Financial Sustainability:

Both Sides of the SPECTRUM Research Project

ISACS Head of School Conference

Chicago, Illinois January 2015

With generous support from:

NBOA

Jeffrey Shields, FASAE, CAE Brief Introduction

• • • • • • • •

More than 15 years of experience

working with business officers in higher education and independent schools Has served as

NBOA President and CEO since 2010 NBOA serves 1,150 independent schools

nationwide, 13 FTE, $4 million budget, headquartered in Washington, DC Previously

Senior Vice President,

National Association of College and University Business Officers

(NACUBO) Certified Association Executive

(CAE)

Fellow

, American Society of Association Executives (FASAE)

Trustee, Online School for Girls Trustee, Georgetown Day School

NBOA

Program Goals

• • •

Discuss the financial climate for independent schools leading up to, and including, the economic downturn in 2008 and 2009 Explore the prominent models promulgated throughout the community to address independent school financial sustainability Share insights on the methodology, definition and initial findings from the Spectrum Research Project along with other considerations to secure your school’s financial health

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Before the economic “winds” changed

•

Tuitions up 30% (real dollars) over 10 years

•

Overall staff up 32% over 10 years

•

Student: teacher ratios getting smaller

•

Financial aid grant dollars up 38%

•

Enrollment up 20%

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Prevalent Models

“New Normal”

• Charge only what people can pay • Design your program to that revenue number

“Full Steam Ahead”

• Charge what it costs • CPI + 2 or more when needed NBOA

: The New Normal

• • • • Increase enrollment without increasing staff “Sunset” an old program for every new one Right size: re-think class size, workload, # of teacher specialists, assistants, school size Devote 1/3 rd of each fundraising dollar raised to endowment NBOA

: 21

st

Century Model

• Decide whether you are a price , product , or process school (you can’t be all 3!) • Acknowledge that the 20 th century “factory” model of education will not prepare students for the 21 st century • Design a 21 st century school that individualizes learning using technology • Dedicate 2% of your budget to faculty professional development NBOA

2013 NBOA Business Officer Survey

In response to the economic decline, what strategies did you implement?

Most popular strategies

• Increase average class size • Increase teaching loads • Increase employee contributions for benefits • 26.4% were going to increase the average class size, but only 11.7% did • 58.8% were going to decrease planned salary increases, but only 32.3% did

% of Respondents Who Implemented Strategy by Survey Year 2013

2012 2011 2010 2009 Increase average number of students per classroom Increase teaching load Eliminate student programs Reduce the number of faculty FTEs Reduce the number of staff/administrative FTEs Decreased planned salary increases Reduce salaries Reduce benefits Increase the employee contribution for benefits

9.9% 9.1% 1.6% 7.4% 8.0% 6.2% 0.6% 3.4% 8.3%

11.6% 8.1% 2.2.% 7.9% 11.0% 9.3% 2.0% 5.5% 13.2% 10.7% 10.9% 1.4% 11.5% 14.4% 14.0% 2.3% 7.4% 12.7% 11.7% 12.8% 2.7% 18.0% 17.8% 32.3% 4.0% 12.2% 11.7% 5.5% 3.2% 1.0% 4.9% 6.7% 7.8% 0.7% 2.1% 4.4% NBOA

Strategic Reactions

►

Increase Number of Students Per Classroom Planned Implemented

2010 Survey 26.4% 11.7% 2011 Survey 2012 Survey 2013 Survey 19.9% 16.2% 17.9% 10.7% 11.6% 9.9% NBOA

Strategic Reactions

►

Increase Teaching Load Planned

2010 Survey 26.6% 2011 Survey 2012 Survey 2013 Survey 18.4% 14.2% 14.8%

Implemented

12.8% 10.9% 8.1% 9.1% NBOA

Strategic Reactions

►

Increase Employee Contribution for Benefits Planned Implemented

2010 Survey 17.5% 11.7% 2011 Survey 2012 Survey 2013 Survey 20.7% 13.5% 18.1% 12.7% 13.2% 8.3% NBOA

Strategic Reactions

►

Same goes for: - Reduce Faculty FTE - Reduce Staff / Admin FTE - Decrease Planned Salary Increases - Reduce Salaries - Reduce Benefits Source: NBOA Business Office Survey 2009-12

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13 Years of Tuition or…?

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There is NO Silver Bullet

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The Future…?

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● Average yearly CPI increase for the past 12 years is 1.96%. ● Has your school had a tuition increase in any given year that was less than 2%?

● It’s not just about affordability, but about managing expectations.

Tuition Increases: CPI versus Reality

$50 000 $45 000 $40 000 $35 000 $30 000 $25 000 $20 000 $15 000 $10 000 $5 000 $ Day Boarding 2002 $14 000 $27 400 2013 (CPI Only) $17 700 $34 575 2013 Actual $22 700 $46 800

Source: NAIS and US Bureau of Labor Statistics

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88 86 84 82 80 78 76

We’re Adding Employees

Average Total FTE

Source: NBOA Business Office Surveys 2008-13 NBOA

Independent School Revenue Streams In general, all operating revenues fall into one of four buckets, and you only have direct control over one of them - tuition.

Fundraising Endowment

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Independent School Expenses

Greatest % of your budget, in descending order (typical school) Compensation and Benefits Facilities Financial Aid (actually a revenue offset, but for our purposes we will discuss it here) Technology Equipment and Supplies

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SPECTRUM Project Overview

• Objectives and Methodology • Definition of Financial Health • Identification of High Performing Schools • Common Traits Among High Performing Schools in the Project

With generous support from:

NBOA

Objectives

• Learn what great schools are doing that sets them apart.

• Investigate best practices in financial management of independent schools.

Approach

• Jim Collins “Good to Great” matched pair research.

• Compare high-performers to typical to learn what separates them apart.

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Background research Quantitative data collection Qualitative data collection Define financial health of independent schools Identify high-performing school group & “others” Analysis NBOA

Process to Develop Definition of Financial Health

Background Research NBOA Panel of Experts Financial Health of Independent Schools Defined Presented at Annual Meeting Spring 14’ NBOA

NBOA SPECTRUM Research Project: Definition of Financial Health

Financially healthy schools have the resources to sustain their operations for the long term, relative to their individual missions. These schools have successfully developed and implemented financial plans for both operations and facilities. These plans, funded in part with tuition and fees, also maintain financial reserves which adequately cover all current and projected future obligations.

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•

Operating Cash Flow Margin

•

Financial Aid/Gross Tuition

•

Annual Giving

•

Philanthropic Support SAMPLE Data Points to Distinguish HPS From Others

•

Primary Selectivity

•

Debt Burden

•

Calculated Age of Facility

•

Days Cash on Hand

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Identifying High-performing Schools

• Definition of financial health used as criteria in selecting 12 schools for “high performing schools” (HPS) group • Eight “typical” schools selected for comparison group (others) NBOA

Common Traits Among High Performing Schools in SPECTRUM

1.

Lean 2.

Collaborative and focused on clarity and outcomes 3.

Academically rigorous 4.

Guided (not governed by strategic plan) 5.

Debt-averse

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Common Traits Among High Performing Schools in SPECTRUM

6.

Disciplined endowment draw 7.

8.

9.

Focused on benchmarking Top-down decision-making Quality, not quantity, in budget training

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1.

2.

3.

4.

5.

IMHO: Other Considerations to Help Secure Your School’s Financial Future “Know where the mission lives in your budget” Elevate

and

integrate

school the role of the business officer at your

Increase classroom capacity

without increasing cost…

how?

a.

Use of Technology b.

c.

Provide financial aid

to

support your mission school’s resources

and

within your Reduce or eliminate dependency endowment

…

how?

on

annual giving

and a.

Charge what it costs or reduce your program or both?

b.

Classroom size Faculty professional development and support Fundraise for following year NBOA

Register now at http://www.nboa.org/events/annual-meeting

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