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To see the possible impacts of your college or university’s strategic decisions, the budget process isn’t enough. You need a good financial modeling tool.

Impacts of financial decisions

Transform Higher Education Strategic Decisions With Financial Modeling

  • Taylor Powell
  • 3/15/2018

Many higher education institutions operate in the shadow of uncertainty; the industry is rapidly changing and becoming ever more competitive for funding and enrollment. At the same time, colleges and universities must make major spending commitments on projects that help attract students, keep up with trends, and stay compliant with regulations. In such an environment, it’s essential that you make highly informed decisions and shrewdly prioritize projects to make the most of your funds and reach your goals.

A strategic financial model is the best method for guiding your college or university in decisions about spending and prioritizing. A really good modeling tool can provide the kind of high-quality information you need to meticulously analyze and assess the wide variety of possible scenarios wound up in your school’s entire string of strategic initiatives. It can help you see projects from many angles so you understand spending pitfalls and success opportunities, and plan accordingly.

Strong financial modeling helps you make better strategic decisions

Your institution has very likely identified a host of challenges you need to square with to meet your goals for enrollment, revenue, and regulatory compliance — or whatever projects or mission-critical endeavors you have on the horizon These challenges might be things like demographic shifts, new course instruction methods and technologies, and refinements in students’ taste in housing and facilities. You’ve also very likely crafted strategies for meeting and managing them. A strategy for accommodating the housing and facility preferences of prospective students, for instance, might include a plan to modernize campus buildings — and come with considerable costs and specific timelines.

Such a strategy is generally funded through cash holdings, debt, fundraising, or any combination of these things. If your institution were to pursue too many strategies, adopt incorrect strategies, or fail to fully understand their financial impact, the strain on your funding resources could be truly damaging. When you consider that strategies are designed to put your organization in a better place tomorrow than it is today, you understand how critical it is to gauge potential outcomes and undertake rigorous analyses of all your efforts.

Strategic financial modeling reveals the depth, level of detail, and insight necessary to prudently weigh your myriad options. By computing a range of variables, you can see projected outcomes from a host of different scenarios. You can vet numerous “what if” situations, consider known risks (and discover unknown risks and opportunities), and look at your entire slate of strategic initiatives from a comprehensive view. From this angle, smart decisions come much easier.

The budget process alone is insufficient for analyzing strategies

Many institutional administrators tend to believe that their annual budget process includes the financial analysis and impact review of proposed strategies. But this isn’t necessarily the case, and even if it is, the analysis and review don’t generally have the depth and detail you need to fully evaluate and understand a project’s objective and weigh it against other strategies on the table. Today’s typical higher education operating environment requires departments to thinly spread their resources, and many institutions simply do not have the capacity or tools for more complex financial analysis during the budget process.

Plus, most budgets are only prepared annually and do not include multi-year projections or assumptions that are essential for strategy analysis. The budget process itself does not always allow for the study of a specific strategic scenario because it is more focused on an institution-wide product. It relies on input from leaders across the institution who may have varying objectives and interests in things other than analyzing and deciding on strategic direction and actions. And because there are multiple variables possible for each scenario, critical factors and projections tend to be omitted.

So, what happens if your president, executive leaders, and board members are weighing multiple strategies based on limited information? If multi-year projections cannot easily be shared and adjusted to see numerous scenarios across multiple strategies, decision makers will be unable to thoroughly and effectively evaluate which strategies to pursue. You run the risk of making less informed and prudent decisions—and missing out on the most rewarding opportunities.

Financial modeling analyzes strategies through scenarios

A financial model that includes strategy-specific variables and customized dashboard outputs — independent of the budget process — is the only way to get a comprehensive, big-picture view of your financial risks and opportunities.

Look for a modeling tool that will analyze scenarios across numerous strategies in one central location and help your leaders make smart, well-informed decisions. The dashboard should include key outputs such as:

  • debt capacity ratios
  • bond rating projections
  • composite score projections
  • investment and endowment projections
  • overall financial outcomes

This type of financial model does not necessarily require expensive software; in fact, it can be built exclusively in Excel.

The more connected the financial model is with your institution’s strategic plan, the better the chances it will be valued by decision makers and effectively utilized. There is no such thing as having too much knowledge as leaders and board members tackle the changes in this complex industry.

How we can help

CLA’s higher education professionals have worked with numerous colleges and universities to apply insightful financial modeling tools and help develop prudent financial strategies. Our proprietary financial model customized for higher education institutions can help your decision makers understand critical financial data, analyze strategic initiatives, and make the best use of all available resources.