“Understanding program margins enables colleges to direct funds from high-contribution programs to smaller programs that may lose money. These planned cross-subsidies help colleges fund and assert their mission,” according to Dr. William Massy, an emeritus Stanford University faculty member and administrator. “But, many colleges and universities struggle to balance mission and money for academic programs because they do not have systems to track program economics.” Dr. Massy said.
To help colleges understand the economics of their academic programs, Gray Associates, a higher-education consulting firm, developed a SaaS solution to calculate contribution margins by program, course, and instructor. Dr. Massy and Bob Atkins, CEO of Gray Associates, introduced the new service on a conference call on September 11, 2018. “From a financial perspective, a program is the sum of the courses taken by students in a given major,” Mr. Atkins explained. “We collect revenue data, including tuition, fees, and grants, at the student level, as well as faculty salaries and other direct costs by course. Then, we combine the revenue and costs for courses taken by each student in a major. This enables our systems to track revenue, direct instructional cost, and contribution margin by student, course, department, and campus.”
“What we found,” said Mr. Atkins, “Is that most programs have positive contribution margins. So schools need a better measure of success: they need a comparison with their other programs and with the same program at other schools.” To make valid comparisons, schools need to use a common denominator that can put large programs on a similar footing with smaller programs.
The common denominator Gray uses is the Student Credit Hour (SCH). Gray divides a student’s revenue by the number of SCHs they take. Similarly, Gray divides a faculty member’s costs by the number of SCHs they teach. This enables Gray’s clients to compare revenue, cost, and contribution across their programs. The methodology is consistent with higher-education benchmarking studies run by the Delaware Cost Study and the National Higher Education Benchmarking Institute. As a result, a college can accurately compare their own cost per SCH with a selected group of peers.
Of course, all colleges have departmental and institutional costs, as well as instructional costs. In a later post, we will describe how to include these in a more robust assessment of program economics.
Were you unable to attend the live conference call? Watch a recording and download the presentation here: https://info.grayassociates.com/september-2018-understanding-program-sustainability-webcast
About Gray Associates
Gray Associates, Inc. is a higher education consulting firm. We help clients develop fact-based institutional and marketing strategies to maximize outcomes for students, the school, and its constituencies. Gray uses proprietary analytical techniques and an industry-leading database combining information on inquiry volumes, Google searches, demographics, competition, and employment, to help faculty and school leadership develop institutional strategies, select programs, pick locations, and prepare curricula.
Bob Atkins, CEO of Gray Associates, believes that a healthy program portfolio rests on four strong foundations, he explained. They are; fit with the institutional mission, alignment of academic standards and student outcomes, healthy program markets with strong student demand and employment prospects for graduates, and enough contribution-positive programs to fund mission-critical programs that may lose money.