Institutions Look at Potential Financial Implications of the Pandemic

Many universities have become concerned that the COVID-19 pandemic will affect finances. In a recent survey of college presidents and chancellors about their coronavirus concerns, 87% revealed that they were very or somewhat concerned about short-term unbudgeted financial costs, and 89% were very or somewhat concerned about the overall long-term financial stability of their institution (Inside Higher Ed and Hanover Research, 2020). Moreover, a recent discussion with institutional researchers in the latest edition of eAIR revealed that several IR professionals are also expecting to provide information related to budgets or changing enrollment. This could be a time when the data collection, data management, and research skills of IR professionals may be brought to bear on new questions of university finances. Now, therefore, would be a good time for IR professionals to familiarize themselves with the financial processes and data at their institution in order to deliver a proactive response.

One essential thing IR professionals can do is learn about the budget model at their university. Lasher and Greene (2001) described many different approaches to budgeting that universities may use, including formula budgeting and program budgeting. My institution uses Responsibility Centered Management (RCM), in which both income and expenses are decentralized to the individual units that are “responsible” (sometimes called “responsibility centers”). Other institutions may use terms such as “incentive-based budgeting” or “value-center management,” but the principles are generally the same (Lang, 2016). Universities usually adopt RCM budgeting models as a way to incentivize behaviors that are likely to increase their enrollment, which can sometimes lead to unintended consequences. Several authors have highlighted how RCB can cause competition between units to try to generate revenue at the expense of broader institutional goals. However, in a more recent study of four universities that employed RCB models, Deering and Sá (2018) found that substantial vertical coordination between central administration and individual units can keep the institution moving in a coordinated fashion. In the current COVID-19 pandemic, however, there may be less concern about competition and more concern that individual units may not maintain the enrollment that drives revenue. IR offices can help units monitor the situation by dis-aggregating student enrollment, credit hours, and course withdrawals by individual responsibility center. Reporting on demographic or other characteristics associated with withdrawing from courses may also help individual units understand which students may be most vulnerable. IR professionals should do what they can to understand how funds are allocated, how those allocations might change as a result of the crisis, and should be prepared to adjust their analyses accordingly.

IR professionals should also understand how costs are reported and how they might change given the shift to online learning. Conducting costs studies is not a new skill to many IR professionals. Many institutions have been participating in the National Study of Instructional Costs and Productivity (Delaware Study) or conducting similar local studies of instruction costs for several years. However, setting up and delivering online courses may include additional technology or other costs that are not currently budgeted. IR may be asked to track or study the effectiveness of these expenses or create benchmarking studies against other institutions. Saunders (2001) offers three questions that IR professionals should ask during the first steps of a cost study at their institution:

1. What are the political reasons the cost study is being conducted? In the current environment, administrators or boards of directors may want to understand if expenses designated for online instruction were used appropriately or if costs were consistent with peer institutions.
2. How are the data recorded? Institutional accounting structures can be complicated. IR professionals should form relationships with individuals across campus who understand how expenses are recorded in order to ensure that they are collecting and reporting the right data.
3. What should the unit of analysis be? Are you looking at expenses for an entire school, a department, or a subgroup of faculty or staff? Separate budgets or accounts may not exist for the unit being analyzed. Recording and reporting the correct expenses might be complicated if not organized in an appropriate way.

Regardless, IR professionals would be wise to keep an eye on the local and national economic environment. Lasher and Greene (2001) pointed out that many institutions suffer during an economic downtown, as lower spending can drive down the collections of state and local sales taxes that fund many public institutions. Though data about state sales tax collections are not available at the time of this writing, it is likely that social distancing measures taken to prevent the spread of COVID-19 have decreased the amount of revenue collected. In past recessions, decreases in state support were offset by revenue from increased enrollment. However, although not much is known right now about how the current pandemic is affecting the enrollment behavior of prospective or continuing students, some early studies suggest that students feel the current situation will affect their enrollment decisions (Jashick, 2020).  

IR professionals have much to contribute to the examination of university finances at this critical time. Now is a good time to become familiar with budget models, accounting structures, and the local and national economic outlook so you can serve your institution efficiently and effectively.

References

Deering, D. & Sá, C. (2018). Do corporate management tools inevitably corrupt the soul of the university? Evidence from the implementation of responsibility center budgeting. Tertiary Education and Management, 24, 115-127. doi:10.1080/13583883.2017.1398779

Inside Higher Ed and Hanover Research (2020, March). Responding to the Covid-19 Crisis: A survey of college and university presidents. Retrieved from the Inside Higher Ed website

Jashick, S. (2020, March 30). Will they return? Surveys suggest tough times for most colleges. Inside Higher Ed. Retrieved from this URL

Lang, D. W. (2016). Incentive funding meets incentive-based budgeting: Can they coexist? Canadian Journal of Higher Education, 46 (4), 1-22. Retrieved from this URL

Lasher, W.F. & Greene, D.L. (2001). College and university budgeting: What do we Know? What do we need to know? In M. B. Paulsen & J. C. Smart (Eds.), The finance of higher education: Theory, research, policy, and practice (pp. 501-534). New York, NY: Agathon Press.

Saunders, L. (2001). Resource management and quality improvement. In R. D. Howard (Ed.) Institutional research: Decision support in higher education (pp.107-130). Tallahasse, FL: Association for Institutional Research.