Roadmap To Financial Viability
FOR COLLEGES AND UNIVERSITIES
Understanding Key Financial Indicators and Analysis
Prepared for the Association of Business
Administrators of Christian Colleges
Updated November 2011
Nicholas J. Wallace, CPA
National Director of Higher Education Services
CapinCrouse LLP
www.capincrouse.com
Roadmap To Financial Viability
FOR COLLEGES AND UNIVERSITIES
TABLE OF CONTENTS
ACKNOWLEDGEMENTS
2
BALANCED SCORECARD AND BUILDING KPI
DASHBOARDS
A WORD ON NONPROFIT LEADERSHIP
2
PURPOSE
2
BUILDING DASHBOARDS: A VISUAL REPRESENTATION
OF THE BALANCED SCORECARD
13
BACKGROUND AND INTRODUCTION
3
PERIODIC ANALYSIS AND STRATEGIC REVIEWS
15
THE ROLE OF VISION AND STRATEGIC PLANNING
4
FINANCIAL EQUILIBRIUM
16
THE GENERAL ROLE OF KEY
PERFORMANCE INDICATORS
5
SUMMARY
17
OUTLOOK FOR HIGHER EDUCATION TODAY
5
BIBLIOGRAPHY
17
FIVE STEPS TO IMPROVED FINANCIAL HEALTH
HZZ\NNLZ[LKI`HZLHZVULKJVSSLNL*OPLM-PUHUJPHS6MÄJLY
18
12
Success Stories
5
Lessons from Key Funding Sources
5
Step 1: Awareness and Commitment to Change
18
Some Sobering Statistics
6
Step 2: Assessment of Senior Leadership and
Governing Board
18
Step 3: Mission-Driven Strategic Planning
19
Step 4: Realignment of the Budget to Support the
Strategic Plan
19
:[LW!+PZJPWSPULK4HUHNLTLU[0TWSLTLU[H[PVU
19
People
19
Strategy
19
Operations
19
CONCLUSION
20
APPENDIX
21
ABOUT NICHOLAS J. WALLACE
22
COLLEGE & UNIVERSITY TEAM
23
TOOLS FOR BUILDING THE ROADMAP
6
Composite Financial Index
6
CFI Framework
6
Primary Reserve Ratio
7
Net Income Ratio
7
Return on Net Assets Ratio
7
Viability Ratio
8
CFI Score
8
Caveat
8
SCORING EXECUTIVE SUMMARY
8
FACTORS AFFECTING CFI RATIO SCORING
9
1.
Primary Reserve Ratio
9
2.
Net Income Ratio-Form 1
10
3.
Net Income Ratio-Form 2
10
4.
Return on Net Assets
11
5.
Viability Ratio
11
6.
Strengths and Weights Worksheet
11
ACKNOWLEDGEMENTS
A WORD ON NONPROFIT LEADERSHIP
(S[OV\NO[OPZ^OP[LWHWLYHKKYLZZLZHYLSH[P]LS`ZWLJPÄJULLK
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whom I have immense respect were involved in its production.
Excerpted from the chapter “Leadership Is a Foul-Weather Job”
in 4HUHNPUN[OL5VU7YVÄ[6YNHUPaH[PVUI`7L[LY-+Y\JRLY!
Each has either performed a detailed review or has made
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I would like to extend special recognition and thanks to my
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+H]PK MVY OPZ JVU[PU\LK MYPLUKZOPW HUK HZ[\[L Q\KNTLU[Z /PZ
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[OPZWYVQLJ[0^V\SKHSZVSPRL[V[OHUR[OLMVSSV^PUN!
‹
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‹
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role in the development of many of these thoughts and
helped put the ratio descriptions into layman’s terms —
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‹
4HYR4`LYZVM;YL]LJJH5HaHYLUL<UP]LYZP[`MVYOPZKLLW
insight into the ratios and the language used to describe
them. He made very insightful suggestions to the text.
‹
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for her review of the draft and her general support and
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‹
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perspective on the draft
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Emeritus of the Council for Christian Colleges & Universities
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the process of developing these thoughts; and to Bruce
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(KTPUPZ[YH[VYZ VM *OYPZ[PHU *VSSLNLZ ()(** MVY OPZ
tireless efforts to keep this topic in front of his association’s
membership and his work on the ABACC ratio user survey
found in the appendix.
-PUHSS`[OHUR`V\[V[OLWHY[ULYZHUKZ[HMMVM*HWPU*YV\ZL337
It is because of this group’s generosity and focus on ministry
[OH[[OLZL[`WLZVMWYVQLJ[ZHYLWVZZPISL
Originally published March 2006
Updated November 2008
Second update November 2011
Includes ABACC ratio study survey results as of November 2008
1
2
-VY[\UH[LS` VY \UMVY[\UH[LS` [OL VUL WYLKPJ[HISL [OPUN PU
any organization is the crisis. That always comes. That’s
when what you do depends on the leader.
The most important task of an organization’s leader is to
HU[PJPWH[LJYPZPZ7LYOHWZUV[[VH]LY[P[I\[[VHU[PJPWH[L
it. To wait until the crisis hits is already abdication. One
has to make the organization capable of anticipating the
Z[VYT^LH[OLYPUNP[HUKPUMHJ[ILPUNHOLHKVMP[;OH[PZ
JHSSLKPUUV]H[PVUJVUZ[HU[YLUL^HSYou cannot prevent a
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is battle-ready, that has high morale, and also has been
through a crisis, knows how to behave, trusts itself, and
where people trust one another.1
PURPOSE
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ZLY]PUN UV[MVYWYVÄ[ VYNHUPaH[PVUZ ^P[O H ZWLJPHS LTWOHZPZ
on serving Christian colleges and universities. We advise
more than 50 institutions on the results of their Composite
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approximately 150 campuses belonging to the Association of
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[OL *V\UJPS VU *OYPZ[PHU *VSSLNLZ HUK <UP]LYZP[PLZ ***<
This data was originally reported to the individual campuses
in September 2005 and continues with the current year.
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^VYRZOVWZVU[OPZ[VWPJ[VIV[O()(**HUK[OL***<9LJLU[S`
there have been ongoing discussions about improvements to
the ratio studies being done by each association.
+\YPUN[OLWSHUUPUNMVY[OL HUU\HSTLL[PUN[OLYL^LYL
discussions about how to best utilize the ratio material being
completed for ABACC. A pre-meeting session was planned to
address the ratios and their practical implications. In planning
[OH[ZLZZPVUHZOVY[Z\Y]L`^HZZLU[V\[[VNH\NL[OL\ZLVM
the ABACC ratio report. The results of that survey are published
as an appendix to this paper. Those sessions have been an
annual highlight of the national conference since that time.
This paper is in response to the survey and other requests for
additional written background material.
It is my sincere hope that this information will be useful to board
TLTILYZ VMÄJLYZ HUK V[OLY SLHKLYZ PU \UKLYZ[HUKPUN RL`
ÄUHUJPHSPUKPJH[VYZ[OH[HYLJYP[PJHS[V[OLZ\JJLZZVMPUZ[P[\[PVUZ
and how management can chart a course of action to achieve
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© 2011 CapinCrouse LLP
BACKGROUND AND INTRODUCTION
History
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United States was almost exclusively for the elite (male and
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transformation. This transformation traces its roots back to
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[OL Z`Z[LT Z\WWVY[LK I` [OL .0 )PSS ;OL KLTHUK MVY WVZ[
secondary education continued to increase as the United
States began to move from the industrial age to the knowledge
age. This demand continues unabated.
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JOHSSLUNLZ ZVTL VM ^OPJO JV\SK PTWHJ[ [OLPY ]LY` Z\Y]P]HS
Public institutions are experiencing declining state support as
well as capacity issues. Community college enrollments have
NYV^UH[HZPNUPÄJHU[WHJLI\[[OL`[VVHYLSPTP[LKI`W\ISPJ
funding and the number of students they can accommodate.
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reality that the world has shifted from a manufacturing-based
economy to a knowledge-based one.
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economic recession has exacerbated the situation. Public
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[YHKP[PVUHSHJHKLTPJVMMLYPUNZHUKYLZ\S[Z>P[OPU[OPZJVUZ[Y\J[
colleges and universities are being compelled to better address
questions about their stewardship of limited resources and the
outcomes they produce in and through their graduates.
Even though most faith-based colleges and universities are
UVUWYVÄ[[OL`HSZVHYLJVTPUN\UKLYWYLZZ\YL[VKLTVUZ[YH[L
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where even our Christ-centered schools may be beyond the
reach of many who would otherwise desire such an education.
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have a vital responsibility to carefully and systematically
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best organizations in the world today use information and
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promoting excellence.
In his foreword to George Keller’s book (JHKLTPJ :[YH[LN`!
The Management Revolution in American Higher Education
9PJOHYK4*`LY[[OLU7YLZPKLU[VM*HYULNPL4LSSVU<UP]LYZP[`
suggested that “the future of our society depends on a strong
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that better management and strategic planning are essential to
the continued strength of our colleges and universities.”2
Effective stewardship of the resources that God provides to
Christ-centered colleges and universities is a biblical mandate
and fundamental principle that should guide the work of the
Board of Trustees and the senior leadership of these faith-based
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forced transition. If Christ-centered higher education is to have
H ]PIYHU[ M\[\YL NV]LYUPUN IVHYKZ HUK [OL SLHKLYZOPW [OL`
supervise must become increasingly expert at ensuring that the
vision of the institution is being accomplished as they measure
and assess progress toward achieving that vision.
In our work with colleagues and friends in Christian higher
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PZ H RL` WYPUJPWSL VM LMMLJ[P]L NV]LYUHUJL ;Y\Z[LLZ *,6Z
and CFOs are all called to promote and ensure excellence
in their boardsmanship by creating cultures of evidence
that emphasize accountability and integrity 0U HKKP[PVU
regional and professional accrediting requirements emphasize
the importance of data-enriched decision-making and
demonstration of continuous quality improvement through the
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requiring increased accountability in delivering on institutional
promises. These promises must be supported by evidence if
credibility and accreditation are to be maintained.
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LK\JH[PVU THUHNLTLU[ ^HYULK [OH[ ¸H ZWLJ[LY PZ OH\U[PUN
higher education: the specter of decline and bankruptcy.” He
went on to predict that “between 10 percent and 30 percent
VM (TLYPJH»Z UVUWYVÄ[ KLNYLLNYHU[PUN JVSSLNLZ HUK
universities will close their doors or merge by 1995. On many
campuses the fear of imminent contraction or demise is almost
palpable.”3 2LSSLY HSZV X\V[LK ,HYS *OLP[ [OL MVYTLY KLHU VM
/HHZ :JOVVS VM )\ZPULZZ H[ <* )LYRLSL` ^OV UV[LK PU [OL
1970s that “one-quarter of all private colleges and universities
are now drawing on endowment to meet operating expenses.”4
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JVSSHWZLVM[OL:VJPHS:LJ\YP[`Z`Z[LTHUKYPZPUNOLHS[OJHYL
and technology costs as reasons for his dim view on the hopes
of higher education. This sounds a lot like today!
Keller further warned that “college presidents who do not look
HOLHK^OVKVUV[WSHUILJVTLWYPZVULYZVML_[LYUHSMVYJLZHUK
Z\YWYPZLZTVZ[VM[OLT\UWSLHZHU[0U[OLUL^Z[`SLVMHJHKLTPJ
THUHNLTLU[[OLJHTW\ZSLHKLYZHYLJVUZ[HU[S`SVVRPUNHOLHK
[VZLL^OLYL[OLJVSSLNLVY\UP]LYZP[`^PSSILPU[OLUL_[[OYLLÄ]L
or ten years. They are deciding now what to do about the likely
9PJOHYK4*`LY[MVYL^VYK[V(JHKLTPJ:[YH[LN`!;OL4HUHNLTLU[9L]VS\[PVUPU(TLYPJHU/PNOLY,K\JH[PVU)HS[PTVYL!;OL1VOUZ/VWRPUZ<UP]LYZP[`7YLZZ .LVYNL2LSSLY(JHKLTPJ:[YH[LN`!;OL4HUHNLTLU[9L]VS\[PVUPU(TLYPJHU/PNOLY,K\JH[PVU)HS[PTVYL!;OL1VOUZ/VWRPUZ<UP]LYZP[`7YLZZ Ibid.
2
3
4
© 2011 CapinCrouse LLP
3
tomorrow.”5(UV[OLYOPNOLYLK\JH[PVUH\[OVY+H]PK,^PUNZ[H[LK
[OH[¸HOPNOLYVYKLYVMTHUHNLTLU[PU[LSSPNLUJLVUJLHS\_\Y`PZ
now becoming a condition of survival.”6
-VY[\UH[LS` UV^OLYL ULHY [OL SL]LS VM KL]HZ[H[PVU 2LSSLY
KLZJYPILKOHZVJJ\YYLK9VSSPUN[OLJHSLUKHYMVY^HYKOV^L]LY
4PJOHLS;V^UZSL`PUOPZ\WKH[LK IVVRThe Small College
.\PKL[V-PUHUJPHS/LHS[O!>LH[OLYPUN;\YI\SLU[;PTLZ^YV[L!
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universities were the stock market crashes of 2000 and
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and institutional size. Guess what? These problems have not
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ÄYZ[[PTL[OH[T\YT\YZVMKPZTHSJVUZLX\LUJLZJVUMYVU[PUN
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and board meetings...
Financial markets deteriorated so quickly during the last
half of 2008 and early 2009 that many private institutions
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KLI[ THYRL[Z ZOHYW KLJSPULZ PU PU[LYLZ[ YH[LZ VU JHZO
PU]LZ[TLU[ZSVZZVMTHQVYNPM[ZMYVTYLSPHISLKVUVYZHUK
severe strains on liquidity as private investments lost
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It is clear that we are not out of the woods. What can be done
to ensure that our institutions do not end up like the poor
ZV\S I\YPLK \UKLY [OL (YPaVUH [VTIZ[VUL [OH[ YLHKZ ¸0 [VSK
you I was sick”? Studies of the colleges that have “made it”
suggest that an addiction to planning; communicating next
steps widely and making sure that the strategies are carried
out and not allowed to become mere paper proposals; and
strategic planning based on sagacious competitive analysis
HYLHTVUN[OLMLH[\YLZVMZV\UKÄUHUJPHSTHUHNLTLU[[OH[
enable successful navigation of the murky waters of our
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Strategic Questions:
Once the plan has been created and endorsed by the
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this effectively. We address strategic planning for faith-based
institutions of higher education in greater depth in another white
WHWLY0U[OPZ^OP[LWHWLYV\YMVJ\ZPZVUPUZ[Y\TLU[H[PVU[OH[
can best help you monitor progress in achieving the agreedupon priorities of the selected planning process.
6ULVM[OLTVZ[ZPNUPÄJHU[JOHSSLUNLZOHZILLUKL[LYTPUPUN
how to appropriately and accurately measure success in
accomplishing the stated goals of a strategic plan. How do
we know that the vision and goals set out in the plan are being
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to account for changes in the economy or higher education in
NLULYHSVYMVYHUL^SLHKLY&(YLZ\MÄJPLU[ÄUHUJPHSWO`ZPJHS
and human resources available to accomplish the plan? These
and a variety of other questions require critical examination and
substantive answers.
We do need to note here that in a Christ-centered educational
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[OL PUZ[P[\[PVU»Z TPZZPVU HYL ]LY` KPMÄJ\S[ [V X\HU[PM` HUK [O\Z
TLHZ\YL(SILY[,PUZ[LPUOHZILLUH[[YPI\[LK[V[OLX\V[L¸5V[
L]LY`[OPUN[OH[JHUILJV\U[LKJV\U[ZHUKUV[L]LY`[OPUN[OH[
counts can be counted.” Individual transformation through the
processes of whole-person education is at the heart of the
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Rather than using this reality as an excuse to not be accounting
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stewardship we must measure and evaluate what we can to
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those who trust in us and give their time and resources.
Strategic Questions:
1.
Does the college/university have vision and mission
statements that embody the character of the institution?
1.
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Z\NNLZ[MVY[OLULLKMVYÄUHUJPHSHUHS`ZPZ&
2.
2.
Is the current level of analysis expected to provide adequate
warning systems to withstand the next economic storm?
Does the college/university have a current and active
strategic plan?
3.
Does the board regularly review the vision statement and
the goals of the strategic plan? Does the board periodically
revisit the mission statement to insure its continuing
relevance?
4.
Is there a willingness to embrace a “culture of evidence” in
this institution? Is there any resistance to such embracing
HUKPMZV^OH[PZP[&
THE ROLE OF VISION
AND STRATEGIC PLANNING
.LULYHSS` HU VYNHUPaH[PVU»Z ]PZPVU PZ L_LJ\[LK [OYV\NO H
strategic plan developed by the institution in consultation with
the board. Strategic planning has been around for a long time
in the business world. Higher education has now generally
adopted strategic planning as a critical component in securing
a positive future. The best strategic plans are created with input
from all constituencies of the institution.
Michael Townsley: ;OL:THSS*VSSLNL.\PKL[V-PUHUJPHS/LHS[O!>LH[OLYPUN;\YI\SLU[;PTLZ5(*<)6 Ibid.
7
Ibid.
5
6
4
© 2011 CapinCrouse LLP
THE GENERAL ROLE OF KEY
PERFORMANCE INDICATORS
One of the best ways to monitor progress toward achievement
of the goals in the strategic plan is through a set of Key
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JV]LYH^PKLYHUNLI\[NLULYHSS`PU]VS]LÄUHUJPHSHJHKLTPJ
HUK I\ZPULZZ WYVJLZZ ([ *OYPZ[PHU JVSSLNLZ HUK \UP]LYZP[PLZ
PUKPJH[VYZVMZWPYP[\HS]P[HSP[`NYV^[OHUK[OLPU[LNYH[PVUVMMHP[O
HUK SLHYUPUN HYL HSZV \ZLK ;OLZL MHP[OIHZLK ZWLJPÄJZ JHU
ILHTVUN[OLTVZ[JOHSSLUNPUN[VL]HS\H[LK\L[V[OLPYOPNOS`
Z\IQLJ[P]LHUKHULJKV[HSUH[\YL
/PZ[VYPJHSS` IVHYKZ H[ MVYWYVÄ[ I\ZPULZZLZ WYPTHYPS` MVJ\ZLK
VU ÄUHUJPHS PUKPJH[VYZ [V TLHZ\YL HUK TVUP[VY [OL OLHS[O VM
[OL VYNHUPaH[PVU ;OLZL ÄUHUJPHS PUKPJH[VYZ Z\JO HZ YL[\YU VU
PU]LZ[TLU[ VWLYH[PUN THYNPUZ WYVÄ[HIPSP[` HUK SPX\PKP[` OH]L
the advantage of being easier to measure than other indicators.
;OL`HSZVHYLTVYLJVTTVUS`\UKLYZ[VVKLZWLJPHSS`I`[OVZL
with traditional business backgrounds.
OUTLOOK FOR HIGHER EDUCATION TODAY
Success Stories
There are several stories of institutions successfully turning
HYV\UKVYNHPUPUNHKKP[PVUHSÄUHUJPHSZ[YLUN[O(Z^L»SSKPZJ\ZZ
PU NYLH[LY KL[HPS SH[LY [OL \ZL VM Z[YVUN ÄZJHS KPZJPWSPUL HUK
monitoring mechanisms to ensure that the right things happened
was a feature common to many of the success stories we
YL]PL^LK 3PRL^PZL [OLYL HYL U\TLYV\Z Z[VYPLZ ^OLYL [OPZ VY
similar analysis was not done and the results were fatal.
A quick review of similarities in cases reviewed by Michael
Townsley in The Small College Guide to Financial Health (which
WYVTV[LZ [OL \ZL VM YH[PV HUHS`ZPZ HUK PU [OL <:( .YV\W
-V\UKH[PVU 5L^ (NLUKH :LYPLZ HZ ^LSS HZ MYVT [OL Z[VY` VM
Elon College contained in George Keller’s book Transforming a
CollegeYLZ\S[ZPUH[SLHZ[[^VJVTTVUH[[YPI\[LZ!8
‹
Fiscal discipline – Enhanced by tools (such as ratio
HUHS`ZPZ[OH[PUJS\KLKJVTWL[P[P]LHUHS`ZPZ
0[»Z NLULYHSS` ILLU JVUJS\KLK OV^L]LY [OH[ VYNHUPaH[PVUHS
L_JLSSLUJLJHUUV[ILHJOPL]LKI`JVUZPKLYPUN[OLÄUHUJPHS
perspective alone. Financial measures typically focus
VUS` VU [OL ZOVY[ [LYT HUK KV UV[ HKLX\H[LS` HKKYLZZ
[OL VYNHUPaH[PVU»Z SVUN[LYT WLYMVYTHUJL (KKP[PVUHSS`
organizations that primarily or exclusively focus on short-term
ÄUHUJPHSPUKPJH[VYZTPZZ[OLVWWVY[\UP[`[V\UKLYZ[HUKV[OLY
factors that are directly contributing to the organization’s
V]LYHSS Z\JJLZZ (UK H ÄUHUJPHSVUS` WLYZWLJ[P]L PZ
KPMÄJ\S[[VSPURPU[VTHU`VM[OLTVZ[PTWVY[HU[NVHSZPUHU
organization’s strategic plan.
‹
,UYVSSTLU[ NYV^[O ¶ -\LSLK I` ÄUKPUN UPJOLZ [V ÄSS
4HY`SO\YZ[ *VSSLNL MVZ[LYPUN MLLKLY WYVNYHTZ >LZSL`
*VSSLNLHUKJYLH[PUNPUUV]H[P]LWYVNYHTZHUKJLU[LYZVM
Z[\K`1VOU)YV^U<UP]LYZP[`HUK*OH[OHT<UP]LYZP[`
6]LY [OL SHZ[ [^V KLJHKLZ H IYVHKLY ZL[ VM 270Z OHZ ILLU
developed. This provides a more comprehensive perspective
by looking at other aspects of the health and growth of an
PUZ[P[\[PVU 4HU` PUZ[P[\[PVUZ OH]L HSZV JVTIPULK ÄUHUJPHS
indicators with other measures to create a more complete
WPJ[\YLVM[OLVYNHUPaH[PVU»Z]PZPVUTPZZPVUHUKZ[YH[LN`
Lessons from Key Funding Sources
Strategic Questions:
1.
2.
3.
+VLZV\YIVHYKJVUZPKLYTVYL[OHUQ\Z[ÄUHUJPHSPUKPJH[VYZ
when evaluating the performance of the institution?
Does the college/university have a strategic set of key
performance indicators to measure progress toward
achieving the goals in the strategic plan?
Are there factors critical to achieving our institution’s vision
that are not being addressed by the performance measures
currently in use?
6[OLY [VVSZ HUK Z[YH[LNPLZ ^LYL \ZLK HZ ^LSS I\[ VUL VM [OL
strongest common components appeared to be the use of
ÄUHUJPHSKPZJPWSPULHUKYLSH[LK[VVSZMVYTVUP[VYPUNWYVNYLZZ;OPZ
is clearly becoming an expectation of management. The next
section discusses the observations and expectations of a keen
evaluator of capital for many colleges.
Good credit is one of the more important elements necessary in
JLTLU[PUNÄYTÄUHUJPHSMVV[PUN0[PZLZWLJPHSS`PTWVY[HU[[VWH`
close attention to the items the Chronicle of Higher Education
included as the critical credit factors in its 2011 outlook:
‹
Weakened prospects for net tuition growth because
of a market preference for low-cost or high-reputation
competitors
‹
+PMMLYPUN KLNYLLZ VM WYLZZ\YL VU UVU[\P[PVU YL]LU\LZ
such as philanthropy or research money
‹
( ULLK MVY Z[YVUNLY THUHNLTLU[ VM VWLYH[PUN JVZ[Z
IHSHUJLZOLL[YPZRZHUKJHWP[HSWSHUZ
0UHYLJLU[HY[PJSL:\ZHU-P[aNLYHSKZLUPVY]PJLWYLZPKLU[VM[OL
/PNOLY,K\JH[PVUHUK5V[MVY7YVÄ[Z;LHTH[4VVK`»Z0U]LZ[VYZ
:LY]PJLZUV[LK[LULSLTLU[Z4VVK`»ZSVVRZMVY^OLUTLHZ\YPUN
management strength in higher education bond ratings. Of the
[LUP[LTZUV[LKI`-P[aNLYHSKZL]LUJV\SKLP[OLYILPUÅ\LUJLKI`
or directly impacted by the effective use of ratio analysis tools like
the ones suggested in this paper.
.LVYNL2LSSLYTransforming a College;OL1VOUZ/VWRPUZ<UP]LYZP[`7YLZZ
:\ZHU-P[aNLYHSK¸4VVK`»Z4HUHNLTLU[4LHZ\YLZ¹5H[PVUHS(ZZVJPH[PVUVM*VSSLNLHUK<UP]LYZP[`)\ZPULZZ6MÄJLYZ^^^UHJ\IVVYNUL^Z\WKH[LZI\ZPLUZZVMÄJLYTHNHaPUL VUSPULL_JS\ZP]LZTVVK`»ZTHUHNLTLU[TLHZ\YLZ4H`
10
Ibid.
8
9
© 2011 CapinCrouse LLP
5
;OLZL[YLUKZWVPU[[V[OLULLKMVYÄZJHSKPZJPWSPULHUK]PNPSHUJL
We believe that implementing ratio analysis and related
monitoring processes will help provide the necessary level of
discipline and vigilance.
Strategic Questions:
.P]LU [OL J\YYLU[ LJVUVTPJ LU]PYVUTLU[ ^OH[ KV ^L
ULLKMVYHKLX\H[LÄUHUJPHSOLHS[O&>OH[HYL[OL[VVSZ[V
measure it?
2.
What factors are weighing on our institution’s current credit
rating?
;OLZL]LUPUÅ\LU[PHSP[LTZHYL!
TOOLS FOR BUILDING THE ROADMAP
1.
A CEO who understands both the institution’s mission and
business aspects
The following sections present a variety of tools and concepts
MVY JVTT\UPJH[PUN ÄUHUJPHS OLHS[O PU H *OYPZ[JLU[LYLK
institution of higher education. This includes:
2.
Recognition of challenges and realistic plans to address
them
‹
The Composite Financial Index
3.
A clear capital plan
‹
Balanced Scorecards
4.
(TPKYHUNLÄUHUJPHSWSHU
‹
Financial Analysis and Strategic Review Concepts
5.
Conservative budgeting
‹
Financial Equilibrium Concepts
6.
Prudent investment
spending
7.
0U[LNYH[LKZ[YH[LNPJJHWP[HSHUKÄUHUJPHSWSHU
management
and
endowment
9
:[YH[LNPJ\ZLVMÄUHUJPHSYH[PVZHUKYLSH[LKILUJOTHYRZ^V\SK
be a great place to start as your institution prepares itself for
initial or continuing credit decisions by banks or bond rating
agencies like Moody’s.
Some Sobering Statistics
A recent credit outlook statement from Moody’s points out the
following trends and statistics:10
‹
0UZ[P[\[PVUZ^P[OLUYVSSTLU[\UKLYZ[\KLU[ZOHK
upgrades and 27 downgrades of their credit ratings
‹
;OL V\[SVVR MVY [OPUS` LUKV^LK YLNPVUHS PUZ[P[\[PVUZ
LZWLJPHSS`[OVZL^P[OZTHSSLUYVSSTLU[Z^HZULNH[P]L^OPSL
the outlook for wealthy national institutions was positive
[OLYPJONL[YPJOLY
‹
Weaker private colleges have a decreased ability to raise
WYPJLZSLZZHIPSP[`[VHIZVYIL_WLUZLPUJYLHZLZHUK[LUK
to be highly leveraged with weakening donor bases
‹
/V\ZLOVSK UL[ ^VY[O PZ KLJSPUPUN MVY [OL ÄYZ[ [PTL PU years
‹
(ZYLHSLZ[H[L]HS\LZMHSSLX\P[`\ZLK[VÄUHUJLLK\JH[PVUZ
is drying up to some degree
‹
7\ISPJ PUZ[P[\[PVUZ JVU[PU\L [V YL[HPU ZPNUPÄJHU[ WYPJL
advantages
11
6
1.
Composite Financial Index
Hopefully the previous sections have convinced you that
small private colleges and universities will need great tools
HUK NYLH[ KPSPNLUJL [V Z\Y]P]L JOYVUPJ ÄUHUJPHS KPZ[YLZZ HUK
the challenges of a competitive marketplace. The following
sections provide ratios and detailed guidance that will enable
RL` SLHKLYZ PUJS\KPUN IVHYK TLTILYZ [V KL[LYTPUL ^OPJO
steps to take next as the Financial Strength Report data are
read and interpreted.
You need to be aware that the Department of Education also
KVLZ H ZPTPSHY JHSJ\SH[PVU VM ÄUHUJPHS OLHS[O \ZPUN H ZSPNO[S`
different set of ratios and different weighting. That set of ratios is
KLZPNULK[VOPNOSPNO[PUZ[P[\[PVUZ\UKLYZL]LYLÄUHUJPHSKPZ[YLZZ
HUK UV[ [V TLHZ\YL [OL NLULYHS KLNYLL VM ÄUHUJPHS OLHS[O (
description of those ratios and concepts is beyond the scope of
[OPZWHWLYI\[RUV^SLKNLVMZ\JOPZPTWVY[HU[9LHKLYZZOV\SK
not confuse the two scoring mechanisms.
CFI Framework
;OL THQVY I\PSKPUN ISVJR \WVU ^OPJO T\JO VM [OL MVSSV^PUN
analysis was built is contained in the publication Ratio Analysis in
/PNOLY,K\JH[PVU!4LHZ\YPUN7HZ[7LYMVYTHUJL[V*OHY[-\[\YL
Direction ^YP[[LU I` 9VUHSK :HSS\aaV HUK -YLKYPJ 1 7YHNLY11
0UKLLK [OL NYLH[ ULLK VM [OL OV\Y PZ [V HUZ^LY [OL MVSSV^PUN
questions posed in this work:
‹
>OH[PZ[OLV]LYHSSSL]LSVMV\YÄUHUJPHSOLHS[O&
‹
(YLV\YYLZV\YJLZZ\MÄJPLU[HUKÅL_PISLLUV\NO[VZ\WWVY[
the mission of the institution?
Ronald Salluzzo and Fredric J Prager: 9H[PV(UHS`ZPZPU/PNOLY,K\JH[PVU! Measuring Past Performance to Chart Future Direction274.33*HUK7YHNLY4J*HY[O`:LHS`33*
© 2011 CapinCrouse LLP
‹
Do our operating results indicate that the institution is living
within available resources?
‹
+VLZ ÄUHUJPHS HZZL[ WLYMVYTHUJL Z\WWVY[ [OL Z[YH[LNPJ
direction?
‹
Is debt managed strategically to advance the mission?
(Z UV[LK ÄUHUJPHS HUHS`ZPZ ILNPUZ I` HZRPUN! What is the
V]LYHSSSL]LSVMV\YÄUHUJPHSOLHS[O&
As you will see from the structure of the ratio analysis contained
PU [OL -PUHUJPHS :[YLUN[O 9LWVY[ [OLYL PZ H TLHZ\YL RUV^U
as the Composite Financial IndexSM *-0 ;OL *-0 WHPU[Z H
JVTWVZP[LWPJ[\YLVM[OLÄUHUJPHSOLHS[OVM[OLPUZ[P[\[PVUH[H
ZWLJPÄJWVPU[PU[PTL<ZPUN[OL[OYLL`LHYH]LYHNLZ^PSSNP]LH
broader view.
The CFI is built with the values of its four component ratios:
‹
7YPTHY` 9LZLY]L ¶ ( TLHZ\YL VM [OL SL]LS VM ÄUHUJPHS
ÅL_PIPSP[`
‹
Net Income Ratio – A measure of the operating performance
‹
Return on Net Assets – A measure of overall asset return
and performance
‹
Viability – A measure of the organization’s ability to cover
debt with available resources
6UJL LHJO VM [OL YH[PVZ PZ JHSJ\SH[LK [OLYL PZ HU HKKP[PVUHS
process to measure the relative strength of the score and its
importance in the mix of creating a composite score. This results
in the production of one weighted score for each indicator. When
HKKLK[VNL[OLY[OLYLZ\S[PZ[OL*-0
*-0 ZJVYLZ YHUNL MYVT [V )L[^LLU HUK H ZJOVVS
should be assessing its ability to survive and making immediate
JOHUNLZ[VH]VPKM\Y[OLYLYVZPVUVMÄUHUJPHSZ[YLUN[O)L[^LLU
HUK[OLZJOVVSZOV\SKILYVSSPUNV\[WSHUZHUKTVUP[VYPUN
WLYMVYTHUJL[VYLLUNPULLYHZWLJ[ZVMP[ZVWLYH[PVUZPUJS\KPUN
efforts to ensure the building of reserves and the proper
THUHNLTLU[ VM KLI[ (IV]L [V [OL ZJOVVS ZOV\SK IL
directing resources to create transformation and focusing on
enabling the school to compete in the future state of higher
education. Scores over 7 allow the school to experiment with
new initiatives and deploy resources to achieve a robust mission.
Next we’ll explain the component ratios comprising the CFI.
5V[L[OH[[OLSH[LZ[]LYZPVUVM[OPZTH[LYPHSW\ISPZOLKPU
:L]LU[O,KP[PVUW\[ZZJVYLZPUHYHUNLMYVT[V
Primary Reserve Ratio
;OLÄYZ[VM[OLMV\YYH[PVZ[OH[JVTWYPZL[OL*VTWVZP[L-PUHUJPHS
Index is called the primary reserve ratio. This ratio is one of
[OL TVZ[ PTWVY[HU[ HZ P[ PZ ^LPNO[LK OLH]PS` PU [OL ÄUHS
scoring for the CFI described a bit later. Financial ratios always
JVUZPZ[ VM VUL U\TILY ILPUN KP]PKLK I` HUV[OLY 0U [OPZ JHZL
the total resources that an institution could spend on operations
L_WLUKHISLUL[HZZL[ZHYLKP]PKLKI`[OL[V[HSL_WLUZLZMVY[OL
`LHY:LL;HISLMVYHKLÄUP[PVUVML_WLUKHISLUL[HZZL[Z:VPM
the funds that could be spent were $4 million and total expenses
^LYLTPSSPVU[OLYH[PV^V\SKILKP]PKLKI`0MP[^LYL
turned around and funds that could be spent were $2 million and
[V[HSL_WLUZLZV]LY[OL`LHY^LYLTPSSPVU[OLYH[PV^V\SKIL
KP]PKLKI`;OLTVZ[VI]PV\ZPU[LYWYL[H[PVUVM[OPZPZ[OH[
^P[OHYH[PVVM[OLPUZ[P[\[PVUPU[OLÄYZ[ZJLUHYPVJV\SKL_PZ[MVY
two years with no additional revenue before all the expendable
YLZV\YJLZ^LYLNVUL^OPSL[OLPUZ[P[\[PVUPU[OLZLJVUKZJLUHYPV
could operate for six months. No institution would ever want to
KV [OPZ VM JV\YZL ;OL YLHS ZPNUPÄJHUJL PZ [OH[ H YH[PV VM would mean funds for about two months of operation. In this case
the institution will probably need to borrow short-term to make
WH`TLU[ZHUKP[KVLZUV[OH]L[OLYLZV\YJLZP[ULLKZ[VTHPU[HPU
the physical plant and to invest in the future. The developers of the
CFI recommend a primary reserve ratio of at least 0.4.
You should be concerned if your institution’s primary ratio is
declining over the six-year period that this report covers; you
should also be concerned if the ratio is below 0.4.
Net Income Ratio
The next ratio in the CFI is called the net income ratio. The point
of this ratio is to show if the results of the institution’s general
operations are positive or negative and by how much. In business
[LYTZ[OPZZOV^ZPM[OLPUZ[P[\[PVUPZTHRPUNVYSVZPUNTVUL`PU
its basic day-to-day function of educating students. You can see
why this ratio is so important — if an institution is losing money
PU P[Z IHZPJ VWLYH[PVUZ V]LY H WLYPVK VM [PTL L]LU[\HSS` P[ ^PSS
no longer be viable and will have to close. At some point an
institution reaches the stage when it either is too late to make
[OL ULJLZZHY` JOHUNLZ PU VWLYH[PVUZ VY P[ UV SVUNLY OHZ [OL
M\UKZUVY[OLJVUÄKLUJL[VTHRL[OLZ[YH[LNPJJOHUNLZULLKLK
[V[\YU[OLPUZ[P[\[PVUHYV\UK;OH[WVPU[PZTVYLLHZPS`PKLU[PÄLK
PUYL[YVZWLJ[I\[VULVM[OLW\YWVZLZVM[OLUL[PUJVTLYH[PVPZ
[VWYV]PKLHILSS^L[OLY[V^HYUVMPTWLUKPUNÄUHUJPHSKPZ[YLZZ
The challenge in calculating this ratio is determining what
constitutes “normal operations” and which items are exceptional
VY V\[ZPKL VM UVYTHS VWLYH[PVUZ >L HSS MHJL ZPTPSHYS` KPMÄJ\S[
KPZ[PUJ[PVUZPUV\YWLYZVUHSÄUHUJLZ*LY[HPUS`HUL^ZWVY[ZJVH[
or shoes are part of normal operations and purchasing a new
house is not. But what about putting in a new driveway — which
category would that fall under? The net income ratio is calculated
by dividing the change in unrestricted assets from the beginning
[V[OLLUKVM[OL`LHYI`[OL[V[HS\UYLZ[YPJ[LKYL]LU\LZ[OLYLI`
setting aside anything having to do with restricted assets. The
UL[PUJVTLYH[PVVUS`JVU[YPI\[LZ[V[OL*-0I\[[OPZZTHSS
percentage is somewhat misleading since the surpluses or
KLÄJP[ZPUKPJH[LKI`[OLUL[PUJVTLYH[PVPU[PTLOH]LHUPTWHJ[
VU[OLV[OLY[OYLLYH[PVZ(UL[PUJVTLYH[PVVM¶V]LY
time is desirable.
Return on Net Assets Ratio
;OL[OPYKYH[PVYL[\YUVUUL[HZZL[ZPZTVYLZ[YHPNO[MVY^HYK0[PZ
easier to understand and to calculate: Take the change in total net
HZZL[ZIV[OYLZ[YPJ[LKHUKUVUYLZ[YPJ[LKMYVT[OLILNPUUPUNVM
the year to the end and divide that number by the total net assets
at the beginning of the year.
© 2011 CapinCrouse LLP
7
It may be helpful to compare this ratio to the net income ratio
^LQ\Z[KPZJ\ZZLK>OLYLHZ[OLJOHUNLPUUL[HZZL[Z\ZLKPU[OL
return on net assets ratio includes everything that happened over
[OL`LHY·L_WLJ[LK\UL_WLJ[LK[OLZ[VJRTHYRL[VWLYH[PVUZ
everything — the net income ratio only includes the change in
\UYLZ[YPJ[LKUL[HZZL[Z[O\ZSPTP[PUNP[TVYL[VVWLYH[PVUZ)V[O
unforeseen and planned events can and will affect the return
VUUL[HZZL[ZYH[PVHUKZVTL`LHYZ[OLYH[PVTH`ILILSV^[OL
YLJVTTLUKLKSL]LSVM¶HIV]LPUÅH[PVU6JJHZPVUHSKYVWZ
PU[OLZ[YLUN[OMHJ[VYVM[OPZYH[PVOV^L]LYHYLUV[HJH\ZLMVY
JVUJLYUPM[OLÄUHUJPHSYLHZVUMVY[OLKYVWPZ\UKLYZ[VVKHUKP[PZ
HVUL[PTLÄUHUJPHSL]LU[MYVT^OPJO[OLPUZ[P[\[PVUJHUYLJV]LY0M
[OLYL[\YUVUUL[HZZL[ZYH[PVPZUV[¶HIV]LPUÅH[PVUMVYH
WLYPVKVM[PTL`V\ZOV\SKILJVUJLYULK
Viability Ratio
;OL SHZ[ I\[ UV[ SLHZ[ VM [OL MV\Y YH[PVZ PZ [OL ]PHIPSP[` YH[PV
3PRL[OLWYPTHY`YLZLY]L[OPZYH[PVLUQV`ZH^LPNO[PUNPU
[OLJVTW\[H[PVUVM[OL*-0ZJVYL0U[OLÄYZ[YH[PV[OLWYPTHY`
YLZLY]LYH[PV[OLYLZV\YJLZ[OH[JV\SKILZWLU[\UYLZ[YPJ[LK
M\UKZ^LYLKP]PKLKI`[OL[V[HSL_WLUZLZMVY[OL`LHY0U[OL
viability ratio the same “expendable” resources are divided by
SVUN[LYTKLI[>OLUL_WLUKHISLM\UKZLX\HSSVUN[LYTKLI[
MVY L_HTWSL [OL YH[PV ^V\SK IL >OLU L_WLUKHISL M\UKZ
HYL[^PJL[OLHTV\U[VMSVUN[LYTKLI[[OLYH[PVPZ-HSSPUN
below a ratio of 1.0 will limit the institution’s ability to fund new
initiatives through debt and will make current creditors nervous.
*LY[HPUS` UV[ HSS KLI[ PZ IHK I\[ `V\ ^PSS ^HU[ [V RLLW `V\Y
institution above the 1.25 level on the viability ratio.
Composite Financial Index Score
/V^KV^LNVHIV\[THRPUNHWVZP[P]LPTWHJ[HZTLHZ\YLK
I`[OLZLYH[PVZ&
;OPZ X\LZ[PVU YLWYLZLU[Z [OL LZZLUJL VM [OL ÄUHUJPHS HUHS`ZPZ
WYVJLZZ;OLÄYZ[Z[LWPZ[V[HRL[OLNLULYHSPUMVYTH[PVU^LUV^
know about the ratios and their components and unpack each
VUL[VKL[LYTPUL[OLÄUHUJPHSTV]LZ[OH[^V\SKJYLH[LWVZP[P]L
PTWHJ[ HUK [OL ÄUHUJPHS TV]LZ [OH[ ^V\SK [\YU [OL MHJ[VYZ
ULNH[P]L 6UJL [OVZL TV]LZ HYL THKL H NVVK TVUP[VYPUN
mechanism to re-measure the ratios at appropriate intervals is
one of the keys to success. The score ranges and the appropriate
HJ[PVUZTLU[PVULKLHYSPLYZOV\SKILÄYTS`OLSKHZKPYLJ[P]LZMVY
the types of appropriate actions to be considered.
It all begins with the overall assessment of the institution’s
YLSH[P]LÄUHUJPHSZ[YLUN[O:THSSJVSSLNLÄUHUJPHSHUHS`Z[4PJOHLS
;V^UZSL`YLMLYZ[V[OPZHZ[OL¸JVSSLNL»ZÄUHUJPHSYLZPSPLUJLVYSHJR
thereof.”12;OPZPZJSLHYS`[OLTVZ[PTWVY[HU[ÄYZ[Z[LW;OL*-0PZ
that overall measure.
Caveat
)LMVYL KPNNPUN PU[V [OL KL[HPSZ VM [OL YH[PVZ H JH]LH[ PZ PU
order. It needs to be clear from the outset that good ratios and
NVVKÄUHUJPHSZ[YH[LNPLZHUKOLHS[OVUS`HJ[[VYLTV]LJLY[HPU
IHYYPLYZ[VNYV^[OHUKZ\JJLZZ4HU`V[OLYPZZ\LZTHYRL[PUN
HKTPZZPVUZ PUZ[Y\J[PVU X\HSP[` ÄUHUJPHS HPK O\THU YLZV\YJL
THUHNLTLU[L[JPMTHUHNLKWVVYS`JV\SKVMMZL[[OLWVZP[P]L
HJOPL]LTLU[VMÄUHUJPHSOLHS[O
It is also clear that the sense of what might be the right move
ÄUHUJPHSS`TPNO[UV[HS^H`ZZSPWZLHTSLZZS`OHUKPUNSV]LPU[V
other institutional initiatives. It has been observed that some
actions appear to have different results than expected. A perfect
example of this is the impact of the high tuition/high discount
concept on many college campuses. Please see the article
“Discounting Toward Disaster” in the USA Group Foundation
New Agenda Series for a full report on this research.13
The following are the components of each of the ratios and the
MHJ[VYZ [OH[ ^PSS THRL [OL YH[PVZ HUK YLZ\S[PUN V]LYHSS ÄUHUJPHS
OLHS[O WVZP[P]L 6UJL \UKLYZ[VVK H JHYLM\S YL]PL^ VM [OL
¸-P]L :[LWZ [V 0TWYV]LK -PUHUJPHS /LHS[O¹ ZLJ[PVU WHNL will complete the picture of measurement to help you identify
problems and initiatives and react appropriately.
SCORING EXECUTIVE SUMMARY
The action steps inherent in this ratio study are one of the
more asked-about topics. The following are the suggested
implications of a school’s particular score and the actions
we recommend be taken by college or university leadership
experiencing scores at various levels as indicated. Strategic
Financial Analysis for Higher Education has the following to say
about the implications:
These scores do not have absolute precision. They are
PUKPJH[VYZVMÄUHUJPHSOLHS[O[OH[JHUILPUKPJH[VYZVMV]LYHSS
PUZ[P[\[PVUHS ^LSSILPUN ^OLU JVTIPULK ^P[O UVUÄUHUJPHS
indicators. This would be consistent with the fact that
there are a large number of variables that can impact an
PUZ[P[\[PVUHUKPUÅ\LUJL[OLYLZ\S[ZVM[OLZLYH[PVZ/V^L]LY
the ranges do have enough precision to be indicators of the
PUZ[P[\[PVUHSÄUHUJPHSOLHS[OHUK[OL*-0HZ^LSSHZP[Z[YLUK
SPULV]LYHWLYPVKVM[PTLJHUIL[OLZPUNSLTVZ[PTWVY[HU[
TLHZ\YL VM [OL ÄUHUJPHS OLHS[O MVY [OL PUZ[P[\[PVU :[H[LK
NYHWOPJHSS`[OLZJVYPUNZ`Z[LTTH`SVVRSPRL[OLMVSSV^PUN!
-1 to 1 Assess institutional viability to survive (Means raise
JHZO HZ X\PJRS` HZ WVZZPISL YHPZL YL]LU\L HZ X\PJRS` HZ
WVZZPISL KPZJVU[PU\L \UWYVÄ[HISL WYVK\J[ SPULZ YLK\JL
L_WLUZLZ
[V9LLUNPULLY[OLPUZ[P[\[PVU4LHZ\YLHUHS`aLHUK
WYPVYP[PaLHJHKLTPJWYVNYHTZHUKZLY]PJLZ
3 to 5 Direct institutional resources to allow transformation
/H]PUN HUHS`aLK HUK WYPVYP[PaLK WYVNYHTZ HUK ZLY]PJLZ
begin to fund the ones that are the highest priority with
H]HPSHISLYLZV\YJLZ
5 to 7 Focus resources to compete in the desired future
state.
7 to 9 Allow experimentation with new initiatives. (Take
ZVTLJHSJ\SH[LKYPZRZ^P[OWYVNYHTZ
8 to 10 Deploy resources to achieve a robust mission.
Michael Townsley: ;OL:THSS*VSSLNL.\PKL[V-PUHUJPHS/LHS[O!>LH[OLYPUN;\YI\SLU[;PTLZ5(*<)6 2LUUL[O,9LKKNew Agenda SeriesHY[PJSLLU[P[SLKDiscounting Toward Disaster<:(.YV\W-V\UKH[PVU
12
13
8
© 2011 CapinCrouse LLP
The overlapping scores represent the ranges of measurement
[OH[HUPUZ[P[\[PVUTH`ÄUK\ZLM\SPUHZZLZZPUNP[ZLSM;OLYLPZ
SP[[SL KPZJLYUPISL KPMMLYLUJL IL[^LLU [OL ÄUHUJPHS WVZP[PVU VM
an institution with a 3.3 and one with a 3.4 CFI score. In this
JHZLUVUÄUHUJPHSPUKPJH[VYZ^PSSILHZ[YVUNLYKPMMLYLU[PH[VY
IL[^LLU [OL [^V PUZ[P[\[PVUZ /V^L]LY [OLYL HYL YLHKPS`
discernible differences between an institution scoring 3.4 and
5.5 on the CFI. An institution with a slightly low or declining
CFI will be disadvantaged when competing with institutions
with a higher or improving CFI.14 Also note the variation in
scoring between the older editions of the KPMG/Prager work
HUK[OL:L]LU[O,KP[PVU^OPJOPUJS\KLZHKPMMLYLU[ZL[
of strategic behaviors along the spectrum of scores -4 to 10.
FACTORS AFFECTING CFI RATIO SCORING
As will be seen in all of the four ratios comprising the composite
ÄUHUJPHSPUKL_PUVYKLY[VHJOPL]LWVZP[P]LYLZ\S[ZU\TLYH[VYZ
in each have to increase or denominators need to decrease.
The tables below give the numerator and denominator
JVTWVULU[Z VM [OL YH[PVZ MVSSV^LK I` [OL WVPU[Z VM LU[Y` [V
achieve those increases or decreases.
Table 1
1. Primary Reserve Ratio
Primary Reserve Ratio
Total Expendable Net Assets
+ Unrestricted net assets
+ Temporarily restricted net assets
- Property & equipment, net of
accumulated depreciation
+ Long-term debt SFMBUFEUPmYFEBTTFUT
A
B
C
5PUBM&YQFOTFT
E
D
=
5PUBM&YQFOTFT
A. Unrestricted Net Assets
Unrestricted net assets result from achieving positive net
PUJVTL `LHY HM[LY `LHY PU [OL \UYLZ[YPJ[LK JVS\TU ^OPJO PZ
usually mainly operational. Many colleges use different factors
MVY[OLI\KNL[[OHU[OL`KVMVYL_[LYUHSÄUHUJPHSZ[H[LTLU[Z
Because most budgets include capital additions but not
KLWYLJPH[PVUHUHUHS`ZPZVM[OLJHWP[HSHKKP[PVUZPU[OLI\KNL[
versus the anticipated depreciation will yield an estimate of the
SPRLS` UL[ PUJVTL LMMLJ[ VU [OL ÄUHUJPHS Z[H[LTLU[Z 0M JHWP[HS
HKKP[PVUZ L_WLUZLK PU [OL I\KNL[ I\[ W\[ VU [OL IHSHUJL
14
ZOLL[HUKJHWP[HSPaLKHYLPUL_JLZZVM[OLHUU\HSKLWYLJPH[PVU
[OLYL^PSSSPRLS`ILHWVZP[P]LPTWHJ[VUUL[PUJVTL*VU]LYZLS`
PM[OLKLWYLJPH[PVUL_WLUZLVU[OLL_[LYUHSÄUHUJPHSZ[H[LTLU[Z
L_JLLKZ [OL I\KNL[LK JHWP[HS HKKP[PVUZ [OLYL JV\SK IL H
negative impact on net income from the budgeted amount.
Debt service is another component in which differences
IL[^LLU I\KNL[Z HUK L_[LYUHS ÄUHUJPHS Z[H[LTLU[Z L_PZ[
)\KNL[ZZOV\SKSPZ[HSSKLI[ZLY]PJLHZL_WLUZL^OLYLHZ[OL
L_[LYUHSÄUHUJPHSZ[H[LTLU[ZVUS`JOHYNL[OLPU[LYLZ[WVY[PVUVM
the payment to expense.
Increasing revenues and decreasing expenses have a direct
impact on the net income and thus the unrestricted net assets.
0YVUPJHSS`LHYS`WH`KV^UVMKLI[^PSSKLJYLHZL[OPZYH[PVHZP[
PZ H ÅL_PIPSP[` TLHZ\YL 7H`PUN VMM KLI[ VU JHTW\Z I\PSKPUNZ
SVJRZ[OVZLYLZV\YJLZPU[VLX\P[`MHJ[VYLKV\[VM[OPZLX\H[PVU
whereas borrowing on the equity in campus buildings can
WYVK\JLIL[[LYYLZ\S[ZMVY[OPZYH[PV0[T\Z[ILKVULOV^L]LYPU
JVUQ\UJ[PVU^P[OPUZ[P[\[PVUHSIVYYV^PUNJHWHJP[`HZKPZJ\ZZLK
in the viability ratio.
One factor to consider when calculating this ratio is that
ZVTL[PTLZ]LY`SHYNLVUL[PTLL]LU[ZJHUZPNUPÄJHU[S`PUÅ\LUJL
the unrestricted net income. Examples of this are a large sale of
WYVWLY[` SPRL H JHTW\Z YHKPV Z[H[PVU VY V[OLY ZPTPSHY HZZL[ H[
HU\U\Z\HSS`SHYNLNHPUVYSVZZHUKHSHYNLVYVUL[PTLNYHU[VY
unrestricted gift. Other examples include large one-time grants
MVYLP[OLY\UYLZ[YPJ[LKVYZWLJPÄJW\YWVZLZ
Another factor impacting the interpretation here is the effect of
THQVYJHWP[HSHKKP[PVUZHZL_WSHPULKILSV^
B. Temporarily Restricted Net Assets
Increases to temporarily restricted net assets typically occur
^OLUM\UKPUNKYP]LZMVYZJOVSHYZOPWZJHWP[HSJHTWHPNUZHUK
other similar resource enhancement initiatives are underway.
Temporarily restricted resources are decreased when
the institution meets the restrictions on the funds. This
IHSHUJL [OLYLMVYL JHU KYHTH[PJHSS` KLJYLHZL HZ [OVZL
L]LU[Z \UMVSK ;OPZ ^V\SK VJJ\Y MVY PUZ[HUJL ^OLU H SHYNL
building is funded (increasing the temporarily restricted net
HZZL[IHSHUJL[OLUHJ[\HSS`I\PS[KLJYLHZPUN[OLHTV\U[VM
Ronald Salluzzo and Fredric J Prager: 9H[PV(UHS`ZPZPU/PNOLY,K\JH[PVU! Measuring Past Performance to Chart Future Direction274.33*HUK7YHNLY4J*HY[O`:LHS`33*
© 2011 CapinCrouse LLP
9
3PRL^PZL NYHU[Z [V Q\TWZ[HY[ WYVNYHTZ VY VMMLY ZWLJPHS
scholarships have the effect of increasing revenue and
WLYOHWZ LUYVSSTLU[ MVY H [PTL ;OL MHJ[ PZ VUJL [OL
Z[\KLU[ PZ H[[YHJ[LK VY [OL WYVNYHT PUP[PH[LK [OL ZJOVVS
has a continuing responsibility for its operation. Good
scores prompted by heavy giving to programs like this can
become an anesthetic that could shortly wear off. Unless
long-term plans are in place to carry the ongoing program
YLZWVUZPIPSP[PLZ PUJYLHZLK WYLZZ\YL ^PSS IL WSHJLK VU
VWLYH[PVUZM\UKLKPUTHU`JHZLZI`[\P[PVU
C. Property and Equipment and Accumulated
Depreciation
)LJH\ZL[OPZPZHKLK\J[PVUMYVT[OLU\TLYH[VYSHYNLPUJYLHZLZ
PU Ä_LK HZZL[Z OH]L H ULNH[P]L PTWHJ[ VU [OPZ YH[PV ;OL
HZZ\TW[PVUPZ[OH[I`PU]LZ[PUNPUSVUNSP]LKHZZL[ZHJLY[HPU
HTV\U[VMÄUHUJPHSÅL_PIPSP[`PZ[YHKLKVMM
D. Long-Term Debt
Additional debt against existing assets can have a positive
PTWHJ[ VU [OPZ YH[PV I\[ P[ ^PSS OH]L H ULNH[P]L PTWHJ[ VU
viability. Additional borrowing in this manner can be used as a
Z[YH[LN`I\[T\Z[ILKVULJHYLM\SS`HUK^P[O[OLPUZ[P[\[PVU»Z
YLWH`PUNWV^LYÄYTS`PUWSHJL6US`HTV\U[ZVMKLI[YLSH[LK[V
Ä_LKHZZL[Z\W[V[OLHTV\U[VMUL[IVVR]HS\LHYLHSSV^LKHZ
an addition to the numerator of this ratio.
)LJHYLM\S[VHKQ\Z[[OL^LPNO[PUNVM[OL*-0PM`V\OH]LUVKLI[
as indicated in the strengths and weights table.
E. Total Expenses
Total expenses represent the operating size of the institution.
An increase in expense will require a commensurate
increase in the liquid equity computed in the numerator in
order for the ratio value to not fall behind. If expenses grow
faster than the institution can produce net income and other
TLHZ\YLZ [OH[ PUJYLHZL [OL U\TLYH[VY H KLJYLHZL PU [OL
ratio will result.
Table 2
2. Net Income Ratio – Form 1
Net Income Ratio – Form 1
Change in Unrestricted
Net Assets
Change in unrestricted net assets
=
Total Unrestricted Income
A
from income statement
+Total unrestricted revenues and gains
+Net assets released from restrictions
B
C
A. Change in Unrestricted Net Assets from Income
Statement
The change in unrestricted net assets is driven primarily from
operational decisions and events such as increased or decreased
enrollment and success or failure at managing budgeted expenses.
The success or failure of either annual fundraising campaigns or
the impact of denominational funding source decisions also can
OH]LHZPNUPÄJHU[PTWHJ[
B. Total Unrestricted Revenues and Gains
Total unrestricted revenues and gains are mostly impacted
by enrollment and the success of annual unrestricted giving.
;OPZYH[PVJHUHSZVILHMMLJ[LKI`ZPNUPÄJHU[VUL[PTLNHPUZ
or losses and the effects of capital campaigns. Because
VM [OPZ [OL ZLJVUK ^H` [V JVTW\[L [OPZ YH[PV \ZPUN VUS`
VWLYH[PUN TLHZ\YLZ TPNO[ `PLSK [OL TVZ[ JVUZPZ[LU[ HUK
meaningful result.
C. Net Assets Released from Restrictions
Total revenues and gains are sometimes included in a separate
Z\I[V[HSMYVTYLJSHZZPÄJH[PVUZ0U[OH[L]LU[HKK[OLUL[HZZL[Z
YLSLHZLKMYVTYLZ[YPJ[PVUZZLWHYH[LS`9LJSHZZPÄJH[PVUZJVTL
MYVTTLL[PUNYLZ[YPJ[PVUZVUNPM[ZHUKZVTLNYHU[ZJSHZZPÄLK
HZ NPM[Z ;OLZL JHU ZVTL[PTLZ IL SHYNL HUK KLWLUKPUN VU
SVUN[LYTWSHUZTH`YLJ\YVUS`ZWVYHKPJHSS`Z\JOHZ^OLUH
building is built.
3. Net Income Ratio – Form 2
Table 3
temporarily restricted net assets because the restriction has
ILLUSPM[LK;OLKLJYLHZLPU[LTWVYHYPS`YLZ[YPJ[LKUL[HZZL[Z
is counterbalanced with an increase in the unrestricted net
HZZL[Z]PH[OLYLJSHZZPÄJH[PVU
Net Income Ratio – Form 2
(Operational)
Excess of Unrestricted Operating
Revenue Over Operating Expenses
=
Total Unrestricted Income
Change in unrestricted net assets
+Total unrestricted revenues and gains
+Net assets released from restrictions
10
© 2011 CapinCrouse LLP
B
C
A. Change in Unrestricted Net Assets from Operations
The change in unrestricted net assets is primarily driven by
operational decisions and events like increased or decreased
enrollment and success or failure at managing budgeted
expenses. If the operational measure is used in the external
ÄUHUJPHSZ[H[LTLU[Z`V\^PSSÄUKZLWHYH[LUL[PUJVTLU\TILYZ
;OLVULMYVTVWLYH[PVUZZOV\SKIL\ZLKYH[OLY[OHU[OL[V[HS
change in unrestricted net assets.
As various strategies and revenue enhancement ventures are
YVSSLKV\[P[PZPTWVY[HU[[VIL]LY`H^HYLVM[OLTHYRL[WSHJL
and the dependence an institution may develop on revenue
streams such as degree completion. These programs are
[OL KHYSPUNZ VM THU` UVUWYVÄ[ MV\Y`LHY PUZ[P[\[PVUZ I\[
[OL`HYL[OLKHYSPUNZVM[OLMVYWYVÄ[NYV\WHZ^LSS(ZZ\JO
competition for the adult student will continue to increase.
;OPZ Z[\KLU[ WVW\SH[PVU HWWLHYZ LUKSLZZ I\[ P[ PZ PUKLLK
ÄUP[L,_JLZZKLWLUKLUJLVUKLI[[VÄUHUJLNYV^[OPU[OPZ
area should be entered into with great caution and solid
estimates of enrollment trends.
B. Total Unrestricted Revenues and Gains
Total unrestricted revenues and gains are mostly impacted by
enrollment and the success of annual unrestricted giving. It can
HSZVILHMMLJ[LKI`ZPNUPÄJHU[VUL[PTLNHPUZVYSVZZLZHUK[OL
LMMLJ[ZVMJHWP[HSJHTWHPNUZ)LJH\ZLVM[OPZ[OLZLJVUK^H`
[V JVTW\[L [OPZ YH[PV \ZPUN VUS` VWLYH[PUN TLHZ\YLZ TPNO[
yield the most consistent and meaningful result.
9VILY[:2HWSHUHUK+H]PK75VY[VUUsing the Balanced Scorecard as a Strategic Management Tool/HY]HYK)\ZPULZZ9L]PL^1\S`¶(\N\Z[
15
A
from operations
Table 4
4. Return on Net Assets
6. Strengths and Weights Worksheet
Strengths & Weights
C. Net Assets Released from Restrictions
Total revenues and gains are sometimes included in a separate
Z\I[V[HSMYVTYLJSHZZPÄJH[PVUZ0U[OH[L]LU[HKK[OLUL[HZZL[Z
YLSLHZLK MYVT YLZ[YPJ[PVUZ ZLWHYH[LS` 9LJSHZZPÄJH[PVUZ JVTL
MYVT TLL[PUN YLZ[YPJ[PVUZ VU NPM[Z HUK ZVTL NYHU[Z JSHZZPÄLK
HZ NPM[Z ;OLZL JHU ZVTL[PTLZ IL SHYNL HUK KLWLUKPUN VU
SVUN[LYTWSHUZTH`YLJ\YVUS`ZWVYHKPJHSS`Z\JOHZ^OLUH
building is built.
Ratio
Strength:
Divide ratio
by these factors
Weight:
Multiply strength
by these factors
Primary Reserve
/0.133
x 0.35
Net income change in
unrestricted net assets
/0.013
x 0.10
/0.02
x 0.20
/0.417
x 0.35
Return on net assets
Viability*
CFI Score =
Result of
computations
CFI Score (total of last column)
*When there is no debt, do not compute the viability ratio. Use the following weights:
Primary Reserve 55%, Net Income 15%, and Return on Net Assets 30%.
Return on Net Assets
Total change from all sources
Change in Net Assets
A
(unrestricted, temporarily restricted,
and permanently restricted)
=
Total Net Assets
Total net assets
(unrestricted, temporarily restricted,
and permanently restricted)
B
A. Total Change from All Sources
The change in total net assets is a combination of the net
YLZ\S[Z MYVT THU` ZV\YJLZ 3PRL [OL UL[ PUJVTL YH[PV P[
PUJS\KLZ VWLYH[PVUZ I\[ P[ HSZV ^V\SK PUJS\KL LUKV^TLU[
NHPUZ HUK SVZZLZ (Z H YLZ\S[ [OPZ YH[PV JHU IL KYP]LU H[
times by market conditions similar to those experienced
MYVTTPK[VVU[OLULNH[P]LZPKLHUK[OLTHYRL[
conditions in the years running up to that down cycle on the
positive side.
The above worksheet explains the strength factor scoring and
the weighting of the individual scores to arrive at the composite
index score.
(Z`V\JHUZLLMYVT[OL[HISL[OLX\PJRLZ[^H`[VTHRLWVZP[P]L
progress on the CFI score is to improve primary reserve and/or
the viability ratio. This is because they are the component ratios
with the most weight.
0[PZPTWVY[HU[[VRLLW[OH[PUTPUK^OLUPU[LYWYL[PUN[OPZYH[PV
LZWLJPHSS` ^OLU [OL PUZ[P[\[PVU OHZ ZPNUPÄJHU[ LUKV^TLU[
assets that could generate either large returns or large losses.
B. Total Net Assets
;V[HS UL[ HZZL[Z PUJS\KL HSS LX\P[` PU [OL VYNHUPaH[PVU PUJS\KPUN
VWLYH[PVUHSTHYNPUZYLZ[YPJ[LKM\UKZWSHU[HUKLX\PWTLU[HUK
endowment equity. The drivers are similar to the earlier ratio
HUK HKK [V P[ [OL LX\P[` NLULYH[LK I` SHYNL LUKV^TLU[ NPM[Z
HJX\PZP[PVUZVMSHUKHUKI\PSKPUNZHUKV[OLYTHQVYJHWP[HSHZZL[Z
Table 5
5. Viability Ratio
Viability Ratio
Total Expendable
Net Assets
=
Long-term Debt
+ Unrestricted net assets
+ Temporarily restricted net assets
- Property and equipment
+ Accumulated depreciation
+ Long-term debt
A
B
C
Long-Term Debt
E
D
(including notes, bonds and E leases payable)
A-D: See comments on drivers in the primary reserve
section (page 9).
This numerator is the same as that ratio.
E. Long-Term Debt Including Notes, Bonds, and Leases
7H`PUNKV^UKLI[^PSSPTWYV]L[OPZYH[PV0[KVLZOV^L]LYOH]L[OL
VWWVZP[LLMMLJ[VUWYPTHY`YLZLY]LPU[OH[KLI[YLK\J[PVUJYLH[LZ
SPTP[H[PVUZVU[OLÅL_PIPSP[`VM[OLPUZ[P[\[PVU»ZH]HPSHISLJHWP[HS
© 2011 CapinCrouse LLP
11
BALANCED SCORECARD AND BUILDING
KPI DASHBOARDS
Balanced Scorecard
The “balanced scorecard” is another helpful tool for evaluating
and monitoring progress. Robert S. Kaplan and David P. Norton
ÄYZ[ PU[YVK\JLK P[ PU 15 This concept has revolutionized
thinking about performance metrics by going beyond the
[YHKP[PVUHSÄUHUJPHSPUKPJH[VYZ
0U [OL IHSHUJLK ZJVYLJHYK HWWYVHJO [OL VYNHUPaH[PVU PZ
]PL^LKMYVTMV\YKPMMLYLU[WLYZWLJ[P]LZ!ÄUHUJPHSWLYMVYTHUJL
J\Z[VTLYZPU[LYUHSWYVJLZZLZHUKSLHYUPUNHUKNYV^[O;OL
notion of “balance” comes from considering both internal and
external measures that contribute to success. Each focus
HYLH OHZ VIQLJ[P]LZ TLHZ\YLZ 270Z [HYNL[Z HUK PUP[PH[P]LZ
[OH[ HYL VY ^PSS IL PTWSLTLU[LK [V HJOPL]L [OL VIQLJ[P]LZ
3VVRPUN H[ PUKPJH[VYZ V\[ZPKL VM [OL ÄUHUJPHS WLYZWLJ[P]L
provides valuable insight into how the organization is achieving
P[Z NVHSZ HUK ]PZPVU (JJVYKPUN [V 2HWSHU HUK 5VY[VU ¸;OL
Balanced Scorecard translates an organization’s mission and
strategy into a comprehensive set of performance measures
that provides a framework for a strategic measurement and
management system.”16
The four areas are depicted in the table below.
Financial
Customers
‹
‹
What resources do we have
now; what will we have in the
future?
‹
How well are we using what
we have?
‹
>OH[HYLV\YNVHSZYL]LU\L
LUKV^TLU[JHWP[HS
PUMYHZ[Y\J[\YL&
serve?
‹
How do they think we are
doing?
‹
Generally viewed in terms of
[PTLX\HSP[`WLYMVYTHUJL
and cost.
Innovation and Learning
‹
What do we do?
‹
‹
Which processes are most
critical?
What must we learn in order
to change and improve?
‹
/V^ZH[PZÄLKHYLV\Y
employees with the
organization and their
potential for growth?
How well do we do it?
‹
How can we improve our
processes?
>OPSL [OLYL HYL ZL]LYHS ^H`Z [V I\PSK H IHSHUJLK ZJVYLJHYK
Kaplan and Norton suggest the following four steps:
1.
Specify strategic objectives. These are the actual
VIQLJ[P]LZ ^OPJO ^OLU HJJVTWSPZOLK ZLY]L [V HJOPL]L
one or more strategic goals.
3.
Choose Key Performance Indicators. These are
the measurements used to evaluate progress toward
HJOPL]PUN[OLVIQLJ[P]LZ
4.
Develop an implementation plan. Targets and
benchmarks are attached to each KPI and strategies are
implemented to achieve the targets.
This construct is depicted graphically below:
Financial
Objectives
KPI / targets
Initiatives
Customer
Objectives
KPI / targets
Initiatives
VISION
&
GOALS
Internal
Business
Objectives
KPI / targets
Initiatives
Who are the people we
Internal Business
‹
2.
+LÄUL[OLTLHZ\YLTLU[HYJOP[LJ[\YL. What areas will
constitute the components of the balanced scorecard? For
H OPNOLY LK\JH[PVU PUZ[P[\[PVU P[ THRLZ ZLUZL [V JVUZPKLY
modifying the traditional four areas to address the unique
nature of the academy.
Innovation &
Learning
Objectives
KPI / targets
Initiatives
In recent years the balanced scorecard concept has found its way
into higher education.17 Educational institutions have generally
focused on KPIs related to academic performance areas. These
often include input measures of incoming students and measures
such as scholarly output and level of research grants. Although
ÄUHUJPHSPUKPJH[VYZOH]LILLUWHY[VM[OLHUHS`ZPZML^JVSSLNLZ
and universities have intentionally linked these to other indicators.
Although the balanced scorecard was originally developed
MVYI\ZPULZZP[PZWVZZPISL[VPKLU[PM`270ZPULHJOVM[OLMV\Y
areas prescribed by Kaplan and Norton and apply them to a
college or university. You can make this simpler by converting
some of the balanced scorecard language from the business
^VYSK[V[OLHJHKLTPJ^VYSK-VYL_HTWSL¸0U[LYUHS)\ZPULZZ¹
JV\SK IL YLWSHJLK I` ¸0U[LYUHS 7YVJLZZLZ¹ HUK ¸*\Z[VTLYZ¹
by “Constituents” or “Stakeholders.”It is important to make
these translations so that the components of the scorecard are
better understood and appreciated by those in the academic
community.18 No matter what set of categories and indicators
`V\ ZLSLJ[ P[ ^PSS IL PTWVY[HU[ [V JVTT\UPJH[L HUK L_WSHPU
them to your institution’s various constituencies.
Ibid.
)YLU[+9\ILU;V^HYKH)HSHUJLK:JVYLJHYKMVY/PNOLY,K\JH[PVU!9L[OPURPUN[OL*VSSLNLHUK<UP]LYZP[`,_JLSSLUJL0UKPJH[VYZ-YHTL^VYR/PNOLY,K\JH[PVU-VY\T
2HYH[OHUVZHUK7H[YPJPH
18
/V^HYK)HSSLU[PULHUK1H`,JRSLZ+\LSPUN:JVYLJHYKZ¶/V^;^V*VSSLNLZ<[PSPaL[OL7VW\SHY7SHUUPUN4L[OVK7SHUUPUNMVY/PNOLY,K\JH[PVU(WYPS¶1\UL 16
17
12
© 2011 CapinCrouse LLP
"+LTL[YP\Z
The different perspectives represented in a balanced scorecard
HYL HSZV JVUZPZ[LU[ ^P[O H IPISPJHS ]PL^ ^OLYL Z[L^HYKZOPW
SLHKLYZOPW HUK TH[[LYZ VM [OL OLHY[ HYL M\UKHTLU[HS -VY H
*OYPZ[JLU[LYLK PUZ[P[\[PVU P[ ^V\SK IL HWWYVWYPH[L [V HKK H
ÄM[OKPTLUZPVU[OH[JHW[\YLZ[OLPTWVY[HU[ZWPYP[\HSPUKPJH[VYZ
While these could be embedded in the traditional four areas
KLÄULK I` 2HWSHU HUK 5VY[VU PKLU[PM`PUN [OLT ZLWHYH[LS`
strengthens them and puts spiritual concerns on par with other
key areas contributing to success.
Below is an example of a balanced scorecard that would be
appropriate for a Christian university. Note that the general
HYLHZV\[SPULKI`2HWSHUHUK5VY[VUHYLWYLZLU[I\[[OH[[OPZ
version captures the essence of the balanced scorecard in
Christian higher education.
6ULKHUNLYPZOH]PUN[VVTHU`270Z[VL]HS\H[LLZWLJPHSS`
at the board level. Best practice suggests that KPIs which
boards monitor and review should be limited to 25 to 30
items across the dimensions of the balanced scorecard.
;OLYL HYL ZL]LYHS ^H`Z `V\ JHU WYLZLU[ [OL 270Z PUJS\KPUN
a table with varying amounts of contextual information.
=PZ\HS YLWYLZLU[H[PVUZ VM 270Z VYNHUPaLK PU[V LHJO VM [OL
JVTWVULU[Z VM [OL IHSHUJLK ZJVYLJHYK JHU IL WHY[PJ\SHYS`
LMMLJ[P]L MVY HUHS`ZPZ HUK KPZJ\ZZPVU OV^L]LY ;OPZ PZ ^OH[
we have come to call “dashboard indicators.”
Spiritual
‹
‹
3L]LSVMMHJ\S[`Z[HMMHUKZ[\KLU[ZWPYP[\HSKL]LSVWTLU[
Faith and learning integration
Academic Excellence
[OL0U[LYUHS)\ZPULZZ!
Growth and Resources
-PUHUJPHS!
‹
‹
‹
‹
‹
‹
‹
‹
‹
Student/faculty ratio
Percent of faculty with
terminal degrees
Scholarship productivity
Academic ranking(s
Distinctive programs
Distance learning
opportunities
Student satisfaction
Etc.
‹
‹
‹
‹
‹
‹
‹
;V[HSLUYVSSTLU[OLHKJV\U[
M\SS[PTLLTWSV`LLZ
Tuition revenue
Tuition discount rate
*VTWVZP[L-PUHUJPHS0UKL_
debt burden ratio
Value of endowment
University reserves
End of year budget variances
Etc.
Constituents and Engagement
*\Z[VTLY!
Workplace Quality (Innovation &
3LHYUPUN!
‹
‹
‹
‹
‹
‹
‹
‹
‹
‹
19
20
Bond/credit ratings
Employer satisfaction
Alumni giving participate
rate
Percent of budget
supporting instruction
Tuition comparisons
Measures of sustainability
Etc.
‹
‹
Faculty/staff ratio
Employee turnover rate
Job satisfaction indicators
TVYHSL^LSSILPUN
KL]LSVWTLU[L[J
*VUÄKLUJLPUZLUPVY
leadership
Etc.
BUILDING DASHBOARDS: A VISUAL
REPRESENTATION OF THE
BALANCED SCORECARD
Dashboards are frequently employed in industry to visually
YLWYLZLU[ 270Z HUK [OL` JHU IL \ZLK [V TVUP[VY H U\TILY
of indicators. When organized within the construct of the
IHSHUJLK ZJVYLJHYK H KHZOIVHYK HSSV^Z YL]PL^LYZ [V ZLL
270ZPUJVTIPUH[PVUOLSWPUN[OLTIL[[LY\UKLYZ[HUK[OLSPURZ
between and among various indicators. Dashboards are also
\ZLM\S PU PKLU[PM`PUN [YLUKZ PU [OL 270Z HUK \Z\HSS` PUJS\KL
comparisons to benchmarks or target values.
=PZ\HSS`KHZOIVHYKZJHUILJVSVYJVKLK[VPUKPJH[L[OLJ\YYLU[
Z[H[\Z ( JVTTVU JVUZ[Y\J[ PZ H [YHMÄJ SPNO[ PUKPJH[VY ^P[O
NYLLU`LSSV^HUKYLKYLWYLZLU[PUN[OLZ[H[\Z:OV^UHIV]L
is a notional dashboard representation of a balanced scorecard
in a business setting.
3PRLIHSHUJLKZJVYLJHYKZKPMMLYLU[]PZ\HSPaH[PVUPKLHZHYLÄUKPUN
their way into higher education institutions. Ballentine and Eckles
describe examples of dashboards with balanced scorecard
indicators for two very different educational institutions.19 One
PZ1LMMLYZVU*VSSLNLVM/LHS[O:JPLUJLZPU9VHUVRL=(^OPJO
chose to represent KPIs in the spider chart that follows. The
spider chart provides a quick way to see how the institution is
progressing toward achieving strategic goals.
0U[OPZWYLZLU[H[PVU[OL]HYPV\Z270ZYLWYLZLU[LKHZTL[YPJZ
are organized in the four balanced scorecard areas developed
I` 2HWSHU HUK 5VY[VU 0U [OL JOHY[ VU WHNL [OL [OPJR
IS\L JPYJSL YLWYLZLU[Z [OL ILUJOTHYR VY [HYNL[ MVY LHJO 270
TLHZ\YLKHZHWLYJLU[HNLVM[OLKLZPYLK]HS\L0U[OPZL_HTWSL
3LHYUPUN.YV^[O4L[YPJPZZPNUPÄJHU[S`L_JLLKPUN[OL[HYNL[
^OPSL*\Z[VTLY4L[YPJPZMHYILSV^L_WLJ[H[PVUZ
>P[O[OPZ]PZ\HSYLWYLZLU[H[PVU[OLIHSHUJLKZJVYLJHYKHSSV^Z
senior leaders and boards to focus on areas of concern within
the context of the overall set of KPIs.
9OVKLZ *VSSLNL PU 4LTWOPZ ;5 JOVZL [V \ZL H ]PZ\HS
representation that combines information in both tabular and visual
form. A sample of their dashboard is shown on page 15. In this
WYLZLU[H[PVU[OLJVTTVUNYLLU`LSSV^YLK[YHMÄJSPNO[JVUZ[Y\J[
draws immediate attention to the status of each KPI. Additional
information is included to remind the reader of what is actually
ILPUNTLHZ\YLKHSVUN^P[O[OLYHUNLVM]HS\LZMVYLHJO270
The Rhodes dashboard also incorporates a data
representation format called “sparklines.”20
These are
used to show historical information and trends for each of
the KPIs. The upper green horizontal line represents the
ILUJOTHYR[HYNL[]HS\LMVY[OL270HUK[OLSV^LYYLKSPULPZ
the lower bound and the value below which the KPI would
be considered unsatisfactory. The varying blue line with the
JPYJSL VU [OL LUK PZ H T\S[P`LHY [YLUK SPUL ^OLU [OPZ KH[H
PZ H]HPSHISL <UKLY [OL *VUZ[P[\LU[ 7LYZWLJ[P]L ILSV^ [OL
¸(]LYHNLVMULLKTL[¹MHSSZILSV^[OLSV^LYIV\UKMVY[OPZ
270I\[[OL[YLUKPZJSLHYS`OLHKLKPU[OLYPNO[KPYLJ[PVU;OPZ
combination of current value and recent trend gives a more
complete picture of the KPI.
Ibid.
,K^HYK9;\M[LBeautiful Evidence*OLZOPYL*;!.YHWOPJ7YLZZ
© 2011 CapinCrouse LLP
13
Notional Dashboard
1LMMLYZVU*VSSLNLVM/LHS[O:JPLUJLZ+HZOIVHYK5V[PVUHS+H[H
14
© 2011 CapinCrouse LLP
Rhodes College Dashboard (Notional Data)
6UJLPTWSLTLU[LK[OLIHSHUJLKZJVYLJHYKILJVTLZH]P[HS
tool for communicating strategic information both at the board
level and across the entire institution. Communicating the
balanced scorecard contributes to promoting integrity,
commitment, and accountability.
PERIODIC ANALYSIS AND STRATEGIC REVIEWS
Boards of Trustees gather on a periodic basis — frequently twice
a year — to conduct the business of the institution. Boards
typically receive fact books containing information about the
PUZ[P[\[PVU»Z ÄUHUJPHS Z[H[\Z HZ ^LSS HZ LUYVSSTLU[ YLWVY[Z HUK
other similar information. If the college or university has a current
21
Z[YH[LNPJWSHUHUKHZL[VM270Z[OLIVHYKTLL[PUNPZHJYP[PJHS
opportunity to examine how the institution is doing relative to
the goals of the strategic plan. Presenting KPIs in an integrated
dashboard allows board members to see relationships between
various KPIs and obtain a much more comprehensive view of
the condition and direction of the school. According to Kaplan
HUK 5VY[VU [OL IHSHUJLK ZJVYLJHYK JVU[YPI\[LZ [V Z[YH[LNPJ
success in the following ways:
The very exercise of creating a balanced scorecard
forces companies to integrate their strategic planning and
budgeting processes and therefore helps to ensure that
[OLPYI\KNL[ZZ\WWVY[[OLPYZ[YH[LNPLZ¯
2HWSHU9VILY[:+H]PK75VY[VUUsing the Balanced Scorecard as a Strategic Management Tool/HY]HYK)\ZPULZZ9L]PL^1\S`(\N\Z[
© 2011 CapinCrouse LLP
15
The process of building a balance scorecard — clarifying the
Z[YH[LNPJVIQLJ[P]LZHUK[OLUPKLU[PM`PUN[OLML^JYP[PJHSKYP]LYZ
— also creates a framework for managing an organization’s
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deliver results but also compete with one another for scarce
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managements’ time and attention. 21
Kaplan and Norton also note that the scorecard gives
administrators the ability to know at any time if the strategies
[OL`OH]LPTWSLTLU[LKHYLPUMHJ[^VYRPUNHUKPMUV[^O`
These considerations can lead to a level of strategic learning
[OH[PZ]P[HSLZWLJPHSS`MVY[OLIVHYK;OLIHSHUJLKZJVYLJHYK
also contributes to viewing the college or university from a
Z`Z[LTZ WLYZWLJ[P]L HUK LUJV\YHNLZ YL]PL^LYZ [V [OPUR
critically about underlying assumptions driving the strategies
for achieving the vision.
[OLM\[\YL0[PUZ\YLZ[OH[LHJONLULYH[PVUVMZ[\KLU[ZILULÄ[Z
equally from the support of the endowment and the use of the
physical plant.
>OLU JOVVZPUN ÄUHUJPHS [HYNL[Z HUK SVUN[LYT NVHSZ MVY
Z[YH[LNPJ WSHUUPUN W\YWVZLZ RLLW PU TPUK [OH[ X\HU[PM`PUN
`V\YLX\PSPIYP\TJVUKP[PVUVYSHJR[OLYLVMPZVULVM[OLRL`Z
[V THPU[HPUPUN V]LYHSS ÄUHUJPHS OLHS[O >L ILSPL]L [OH[ `V\Y
dashboard should display the trend toward or away from the
ÄUHUJPHSLX\PSPIYP\TJVUKP[PVUMVYLHJOVM[OLMV\YMHJ[VYZPU[OL
balanced scorecard.
;OL ÄUHUJPHS JVUKP[PVUZ PKLU[PM`PUN [OL KPZ[HUJL MYVT [OL
equilibrium state can be expressed for each of the four factors
described above:
1.
An annual operating debt gives evidence of distance from
[OL LX\PSPIYP\T Z[H[L 0[ PZ PTWVY[HU[ [OLYLMVYL [V IL HISL
to identify the operating net income in your reporting (either
PU[LYUHSS`VYL_[LYUHSS`
2.
Accumulated future expenses in excess of accumulated
future revenues are evidence of distance from the
equilibrium state.
3.
,UKV^TLU[ZWLUKPUNPUL_JLZZVMPZNLULYHSS`[OV\NO[
to indicate that spending is exceeding the rate of net return
HUKHMHJ[VYMVYPUÅH[PVU
4.
There are two common methods of determining distance
from equilibrium for the fourth factor related to physical plant:
Strategic Questions:
1.
2.
3.
Are KPIs reviewed by the board at least annually? Should
[OLZL IL THKL H]HPSHISL TVYL MYLX\LU[S` PU SPNO[ VM [OL
institution’s current condition? Note: KPIs should at least be
made available before each scheduled board meeting; best
practice is a quarterly report and an annual summary.
+VLZ H IHSHUJLK ZJVYLJHYK ZL[ VM 270Z VY ZVTL[OPUN
ZPTPSHY PUMVYT Z[YH[LNPJ JVU]LYZH[PVUZ HUK IVHYKSL]LS
decision making?
What seems to be the administration’s willingness to
increase transparency on such vital information with the
board? What fears do you see surfacing from senior
administration as you push them toward greater and more
regular transparency?
FINANCIAL EQUILIBRIUM
Financial equilibrium is a long-term strategic planning goal in a
college whereby:
1.
Annual operating revenues are greater than or equal
[V VWLYH[PUN L_WLUZLZ PL [OL [YHKP[PVUHS JVUJLW[ VM H
IHSHUJLKI\KNL["
2.
Growth in annual revenues are greater than or equal to
NYV^[O PU VWLYH[PUN L_WLUZLZ V]LY [PTL LUZ\YPUN [OH[
future budgets can also be balanced;
3.
Endowment spending is small enough that the corpus or
principal of the endowment can sustain its real purchasing
WV^LY V]LY [PTL PL [OL ]HS\L VM [OL WLYTHULU[ M\UKZ
and the income produced by the funds keep pace with
PUÅH[PVU"HUK
4.
Reinvestment in the physical plant and equipment is
Z\MÄJPLU[[VWYLZLY]L[OL\ZLM\SSPML
4HPU[HPUPUN ÄUHUJPHS LX\PSPIYP\T PZ LZZLU[PHS PU N\HYHU[LLPUN
the school’s ability to meet its vision and mission now and into
16
© 2011 CapinCrouse LLP
a. Capital renewal and replacement reserves growing
[V HU HTV\U[ [OH[ PZ IL[^LLU HUK VM [OL
replacement value of the school’s buildings. (This
(ZZVJPH[PVU VM 7O`ZPJHS 7SHU[ (KTPUPZ[YH[VY (77(
TL[OVKVSVN` @V\ JHU HSZV HJJVTWSPZO [OPZ \ZPUN H
¸M\UKPUNKLWYLJPH[PVU¹JVUJLW[HZSVUNHZP[TLL[Z[OL
APPA standard above.
b. Capital funding equaling or exceeding the amount
necessary to fund costs assigned by an engineering study
MVYYLWHPYHUKYLWSHJLTLU[V]LYHUK`LHYZ
SUMMARY
Books
The intent of this paper is to provide a broad overview of the
emerging models and practices for monitoring the progress and
JVUKP[PVUZ VM [OL Z[YH[LNPJ MHJ[VYZ PUÅ\LUJPUN [OL OLHS[O HUK
effectiveness of Christ-centered institutions of higher education.
*`LY[ 9PJOHYK 4 -VYL^VYK [V (JHKLTPJ :[YH[LN`! ;OL 4HUHNLTLU[
Revolution in American Higher Education. Baltimore: The Johns Hopkins
<UP]LYZP[`7YLZZ 0M`V\HYLPU[LYLZ[LKPUSLHYUPUNTVYLWSLHZLZLL[OLTH[LYPHSZ
in the Bibliography below. A helpful place to begin is http://
en.wikipedia.org/wiki/Balanced_scorecard.
-HP[OIHZLKJVSSLNLZHUK\UP]LYZP[PLZMHJLZPNUPÄJHU[JOHSSLUNLZ
HZ[OL`TV]LMVY^HYKPU[OLZ[JLU[\Y`([[OLZHTL[PTL
there are tremendous opportunities for these colleges and
universities to make a positive difference for Christ across
the globe. KPIs presented in some sort of dashboard are an
excellent aid in ensuring that the vision of the institution is
consistently and conscientiously addressed.
Understanding the sacred calling [V MHP[OIHZLK UVUWYVÄ[
IVHYKZTHUZOPW HUK LTIYHJPUN [OL JVYL YLZWVUZPIPSP[PLZ HUK
M\UJ[PVUZ VM Z\JO H JHSSPUN HYL HTVUN [OL TVZ[ ]HS\HISL
insights CapinCrouse can bring to its faith-based clients.
BIBLIOGRAPHY
Articles
)HSSLU[PUL /V^HYK HUK 1H` ,JRSLZ ¸+\LSPUN :JVYLJHYKZ ¶ /V^ ;^V
Colleges Utilize the Popular Planning Method.” Planning for Higher
Education(WYPS¶1\UL 2HWSHU9VILY[:HUK+H]PK75VY[VU¸<ZPUN[OL)HSHUJLK:JVYLJHYK
as a Strategic Management Tool.” Harvard Business Review 1\S` ¶
August 2007.
2HYH[OHUVZ+LTL[YP\ZHUK7H[YPJPH2HYH[OHUVZ¸(WWS`PUN[OL)HSHUJLK
Scorecard to Education.” Journal of Education for Business!
4HYJO(WYPS
7HWLUOH\ZLU *OYPZ HUK >HS[LY ,PUZ[LPU ¸0TWSLTLU[PUN [OL )HSHUJLZ
Scorecard at a College or Business.” 4LHZ\YPUN)\ZPULZZ,_JLSSLUJL
!
+Y\JRLY 7L[LY - 4HUHNPUN [OL 5VU7YVÄ[ 6YNHUPaH[PVUZ! 7YPUJPWSLZ HUK
Practices5L^@VYR!*VSSPUZ
,^PUN +H]PK > The Practice of Planning 5L^ @VYR! /HYWLY 9V^
1968.
2LSSLY .LVYNL (JHKLTPJ :[YH[LN`! ;OL 4HUHNLTLU[ 9L]VS\[PVU PU
American Higher Education)HS[PTVYL!;OL1VOU/VWRPUZ<UP]LYZP[`7YLZZ
1983.
2LSSLY.LVYNLAcademic StrategyX\V[LMYVT,HYS-YHUR*OLP[»ZThe New
Depression in Higher Education; a Study of Financial Conditions at 41
Colleges and Universities5L^@VYR!4J.YH^/PSS 2LSSLY .LVYNL ;YHUZMVYTPUN H *VSSLNL! ;OL :[VY` VM H 3P[[SL2UV^U
College’s Strategic Climb to National Distinction. Baltimore: The Johns
/VWRPUZ<UP]LYZP[`7YLZZ
3H^SLY,K^HYK.HUK*OYPZ[VWOLY.>VYSL`)\PS[[V*OHUNL¶How
[V (JOPL]L :\Z[HPULK 6YNHUPaH[PVUHS ,MMLJ[P]LULZZ /VIVRLU 51!
1VZZL`)HZZ
4HZZ`>PSSPHT-Honoring the Trust – Quality and Cost Containment
in Higher Education)VS[VU4(!(URLY7\ISPZOPUN*VTWHU`
4VYYPSS 9PJOHYK 3 :[YH[LNPJ 3LHKLYZOPW ¶ 0U[LNYH[PUN :[YH[LN` HUK
3LHKLYZOPW PU *VSSLNLZ HUK <UP]LYZP[PLZ. American Council on
,K\JH[PVU6Y`_ 7YLZZ :LYPLZ VU /PNOLY ,K\JH[PVU >LZ[WVY[ *;!
7YHNLY7\ISPZOLYZ
Web Sites
Balanced Scorecard Institute: http://www.balancedscorecard.org
Balanced Scorecard
Balanced_scorecard
–
Wikipedia:
http://en.wikipedia.org/wiki/
“Moody’s Management Measures” article by Susan Fitzgerald: www.
UHJ\IVVYNUL^Z\WKH[LZI\ZPULZZVMÄJLYTHNHaPULVUSPULL_JS\ZP]LZ
moody’smanagementmeasures
7YHNLY :LHS` *V 33*" 274. 337" HUK )LHYPUN7VPU[ 0UJ ¸:[YH[LNPJ
-PUHUJPHS(UHS`ZPZMVY/PNOLY,K\JH[PVU:P_[O,KP[PVU¹5H[PVUHS(ZZVJPH[PVU
VM*VSSLNLHUK<UP]LYZP[`)\ZPULZZ6MÄJLYZ
7YHNLY-YLKYPJ19VUHSK,:HSS\aaVL[HS¸9H[PV(UHS`ZPZPU/PNOLY,K\JH[PVU
¶ 4LHZ\YPUN 7HZ[ 7LYMVYTHUJL [V *OHY[ -\[\YL +PYLJ[PVU -V\Y[O ,KP[PVU¹
274.337HUK7YHNLY4J*HY[O`:LHS`33*
9LKK 2LUUL[O , ¸+PZJV\U[PUN ;V^HYK +PZHZ[LY! ;\P[PVU +PZJV\U[PUN
*VSSLNL-PUHUJLZHUK,UYVSSTLU[ZVM3V^0UJVTL<UKLYNYHK\H[LZ¹<:(
Group Foundation New Agenda Series
9\ILU )YLU[ + ¸;V^HYK H )HSHUJLK :JVYLJHYK MVY /PNOLY ,K\JH[PVU!
Rethinking the College and University Excellence Indicators Framework.”
/PNOLY,K\JH[PVU-VY\T
;V^UZSL`4PJOHLS¸;OL:THSS*VSSLNL.\PKL[V-PUHUJPHS/LHS[O!)LH[PUN
the Odds.” National Association of College and University Business
6MÄJLYZ
© 2011 CapinCrouse LLP
17
FIVE STEPS TO IMPROVED FINANCIAL HEALTH
HZZ\NNLZ[LKI`HZLHZVULKJVSSLNL*OPLM-PUHUJPHS6MMPJLY
So far we have suggested that colleges are experiencing
JOHSSLUNPUN[PTLZ^P[OUVYLSPLMPUZPNO[>LOH]LKLZJYPILK
what organizations like Moody’s look at when evaluating
JYLKP[ ^VY[OPULZZ ;OL *VTWVZP[L -PUHUJPHS 0UKL_ *-0 HUK
the core ratios have been introduced and explained. You now
know your ratio scores and how strong or weak your college
PZ/V^L]LY\UKLYZ[HUKPUN[OL*-0HUK[OL\UKLYS`PUNJVYL
YH[PVZPZVUS`[OLÄYZ[Z[LW>P[OV\[JOHUNLZPUILOH]PVY[OH[
HKKYLZZJVYLPZZ\LZ[OLYL^PSSILUVPTWYV]LTLU[
*OYVUPJ ÄUHUJPHS KPZ[YLZZ PZ H KHUNLYV\Z ^H` MVY H JVSSLNL [V
exist. Schools that live this close to the edge are usually only one
ZPNUPÄJHU[L]LU[H^H`MYVTHJ\[LÄUHUJPHSKPZ[YLZZVY^VYZL`L[
JSVZ\YL(J\[LÄUHUJPHSKPZ[YLZZJHSSZMVYHIY\W[YHKPJHSJOHUNL
[OH[PZ]LY`WHPUM\S+\YPUN[PTLZVMJYPZPZ[OL]PHISLVW[PVUZMVY
short-term improvement are few. It is far better to engage in
effective planning and disciplined management today.
9LNHYKSLZZ VM `V\Y MPUHUJPHS Z[YLUN[O VY ^LHRULZZ ^L
encourage you to align resources with priorities and values.
5VVULJHUHMMVYK[V^HZ[LLP[OLY5VUL[OLSLZZHSV^*-0
score should serve as a wake-up call. It may be that drastic
change is required on your campus. To that end we offer a
five-step approach to improved financial health. As you will
ZLL [OL Z[LWZ YLWYLZLU[ ZVSPK M\UKHTLU[HS THUHNLTLU[
techniques that can be applied in any situation.
*VTT\UPJH[PVUJVTT\UPJH[PVUJVTT\UPJH[PVUPZPTWVY[HU[
during every step of the process. The message should be
simple and clear. Everyone should be well aware of what is
happening on campus. There should be no surprises or
confusion.
>OLU KVUL ^LSS OLHS[O` JOHUNL LULYNPaLZ H JVSSLNL
campus. It provides the clarity that is so desperately needed
for improvement to take place. Knowing exactly what is
important allows front-line workers to focus their efforts
where they count the most. Positive momentum grows and
is self-reinforcing.
Step 1: Awareness and Commitment to Change
(ZZPTWSPZ[PJHZP[ZV\UKZILPUNH^HYLVM`V\YVUNVPUNÄUHUJPHS
ZP[\H[PVUPZ[OLÄYZ[Z[LW[VPTWYV]LTLU[;VVVM[LUSLHKLYZKV
UV[LTWSV`[VVSZZ\JOHZ[OL*-0[OH[X\HU[PM`ÄUHUJPHSOLHS[O
PUH^H`[OH[JHUILTLHZ\YLK`LHYHM[LY`LHYZV[OH[WYVNYLZZ
can be tracked.
18
© 2011 CapinCrouse LLP
It would seem logical that if a college is experiencing chronic
ÄUHUJPHS KPZ[YLZZ [OLU NV]LYUPUN IVHYKZ WYLZPKLU[Z
HKTPUPZ[YH[VYZ HUK MHJ\S[` ^V\SK ^HU[ [V THRL [OL JOHUNLZ
ULJLZZHY`[VPTWYV]L[OLPYJVUKP[PVU<UMVY[\UH[LS`[OH[PZUV[
always the case. Too often individuals either want to protect a
MH]VYP[LWYVNYHTVYHYLUV[^PSSPUN[VTHRL[OLKPMÄJ\S[JOHUNLZ
that are often required for improvement to take place.
;OL[`WLVMZPNUPÄJHU[JOHUNL^LHYLJHSSPUNMVYYLX\PYLZ[OL
M\SS JVTTP[TLU[ VM [OL LU[PYL JHTW\Z JVTT\UP[` >P[OV\[ P[
[OL LMMVY[ ^PSS SPRLS` MHPS :V ILMVYL `V\ ILNPU THRL Z\YL [OH[
everyone understands the process and is willing to experience
the pain and discomfort that will surely follow.
>P[OH^HYLULZZHUKH^PSSPUNULZZ[VJOHUNLPUWSHJLP[PZUV^
time to assess the strength of the senior leadership team and
governing board.
Step 2: Assessment of Senior Leadership and
Governing Board
:[YVUN LMMLJ[P]L SLHKLYZOPW PZ YLX\PYLK [V THRL [OL KPMÄJ\S[
changes necessary to improve the health of a college.
;OPZ PZ Q\Z[ HZ [Y\L MVY [OL ZLUPVY SLHKLYZOPW [LHT HZ P[ PZ
for the governing board. The beginning of a large-scale
change process is the time to make needed changes. As
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ULJLZZHY`[VNL[[OLQVIKVUL2LLWPUN[OL^YVUNWLVWSL^PSS
doom the effort to failure.
It is important that the senior leadership team function in a
high-trust environment. They need to engage in the healthy
HUK WHZZPVUH[L KLIH[L VM PKLHZ PU VYKLY [V ZVS]L KPMÄJ\S[
problems. They also need to commit wholeheartedly to a
course of action once it is determined. Effective accountability
mechanisms need to be in place to keep everyone on track.
The governing board should function in much the same way as
senior leadership.
It may be that team building and board education are necessary
in order to move forward. Since team building and board
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the process itself serves as an excellent working laboratory for
growth and development.
When the right people are in leadership positions and have
SLHYULKOV^[V^VYR[VNL[OLYLMMLJ[P]LS`P[PZ[PTL[VKL]LSVWH
mission-driven strategic plan.
Step 3: Mission-Driven Strategic Planning
A clear and compelling strategic plan must exist to guide the
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ones are really important.
One approach includes developing departmental action plans
that connect to the top level. This allows the opportunity for
more detail. This model also suggests the development of
individual action plans that relate to the departmental and top
levels. The individual action plans can then be used for annual
performance reviews.
7SHUVIQLJ[P]LZZOV\SKILJSLHYHUKTLHZ\YHISLH[LHJOSL]LS
with a strong emphasis placed on accountability and results.
There should be no confusion about the priorities of the
institution. Each cascading level of detail should support the
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recite the mission and priorities of the college. Faculty and staff
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their departments are doing today to help the plan become
reality. There should be a sense of excitement and urgency.
Clarity regarding priorities is absolutely essential for effective
budgeting to take place.
Step 4: Realignment of the Budget to Support
the Strategic Plan
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the implementation of the strategic plan over a shorter time
period. The strategic planning process is the time and place for
discussion and conclusions on resource allocation. This type
of approach requires a process that is dynamic in nature and
revisited annually.
Here are some of the essential characteristics of effective
budgeting:
‹
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‹
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reasons behind the budget
‹
Budget managers are held accountable for performance
‹
The budget incorporates substitution (deciding not to do a
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‹
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‹
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ÄUHUJPHSKLJPZPVUZ
0[TH`ILULJLZZHY`[VÄUKUL^YL]LU\LZVYYLK\JLVWLYH[PUN
expenses to fund the priorities of the strategic plan. New
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outdated academic programs need to be eliminated. No
22
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budget support the strategic plan.
-VY[\UH[LS` PM P[ PZ ULJLZZHY` [V LSPTPUH[L WYVNYHTZ ZL]LYHS
helpful models exist. Among them are Robert C. Dickenson’s
7YPVYP[PaPUN (JHKLTPJ 7YVNYHTZ HUK :LY]PJLZ! 9LHSSVJH[PUN
Resources to Achieve Strategic Balance and the Resource
Allocation Map found in Strategic Financial Analysis for Higher
Education.22 (UV[OLY HWWYVHJO PZ [V JVUK\J[ H JVZ[ILULÄ[
HUHS`ZPZVMHSSWYVNYHTZ9LNHYKSLZZVM[OLTL[OVKLTWSV`LK
most institutions only have adequate resources to fund highpriority programs and would be well served to eliminate those
that are low priority. Colleges can compete more effectively with
fewer well-funded programs than with many poorly funded ones.
With the right people in place and equipped with clear
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toward implementation.
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>P[OJSLHYTLHZ\YHISLVIQLJ[P]LZPUWSHJLHUKHI\KNL[[OH[
Z\WWVY[Z WYPVYP[PLZ HUK ]HS\LZ P[ PZ JYP[PJHS [OH[ [OL JVTWSL[L
energy of the college stay focused where it counts the most. To
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must function with discipline and accountability.
The board should review progress toward achieving the
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I\KNL[WLYMVYTHUJLZOV\SKHSZVILL_HTPULK7YVISLTHYLHZ
Z\JJLZZLZHUKMHPS\YLZZOV\SKILVWLUS`KPZJ\ZZLK^P[O[OL
board. Board members should ask hard questions that hold
the administration accountable for results.
(Z WHY[ VM [OL VUNVPUN THUHNLTLU[ VM [OL JVSSLNL ZLUPVY
leadership should meet with all departmental managers quarterly
to review progress toward achieving strategic plan priorities and
budget performance. These meetings should be characterized
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ZOV\SKIL[VZVS]LWYVISLTZUV[JHZ[ISHTL;OLMVJ\ZZOV\SK
be on accountability and results.
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plans can be used as management tools by senior leaders.
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[V L_LJ\[L" LUJV\YHNLZ OLHS[O` WYVK\J[P]L [LHTZ" HUK
continually develops leaders. The model calls for leaders to
WLYMVYTHYPNVYV\ZHUU\HSYL]PL^VMLHJOKLWHY[TLU[MVSSV^LK
by a six-month check-up. We recommend a process that
includes three components:
People
‹
Review organizational structure for clarity and make any
ULJLZZHY`HKQ\Z[TLU[Z
‹
Review the performance of each employee based on their
action plan and its connection to the department’s plan
9VILY[*+PJRLZVU7YPVYP[PaPUN(JHKLTPJ7YVNYHTZHUK:LY]PJLZ!9LHSSVJH[PUN9LZV\YJLZ[V(JOPL]L:[YH[LNPJ)HSHUJL1VOU>PSL`HUK[OL9LZV\YJL(SSVJH[PVU4HW found in
Strategic Financial Analysis for Higher Education1VOU>PSL`
© 2011 CapinCrouse LLP
19
‹
Hold supervisors accountable for accurately reviewing the
performance of their direct reports
Strategy
‹
Review the annual department action plan. This plan is
JVUULJ[LK[V[OLZ[YH[LNPJWSHUHUKPUJS\KLZTPSLZ[VULZ
K\LKH[LZYVSLZHUKYLZWVUZPIPSP[PLZ
‹
+\YPUN[OLZLJVUKJ`JSLYL]PL^YLZ\S[ZMYVT[OLWYL]PV\Z
year along with the plan for the next year
Operations
‹
Examine key processes to ensure that they are documented
and that customer needs are met
‹
Develop continuous quality improvement measures to
track progress from year to year. This should be the heart
of the institutional assessment program.
‹
Conduct a general assessment of each department’s
overall effectiveness and make necessary changes
This approach connects senior management with front-line
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have been dormant for years are addressed and solved. This
exercise creates momentum and excitement that builds as the
cycle is repeated.
CONCLUSION
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JVSSLNL 0[ [HRLZ H ZPNUPÄJHU[ HTV\U[ VM [PTL HUK LULYN` [V
^VYR[OYV\NOLHJOVM[OLTI\[HZPUKPJH[LKH[[OLILNPUUPUN
VM[OPZZLJ[PVU[OL`HYLZPTWS`ZVSPKM\UKHTLU[HSTHUHNLTLU[
[LJOUPX\LZ 6UJL [OL Ä]L Z[LWZ OH]L ILLU JVTWSL[LK P[ PZ
time to take everything that has been learned and apply it to
the next cycle.
>LILSPL]L[OH[V\YHWWYVHJOHWWSPLKKPSPNLU[S`V]LY[PTL^PSS
JOHUNL[OLILOH]PVYVML]LY`VULPU]VS]LK(ZHYLZ\S[[OLZ[H[\Z
quo will be continually challenged and everyone will be pushed
to perform at a higher and higher level. Organizational and
PUKP]PK\HSWLYMVYTHUJL^PSSPUJYLHZLHUKQVIZH[PZMHJ[PVU^PSSZVHY
I\[TVZ[PTWVY[HU[S`[OL*OYPZ[PHUTPZZPVUVM`V\YJVSSLNL^PSSIL
advanced. Women and men will be better equipped to function
effectively in the marketplace while exercising their Christian faith.
20
© 2011 CapinCrouse LLP
APPENDIX:
ABACC SURVEY RESULTS
Financial Ratio & Benchmarking Study
November 2008
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1. I have used the ratio report to communicate results to my senior
management and/or board.
Senior Management
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Board
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5V¶
2. I have used the ratio report in presentations when discussing
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HJX\PZP[PVUVYLHYS`YL[PYLTLU[VMKLIP[VYTHQVYI\KNL[HKQ\Z[TLU[Z
@LZ¶
5V¶
3. I refer to the impact on the ratios when in discussions regarding
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@LZ¶
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10. Please provide any additional comments for how you use the ratio
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\ZLM\SHUKHU`HKKP[PVUHSJVTTLU[Z
‹
9LWVY[ KPMÄJ\S[ [V YLSH[L [V V\Y ZP[\H[PVU *HUHKPHU Y\U OPNO
ZJOVVSHZ^LSS
‹
Thanks for all you do!
‹
0OH]LUV[\ZLK[OL()(**YH[PVYLWVY[ZI\[ZOV\SK
‹
We are only in our 9th year of operations and only have a two year
history of the ratio report. But I feel it will be useful in the future.
(SZV^LKVUV[HJJLW[MLKLYHSHPKHUK[OLYLMVYLKVUV[JVTWSL[L
07,+:ZV0^PSSULLK[VZ\WWS`ÄN\YLZMVY[OLYLWVY[
‹
A very helpful and fundamentally useful tool. Thank you for the
comparisons.
‹
Good questions... the more data and interpretation of data is
essential for all of us.
‹
Our school is so small that it is easy to understand without ratios.
‹
>L»YL Q\Z[ H[ [OL WVPU[ VM \UKLYZ[HUKPUN [OL N\[Z VM [OPZ HUK
our Finance Committee eagerly awaits the new benchmarking
annually. Keep the reports coming!
‹
We have not participated yet as we were not members last year.
‹
There are good explanations of the ratios and what they mean
provided with the report. I suggest those stay. But it would be
OLSWM\S[VOH]LHIYPLMZ\TTHY`L_WSHUH[PVUVM[OLYLWVY[VMLHJO
YH[PVHUKVMKLJPZPVUZ[OH[JV\SKILTHKLMYVT[OLPU[LYWYL[H[PVU
of each ratio. Sort of a one-page executive summary. This would
IL ILULÄJPHS [V ZLUPVY HKTPUPZ[YH[VYZ HUK )VHYK TLTILYZ
^OV Z[Y\NNSL ^P[O MVSSV^PUN JVU]LYZH[PVUZ VU ÄUHUJPHS TH[[LYZ
ILUJOTHYRPUNHUKYH[PVHUHS`ZPZ
‹
9H[PV9LWVY[ZVY\UKLYZ[HUKPUNI`UVUÄUHUJPHS[`WLZ
‹
The report is more useful as a view of overall trends rather than as
HUPTTLKPH[LKLJPZPVUN\PKPUN[VVS(ZZ\JOP[OHZ]HS\LI\[UV[
as approached in the survey questions.
‹
I am a new member and have not received the ratio report on
our school.
4. My senior management group understands the ratio report and
RUV^ZOV^[VJVUULJ[THQVYÄUHUJPHSKLJPZPVUZ[V[OLPTWHJ[VU[OL
ratio report.
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0 OH]L ILLU HZRLK PU [OL SHZ[ TVU[OZ I` H M\UKPUN ZV\YJL H
regulatory body or accrediting body for an explanation of how we as
HUPUZ[P[\[PVUTVUP[VYV\YÄUHUJPHSOLHS[O
@LZ¶
5V¶ 6. Using the ratio report has improved my ability to communicate the
ÄUHUJPHSOLHS[OVMT`PUZ[P[\[PVUHUK[YLUKZPU[OH[ÄUHUJPHSOLHS[O
@LZ¶
5V¶
7. I need more training on how to read and interpret the ratio report.
@LZ¶
5V¶
8. My senior management group needs more training on how to read
and interpret the ratio report.
@LZ¶
5V¶
9. I need better ideas on ways to communicate the ratio report
information to senior management and/or the board.
@LZ¶
5V¶
© 2011 CapinCrouse LLP
21
ABOUT NICHOLAS J. WALLACE
Experience
Nick has over 26 years of experience in managing audit and
HK]PZVY` ZLY]PJLZ [V JO\YJOLZ TPZZPVUHY` VYNHUPaH[PVUZ
ZVJPHS ZLY]PJL HNLUJPLZ JVSSLNLZ HUK \UP]LYZP[PLZ TLKPH
HUKZPTPSHYUVUWYVÄ[VYNHUPaH[PVUZ/LZLY]LZHZ[OL5H[PVUHS
Director of Advisory Services and Higher Education Business
Services at CapinCrouse.
7YPVY[VQVPUPUN*HWPU*YV\ZL3375PJR^HZLTWSV`LKI`HSHYNL
West Coast private college. His work there included responsibility
for developing and implementing internal accounting procedures
MVY[OL\UP]LYZP[`»ZWSHUULKNP]PUNWYVNYHT[H_HKTPUPZ[YH[PVUMVY
[OL\UP]LYZP[`»ZJOHYP[HISL[Y\Z[ZHUKL_[LYUHSYLWVY[PUNMVYMLKLYHS
Z[\KLU[ÄUHUJPHSHPKWYVNYHTZ
Professional and Community Activities
5PJR OHZ ILLU JOHPY VM [OL 0UKPHUH *7( :VJPL[` 5VU7YVÄ[
6YNHUPaH[PVUZ *VTTP[[LL HUK YLJLU[S` JVTWSL[LK H ZP_`LHY
term as Public Representative for the Accrediting Association of
)PISL*VSSLNLZK\YPUN^OPJOOLJOHPYLK[OL-PUHUJPHS,_PNLUJ`
*VTTP[[LL/LZLY]LZHZIVHYK[YLHZ\YLYMVY.H[L^H`:LY]PJLZ
0UJH1VOUZVU*V\U[`0UKPHUHZVJPHSZLY]PJLHNLUJ`5PJRHSZV
serves on the ECFA Standards Committee.
Memberships
AICPA
Indiana CPA Society
National Association of College and University Business
6MÄJLYZ
Contact Information
317.885.2620 x1225
[email protected]
22
© 2011 CapinCrouse LLP
HIGHER EDUCATION TEAM
CapinCrouse maintains a specialized team of people who
MVJ\Z VU [OL OPNOLY LK\JH[PVU ZLY]PJLZ WYV]PKLK I` [OL ÄYT
These higher education account managers can be contacted
H[VMÄJLZ^P[OPU[OLMV\YYLNPVUZVM[OLÄYT
Southeast
Dan Campbell
[email protected]
Central
Tim Sims
[email protected]
Northeast
CE Crouse
[email protected]
Doug McVey
[email protected]
Nick Wallace
[email protected]
West
Vonna Laue
[email protected]
National Tax
+H]L4VQH
KTVQH'JHWPUJYV\ZLJVT
© 2011 CapinCrouse LLP
23
About CapinCrouse
8JUINPSFUIBOOPUGPSQSPmUPSHBOJ[BUJPOTBOEUBYDMJFOUT$BQJO$SPVTFJTUIFDPVOUSZT
MFBEJOHBDDPVOUJOHBOEBEWJTPSZmSNQSJNBSJMZTFSWJOHUIF$ISJTUJBOOPUGPSQSPmUDPNNVOJUZ
4JODF $BQJO$SPVTF IBT CFFO TFSWJOH OPUGPSQSPmU FOUJUJFT JODMVEJOH NFHBDIVSDIFT
institutions of higher education and secondary schools, and international missions agencies by
QSPWJEJOHBGVMMSBOHFPGBVEJUSFWJFXUBYBOEBEWJTPSZTFSWJDFT
$BQJO$SPVTF JT EFEJDBUFE UP IFMQJOH PVS DMJFOUT PQFSBUF XJUI mOBODJBM JOUFHSJUZ TP UIFZ DBO
EFEJDBUFUIFNTFMWFTUPGVMmMMJOHUIFJSNJTTJPO
Atlanta
678.518.5301
Indianapolis
317.885.2620
Chicago
630.682.9797
Los Angeles
714.671.9300
Colorado Springs
719.528.6225
New York
212.653.0681
Dallas
817.328.6510
Orlando
407.883.4671
Denver
720.283.7326
San Diego
858.638.7220
www.capincrouse.com
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© 2011 CapinCrouse LLP
AT L A N TA ‹ C H I C A G O ‹ C O L O R A D O S P R I N G S ‹ D A L L A S ‹ D E N V E R
INDIANAPOLIS ‹ LOS ANGELES ‹ NEW YORK ‹ ORLANDO ‹ SAN DIEGO
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