Cutting Academic Cost If You Must, Here’s How

April 14, 2020

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The pandemic will require deep cost cuts at many colleges, or they simply won’t survive.  It is unpleasant, even disturbing work.  But like all work, it can be done well or badly, quickly or slowly.  Bad cuts unnecessarily damage the mission and people.  Bad cuts drag on and undermine morale and confidence in leadership.  They are usually the result of short-sighted thinking, incomplete or erroneous information and data, bad information, and lack of courage. Good cuts use sound data and robust, fast processes to create a leaner, financially sustainable, mission-centered institution. Here’s how.

  1. Focus on Courses:  The money in academic cost reduction is not at the program level; the real savings are at the course level.  (Please see Dr. William Massy’s blog Why Course-Based Economic Models are Game Changers!)
  2. Do Not Use Rules of Thumb:  Simple rules of thumb, like cut all courses or programs with fewer than five students, are ill-advised:  most small programs and many small courses have positive contribution margins, cutting them may make things worse.  Also, an “acceptable-size” course may be pulling all of its students from similar courses while increasing instructional cost.
  3. Calculate Margin by Course and Program:  It takes a couple of months to pull this data and run the numbers, but a model of cost, revenue and margin by course and program is essential.  It will distinguish small, profitable courses from others that lose money or have an unusually high cost.  The model gives faculty and administrators a sound basis for making cuts that will improve curricular efficiency and the school’s finances.  It should reduce the perception that choices are personal or political.  Gray has developed software to help you build the models well and quickly.
  4. Calculate Averages and Set Norms:  Use the margin analysis to calculate averages and percentiles for cost, revenue, and margin per student credit hour.  Set norms for curricular efficiency that you can use to quickly identify high-cost courses (e.g., courses with more than two times the average cost per student credit hour).  For more on this topic, please read Achieving Curricular Efficiency.  Gray systems automatically calculate the institutional averages and percentiles.  We will soon have benchmarks from other colleges and universities.
  5. Set and Communicate Forward-Looking, Cost-Reduction Requirements:  The President, CFO, and Board need to agree on the required size of the reduction in academic cost.  It is not good enough for these goals to close current budget gaps; they must close the future gaps that may be caused by foreseeable changes in enrollment, pricing, scholarships, and other areas.  You will need specific, measurable dollar targets:  e.g., $2.5 million in faculty wages and benefits.
  6. Identify Your Team:  Sound cost reduction requires good data–and the insight and courage of both faculty and administrators.  Select a senior team including the president, provost, and CFO, deans, admissions, marketing and others who deeply understand the institution and its constituents.  Include, when possible, people who are most likely to be vocal opponents, so their voices can be heard and incorporated into the decisions–not broadcast after the decisions.  Be clear that the cost-reduction targets must be met for the institution to survive and sustain its mission.
  7. Consider Adjusting Your Program Portfolio:  Institutions should start the cost management process by reviewing their program portfolio and identifying opportunities to grow, cut, merge, or redesign programs. Such changes do not directly reduce costs, but the enrollment shifts may create opportunities to better utilize the institution’s teaching resources–e.g., by eliminating class sections.  Some institutions must cut programs if they are to reduce tenured faculty, but such cuts are likely to attract the press, damage the institution’s reputation and anger faculty–creating a furor that may delay or reduce the cost savings.  Remember that the money is in cutting or redesigning courses or what we call curricular efficiency.  The program portfolio review facilitates this process but is not a cost-cutting effort per se.
  8. Run a Cost-Reduction Workshop:  Bring your team together for a day or two to review the data and make the tough decisions required to achieve your cost-reduction targets.  Gray can help you plan and facilitate the workshop.  During the workshop you should explore the following opportunities:
    1. Reduce Course Redundancy:  The same material may be taught in a few fields with limited required variation in the underlying content.  For example, statistics is often offered in several departments:  math, nursing, natural sciences, and business, and again online.  Consolidating the courses (perhaps with customized assignments for specific disciplines) can substantially reduce instructional cost.  It can also enable institutions to improve the quality of materials and teaching by incorporating the “best of” from each department.
    2. Prune the Excess:  While programs may attract students to a university, specific courses seldom do (i.e., few students review course catalogs during the admissions process).  From a purely financial perspective, each additional course raises instructional cost without increasing revenue.  This is where the toughest questions must be answered.  Do we need three student choruses? Could one suffice?  How many poetry courses do we need?  How many variations in lab science?  Often the critical content from courses can be preserved in a larger and somewhat broader course–at a greatly reduced cost.  Look at metrics like the number of student credit hours per course in a department and try to bring the high-rollers down to the norms you established.
    3. Focus Your General Education Courses:  Gen Ed courses should excel at teaching the critical skills students need to succeed in higher-level courses and to broaden their perspectives.  Fewer Gen Eds, well-supported, may actually improve the quality of education at a much lower cost.  Also, check to see if the same Gen Eds are being taught both online and on-campus; it may be possible to consolidate some of them.  To give you an idea of the potential savings, one of our clients pared down 200 Gen Ed courses to 25.
    4. Keep a Rolling Count of Credit Hours Saved:  As you prune courses in the workshop, keep a tally of the number of instructional hours saved and the cost per hour.  Your goal is to reduce hours enough to slightly exceed your overall savings target. Set aside staffing decisions, for now.
  9. Make Your Staffing Decisions:  We are generally in favor of openness, but a much smaller team should make the decisions on the specific people that will have to be let go.  This group should also plan for the legal and financial aspects of terminating staff.  They will also be responsible for reporting the decisions to the Board.  Don’t wait months for a regular Board Meeting, request a special meeting to complete this work.
  10. Find Opportunities for Growth:  In higher education, as in for-profit business, it is very hard to cut your way to prosperity.  Even during the pandemic, there are online courses, certificates and some recession-proof programs that are booming.  Find a few, launch them fast, and use the tuition revenue to reduce the impact of the virus on your institution’s financial health.  These courses could be the seeds of academic offerings that will spur future growth.  But, with costs so tight, you cannot rely on assertions and hopes.  To pick these growth investments you need solid, current data on what students want.  Gray offers two sources of data on current student demand that you can use to inform your decisions.

Cutting costs may be essential, but there is no joy in it.  Do it well and get it over with.  The reward will be an institution that is more tightly focused on its mission and once again has the resources to pursue it.

Gray Associates

Gray Associates, Inc. provides the best available data, software, and facilitated processes to help higher education institutions make high-stakes decisions regarding academic programs, pricing, and locations.

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Gray Associates, Inc. is a software and services firm focused on higher education. We help education clients develop fact-based institutional and marketing strategies that maximize outcomes for students, the school, and its constituencies.

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