academic programs

This is how you measure the viability of academic programs

How to harness activity-based accounting to optimize academic program resources and improve student outcomes.

One of the most frequent questions I hear when visiting colleges and universities is, “What about a tool for measuring the viability of our academic programs?” Institutions are seeking greater insight into the true value of programs beyond traditional metrics or accounting methods, especially as budgets continue to shrink and regulatory accountability for student outcomes increases.

This is difficult to achieve through traditional higher education accounting, in which revenues, program needs, and student success initiatives are often opaque to each other and treated as discrete functions.

To gain greater insight into program and institutional ROI, more institutions are looking at the way businesses use activity-based costing to determine the bottom line value of products and services. The goal is to tie the cost of these discrete functions to the big picture of operational and student success.

Faculty costs, for example, are a direct cost of a program or course. But what about the additional administrative services or more specialized faculty (i.e., more ‘expensive’ faculty) that a new program demands? What about the specific classroom space, equipment or additional library services, energy, added security and even janitorial needs that a particular program requires?

Rather than allocating these costs into general operational overhead, activity-based budgeting seeks to assign them to their respective programs and services.

A Business Practice for Academic Programs

Although activity-based accounting is more commonly utilized in industries such as manufacturing and healthcare, the practice is now generating interest among higher education executives who face increasing uncertainty about the long-term financial viability of their institutions.

According to a recent survey of higher education chief business officers by Inside Higher Ed, less than half of those surveyed, 48 percent, agree that their current business model will be sustainable over the next 10 years.

Even as they look to cut costs, these institutions want to add more options and alternative programs—such as competency-based education or continuing education—to attract traditional and nontraditional students alike. They are asking for a solution that can help them project the value of these programs and their impact on the bottom line and student outcomes.

How to Harness Activity-Based Accounting for Academic Programs

What steps can institutions take to move closer to an activity-based costing model?

There are advanced analytic tools on the market today that can provide the visibility institutions need to accurately assess program ROI. These tools (e.g., Microsoft Power BI) provide the final layer in the technology stack to present the data. They are dependent, however, on an enterprise-wide financial or ERP system underneath them that can aggregate and contextualize data from multiple systems and departments.

This aligns well with higher education’s continued evolution toward cloud-based systems. Given this accounting method’s need to compile data from across the enterprise, it enables executives to roll up data from across campuses and departments to  more accurately measure new program ROI, as well as the overall health of the institution’s academic offerings.

While the technology now exists, ultimately the move to activity-based budgeting is as much about the institution’s mission, values and culture. For a private liberal arts college, the value of their programs are measured more in the classical education and critical thinking skills gained by their students and less in the revenues generated by any given program or course. Even at larger public institutions, determining the value of programs by their financial efficacy alone could run afoul with faculty and students.

The fact remains that higher education institutions of every size and mission are looking for ways to serve students more efficiently, and they are trying to do more with less.

For institutions that have embraced activity-based accounting, it’s about gaining greater insight into program patterns over the long-term and being able to make adjustments at the right time. Their executives use it as another important method for finding a program’s sweet spot and the ideal mix of courses and resources to make it more efficient and successful for students and the institution, today and ten years from now.

In the end, the goal of activity-based costing model is putting dollars where they’re needed most, in the programs that help more students achieve their academic and career goals.

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