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Financial Sustainability:Both Sides of the

SPECTRUM Research Project

ISACS Head of School ConferenceChicago, IllinoisJanuary 2015

With generous support from:

NBOA

Jeffrey Shields, FASAE, CAEBrief Introduction

• More than 15 years of experience working with business officers in higher education and independent schools

• Has served as NBOA President and CEO since 2010

• NBOA serves 1,150 independent schools nationwide, 13 FTE, $4 million budget, headquartered in Washington, DC

• Previously Senior Vice President, National Association of College and University Business Officers (NACUBO)

• Certified Association Executive (CAE)• Fellow, American Society of

Association Executives (FASAE)• Trustee, Online School for Girls• Trustee, Georgetown Day School

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Program Goals

• Discuss the financial climate for independent schools leading up to, and including, the economic downturn in 2008 and 2009

• Explore the prominent models promulgated throughout the community to address independent school financial sustainability

• Share insights on the methodology, definition and initial findings from the Spectrum Research Project along with other considerations to secure your school’s financial health

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•Tuitions up 30% (real dollars) over 10 years

•Overall staff up 32% over 10 years

•Student: teacher ratios getting smaller

•Financial aid grant dollars up 38%

•Enrollment up 20%

Before the economic “winds” changed

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“New Normal”•Charge only what people can pay•Design your program to that revenue number

“Full Steam Ahead”•Charge what it costs•CPI + 2 or more when needed

Prevalent Models

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: The New Normal

• Increase enrollment without increasing staff

• “Sunset” an old program for every new one• Right size: re-think class size, workload, # of

teacher specialists, assistants, school size

• Devote 1/3rd of each fundraising dollar raised to endowment

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•Decide whether you are a price, product, or process school (you can’t be all 3!)

•Acknowledge that the 20th century “factory” model of education will not prepare students for the 21st century

•Design a 21st century school that individualizes learning using technology

•Dedicate 2% of your budget to faculty professional development

: 21st Century Model

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2013 NBOA Business Officer Survey In response to the economic decline, what strategies did you implement?

Most popular strategies

• Increase average class size

• Increase teaching loads

• Increase employee contributions for benefits

• 26.4% were going to increase the average class size, but only 11.7% did

• 58.8% were going to decrease planned salary increases, but only 32.3% did

2013 2012 2011 2010 2009

Increase average number of students per classroom 9.9% 11.6% 10.7% 11.7% 5.5%

Increase teaching load 9.1% 8.1% 10.9% 12.8% 3.2%

Eliminate student programs 1.6% 2.2.% 1.4% 2.7% 1.0%

Reduce the number of faculty FTEs 7.4% 7.9% 11.5% 18.0% 4.9%

Reduce the number of staff/administrative FTEs 8.0% 11.0% 14.4% 17.8% 6.7%

Decreased planned salary increases 6.2% 9.3% 14.0% 32.3% 7.8%

Reduce salaries 0.6% 2.0% 2.3% 4.0% 0.7%

Reduce benefits 3.4% 5.5% 7.4% 12.2% 2.1%

Increase the employee contribution for benefits 8.3% 13.2% 12.7% 11.7% 4.4%

% of Respondents Who Implemented Strategy by Survey Year

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Strategic Reactions► Increase Number of Students Per Classroom

Planned Implemented

2010 Survey 26.4% 11.7%

2011 Survey 19.9% 10.7%

2012 Survey 16.2% 11.6%

2013 Survey 17.9% 9.9%

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Strategic Reactions► Increase Teaching Load

Planned Implemented

2010 Survey 26.6% 12.8%

2011 Survey 18.4% 10.9%

2012 Survey 14.2% 8.1%

2013 Survey 14.8% 9.1%

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Strategic Reactions► Increase Employee Contribution for Benefits

Planned Implemented

2010 Survey 17.5% 11.7%

2011 Survey 20.7% 12.7%

2012 Survey 13.5% 13.2%

2013 Survey 18.1% 8.3%

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Strategic Reactions► Same goes for:

- Reduce Faculty FTE

- Reduce Staff / Admin FTE

- Decrease Planned Salary Increases

- Reduce Salaries

- Reduce Benefits

Source: NBOA Business Office Survey 2009-12

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13 Years of Tuition or…?

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There is NO Silver Bullet

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The Future…?

NBOASource: NAIS and US Bureau of Labor Statistics

Tuition Increases: CPI versus Reality

2002 2013 (CPI Only) 2013 Actual

Day 14000 17700 22700

Boarding 27400 34575 46800

$2,500

$7,500

$12,500

$17,500

$22,500

$27,500

$32,500

$37,500

$42,500

$47,500 ● Average yearly CPI increase for the past 12 years is 1.96%.

● Has your school had a tuition increase in any given year that was less than 2%?

● It’s not just about affordability, but about managing expectations.

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76

78

80

82

84

86

88

Average To-tal FTE

We’re Adding Employees

Source: NBOA Business Office Surveys 2008-13

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Independent School Revenue StreamsIn general, all operating revenues fall into one of four buckets, and you only have direct control over one of them - tuition.

Tuition

Fundraising

Endowment

Auxiliary Services

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Independent School ExpensesGreatest % of your budget, in descending order (typical school)

Compensation and Benefits

Facilities

Financial Aid (actually a revenue offset, but for our purposes we will discuss it here)

Technology

Equipment and Supplies

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SPECTRUM Project Overview

• Objectives and Methodology• Definition of Financial Health• Identification of High Performing Schools• Common Traits Among High Performing Schools in the Project

With generous support from:

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Objectives

• Learn what great schools are doing that sets them apart.

• Investigate best practices in financial management of independent schools.

Approach

• Jim Collins “Good to Great” matched pair research.

• Compare high-performers to typical to learn what separates them apart.

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1 3 5

2 4 6

Background research

Quantitative data collection

Qualitativedata collection

Background research

Define financial health of

independentschools

Identify high-performing

school group & “others”

Analysis

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Process to DevelopDefinition of Financial Health

Background Research

NBOA Panel of Experts

Financial Health of Independent

Schools Defined

Presented at Annual Meeting

Spring 14’

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Financially healthy schools have the resources to sustain their operations for the long term, relative to their individual missions. These schools have successfully developed and implemented financial plans for both operations and facilities. These plans, funded in part with tuition and fees, also maintain financial reserves which adequately cover all current and projected future obligations.

NBOA SPECTRUM Research Project: Definition of Financial Health

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SAMPLE Data Points to Distinguish HPS From Others

•Operating Cash Flow Margin

•Financial Aid/Gross Tuition

•Annual Giving•Philanthropic Support

•Primary Selectivity

•Debt Burden•Calculated Age of Facility

•Days Cash on Hand

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•Definition of financial health used as criteria in selecting 12 schools for “high-performing schools” (HPS) group

•Eight “typical” schools selected for comparison group (others)

Identifying High-performing Schools

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1. Lean2. Collaborative and focused on clarity

and outcomes3. Academically rigorous4. Guided (not governed by strategic

plan)5. Debt-averse

Common Traits Among High-Performing Schools in SPECTRUM

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6. Disciplined endowment draw7. Focused on benchmarking8. Top-down decision-making9. Quality, not quantity, in budget

training

Common Traits Among High-Performing Schools in SPECTRUM

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IMHO: Other Considerations toHelp Secure Your School’s

Financial Future 1. “Know where the mission lives in your budget”

2. Elevate and integrate the role of the business officer at your school

3. Increase classroom capacity without increasing cost…how?

a. Use of Technology

b. Classroom size

c. Faculty professional development and support

4. Provide financial aid to support your mission and within your school’s resources

5. Reduce or eliminate dependency on annual giving and endowment…how?

a. Charge what it costs or reduce your program or both?

b. Fundraise for following year

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Register now at http://www.nboa.org/events/annual-meeting