibility is finite, and already you have heard some cases where
pricing is becoming more sensitive as parents consider lower cost
day schools and church-related institutions as an alternate to the
more expensive boarding schools. Tuition flexibility is greatest at highly rated
schools which typically hold premier academic reputations nationally and
increasingly internationally.”
• NAIS: Price is related to demand which is driven by PAVS factors:
• Prestige (i.e., perceived “rank” and “status” of school)
• Affordability (i.e., perceived affordability)
• Value (i.e., perceived outcomes)
• Sacrifice (i.e., willingness to use discretionary dollars on education)
Often schools price themselves by their desired market position rather than
the real market position—and therefore “discount” more heavily.
Financial Equilibrium
 Revenues equal or exceed expenses.
 Year after year, the rate of growth in
revenues equals or exceeds the rate of growth
in expenses.
 The value of financial capital is preserved or
augmented over time.
 The value and functional efficiency of
physical capital (i.e., plant, equipment, and
technology) is preserved or augmented over
time.
Financial Equilibrium
 The effectiveness of human capital is
preserved or augmented over time.
 The ability to maintain or improve delivery
of the school's stated mission is preserved.
 Resource allocation is aligned with mission
imperatives
Who Applies for Aid?
00-01
01-02
02-03
03-04
04-05
15
10
10.8
10.3
10.2
10.1
9.7
20
17.9
17.6
17.2
17.1
16.5
25
22.5
21.3
20.3
19.8
19
21.7
20.2
18.7
18.4
17.5
30
11.8
12.4
12.5
12.6
12.8
15.4
18.1
21
22.2
24.4
35
5
0
0-20K
20-40K
40-60K
60-80K
80-100K
Source: School and Student Service for Financial Aid (SSS) processing system data
100K+
The Disappearing Middle Class
If independent school
tuition is around “the price
of a Ford,” why is everyone
feeling so pinched now
rather than 30 years ago?
The Middle Class: Dual
Income Family @$75,000
(Source: Harvard Magazine,
Feb, 2006 “The Middle Class on
the Precipice”)
The Ford Analogy - a
“crime of logic”: one
payment every 3-5 years
vs. 13 consecutive annual
payments for each of two
kids.
Should Tuition = “Cost of a Ford”?
Day Tuitions vs. Cost of a Domestic Car
1981-2005 (adjusted for inflation)
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1981
1984
1987
1990
Day Tuitions
1993
1996
1999
2002
Domestic Car
The problem: Pay for the Ford one time over five years; pay for
tuition for 2 kids, for 13 consecutive years.
Middle Income Affordability Facts
2004
Lowest 5th
<$24,780
Second 5th
$24,781 - $43,399
Third 5th
$43,400 - $65,827
Fourth 5th
$65,828 - $99,999
Highest 5th
>$100,000

Wealthiest 5% of US family
households begins at $173,00:
Some of these would qualify
for aid at high-cost schools
with more than one child
enrolled SSS
Source: US Census Bureau, 2005 Current Population Survey,
http://pubdb3.census.gov/macro/032005/faminc/new06_000.htm
Affordability Index
Tuition
“Full Pay”
Income*
Lower
$13,378
$103,625
Middle
$14,963
$109,505
Upper
$17,135
$116,825
% of Families in
US at That Income
Level
% of Income for
Tuition
12.9
17 – 18%
13.6
14.7
*Minimum income needed to pay one tuition at amount listed. Assumptions: Using 2005-06 SSS
Methodology for a family of four, two parents, two children, parents age 45, both work, no assets
- parent or student, DC state/other taxes, no adjustment for local cost of living
Costs of Losing the Middle Class?
Resource: “Accreditation & Class Issues” ~Ruby K. Payne
 Loss of the value set that the middle class brings to the mix:
drivers of work ethic, achievement orientation, and sacrifice
for material security.
 Absence of balancing tonic for ills of affluence: over-
involvement of the parents; intense academic and social
competition; misguided parental intervention in student
consequences.
 Potential barrier to attracting young, idealistic “Teach for
America” talent who seek diversity.
Return
The Data on Class Size
Preschool
K-5
6-8
9-12
All
Student:
Fac Ratio
All NAIS
Schools
15.5
17.5
16.0
14.2
16.3
8.6
Catholic
NAIS
Schools
17.0
17.0
18.0
16.0
17.7
9 .3
Public
Schools –
Now
21.1
23.6
15.6
Parochial
Schools
23.6
23.2
17.2
Public
Schools 1950s
30.0
22.0
Shattuck-St. Mary’s – Supplemental
Sources of Income (SSI) Analysis
SSI
Traditional
Revenue
Impact?
Facility
Development
Ropes Course
YES
NOT YET
YES
Weddings/Banquets
YES
NO
NO
Golf Course Development
YES
NOT YET
YES
YES
YES
YES
Sports Complex Facility
YES
YES
YES
English Language Institute
YES
YES
NO
YES
YES
NO
YES
YES
NO
Summer Theater/Dance Workshops
Learning Differences Symposium
Sports Camps
Shattuck-St. Mary’s – SSI Details
Was Facility
built (B) or
Financed Program
(F) or
Donated Impact?
Enhanced (E)? (D)
Ropes Course
B
D
Leadership
Development
Weddings/Banquets
E
D
-
E&B
F&D
Golf
E
D
Recruitment
E&B
F&D
Athletics
English Language Institute
-
-
Recruitment
Learning Differences Institute
-
-
Faculty Training
Sports Camps
-
-
Recruitment
Golf Course Development
Summer Theater/Dance Wisps
Sports Complex Facility
SSI’s: Inspiring Donors to Fund Facilities
 Design the program and SSI that a new facility will provide
the school. (Soccer development program; lease revenue; Dane
Family Field House)
 Prepare presentations for donors that show both the
program for the students and the SSI.
 Fund the program and facility through donations and SSI
revenue. (Dane Family Field House: $1.2 mm in donations, $1.6 mm
in financing)
Shattuck-St. Mary’s – Looking Ahead
Under Consideration
Existing Asset
Fiber Optic Substation
Location, Available Space
Wind Turbines
Location, Electrical Usage
International Summer Travel
Faculty, H of S relations. Alumni
Hotel Stay Rebates
School visitation
Summer Film Festival for students
Alumni body
Independent School Credit Card Program
Staff credentials
Non Profit Accounting Services
CFO experience
Faculty Placement Service
Administration’s experience
Incubator for Start Up Businesses
Parent body, State interests, HS
program, campus, alumni body
The Demographics of Charitable Giving
Source: NewTithing Group, from IRS 2003 Tax Returns
Adjusted Gross Income (AGI)
Avg Total Giving
Under $50,000
$
277
$50,000 - $74,999
$
1,336
$75,000 - $99,999
$
2,153
$100,000 - $199,999
$
3,471
$200,000 - $499,999
$
8,236
$500,000 - $999,999
$
20,790
$1,000,000 - $1,499,999
$
39,817
$1,500,000 - $1,999,999
$
58,376
$2,000,000 - $4,999,999
$
100,345
$5,000,000 - $9,999,999
$
288,540
$10,000,000 or more
$ 1,744,229
Title
Testing Hypotheses
Source: The McKinsey Quarterly: 4/20/2006
Which pair would you choose given an opportunity to flip over just two
cards to test the assertion, "If a card has a vowel on one side, then there must
be an odd number on the other side"?
Confirmation Bias: Most incorrectly choose U & 7; 7 offers no new info with a
vowel on the back: answer is U & 8. Related to “possession bias”: people 2 to 3
times more likely to prefer what they have to what they may get: coffee mug vs.
chocolate experiment: charge $7 to switch, would offer $3.50 to buy.
Design: Where’s there space for creativity?
Can we apply systems from other industries to the school
business? Seattle’s Virginia Medical Center adoption of the
Toyota Production Line Systems (HBR Case study) to be the
“quality leader”: Goal to become the" value leader” not the “price
leader”? Mapping the value streams and workflow in schools.
Data-driven Decision Making
 19th century Rx: Leeches
 Pierre-Charles-Alexandre Louis
(1830)
 Mortality Rates for Treatment
of Tuberculosis :
– Leeches: 44%
– No leeches: 25%
Data-based Strategic Planning
METHODOLOGY &
INFORMED DEBATE
DATA
STRATEGY
Gov’t, School
& Other
Sources
FEEDBACK
Grounding Principles of “Six Steps”
 Data-driven rather than subjective
 Ongoing rather than start-and-finish
 Interactive among school constituencies, board, and
staff
 Flexible in process, structure, and language
 Separates what an organization does (strategy) from
how it is structured (design)…
…so that re-design is possible to achieve financial
sustainability