Impacts of financial decisions
Benchmarking and Baseball Cards: What Higher Ed Orgs Can Learn from Their Data
When I was seven years old I fell in love with baseball. It wasn’t being on a team, listening to it on the radio, or watching it on television that spurred this feeling, though those things certainly enhanced my appreciation for the sport. What made me love the game began with a stack of baseball cards wrapped in a rubber band. As I shuffled through them, I got caught up in the pictures, the uniforms, the team logos, the biographies on the back, the smell of bubble gum, and then … the numbers.
Every baseball card was loaded with statistics, and I was enthralled with what they all meant. They were not initially appealing by themselves, but combined with the pictures and bios, they somehow told a deeper story, especially when I could see changes in stats over time or compare players among teams and marvel at their different performances. It felt like I was learning to read, speak, and understand a different language.
Your higher education institution’s financial statements are a lot like baseball cards. The numbers contribute significantly to your college or university’s big-picture story, and when you start to make historical and industry comparisons — that is, when you engage in benchmarking — you can piece together some profoundly helpful information that can guide some of your most important decisions.
Benchmarking in higher education using the Composite Financial Index
Benchmarking is comparing a set of figures to an accepted baseline to gauge performance or to create a new standard. Financial benchmarking can be an extremely useful process for colleges and universities. While raw data may not always deliver a clear message, comparison with standards, goals, peers, or historical data almost always improves the usability of information.
The Composite Financial Index (CFI)* is a benchmarking tool developed specifically for the higher education industry. The CFI is a combination of several different ratios, each of which is comprised of data that, when analyzed further, can provide insight into your institution’s financial health and inform you decision-making processes.
- Primary reserve ratio — The primary reserve ration uses unrestricted funds and annual expenses to calculate how many months of operational funding your institution has on hand. This reveals funding sufficiency for current operations and flexibility in future planning and investing.
- Net operating revenues ratio — This ratio gives a clearer picture of your institution’s deficits and surpluses. It fundamentally lets you know if you are “living within your means” or not.
- Viability ratio — This ratio compares resources with long-term debt to display debt capacity and how well your institution strategically manages its debt.
- Return on net assets ratio — This figure measures your change in total net assets over the course of the year. A healthy result shows that you responsibly manage both foreseen and unexpected expenses.
The overall CFI uses a weighted average of the above ratios and converts them to a common scale. This score is then compared to a recommended threshold and also to peer scores and to your own previous results. Annual calculation results provide good information when you consider the context and the elements that may have affected the data; however, you need to measure the results over several years to get truly useful insight. For example, just like a baseball player who has a .300 batting average in one year but whose career average is more like .250, investment results may not be representative of an entire portfolio if you are just looking at a narrow timeframe.
And in higher education, just as in baseball, numbers do affect strategy. Some teams, for instance, rely on batting averages more than homeruns, while others analyze and leverage their pitching data to garner wins. A university with a poor operating revenues ratio might consider the creation of a new athletic or academic program that produces net revenue to strengthen its CFI score. Or if a school’s viability ratio is dragging down its CFI ranking it, should evaluate and revamp its debt structure to better position itself in the industry.
When you understand how these ratios can interpret financial information and help guide decisions for the future, the numbers become much less mystifying. They start to “speak” to you, like the stats on the back of a baseball card, and tell a much larger story about your institution.
How we can help
CliftonLarsonAllen professionals understand how to use benchmarking in the higher education industry. And although we love the numbers, we also know that leaders sometimes have to be pulled in with understandable and compelling images to enhance the data. No matter what benchmarks are most important to you, understanding their components and presenting them with pictures and diagrams to tell the stories can help catch the imagination of your intended user — whether that user is a member of the board of trustees or a donor reading an annual report. We’ll even throw in some bubble gum.