Understanding academic program costs and margins
RECORDED WEBCAST |
Higher education institutions struggle to identify and gain agreement on the financial margins or financial contributions of various academic programs and departments.
Typically, 70 to 80 percent of the total costs of an institution are related to faculty and staff, or personnel costs. Managing costs efficiently and effectively is absolutely critical to sustainability, and informs decision-making on where to invest and how to properly staff.
Making strategic and well-informed decisions—and engaging faculty and other stakeholders in finding appropriate solutions—requires real data and a clear understanding of an institution’s cost profile.
Listen to this webcast recording to better understand a proven methodology that will provide a thoughtful and logical approach to identifying financial academic contribution margins. The approach will provide you with better direction on how to execute a similar program in your institution and gain credibility with various stakeholders.
- Key cost definitions in colleges and universities
- Cost profiles: Critical cost attributes and frameworks
- Building useful profiles to inform action and decision-making
- Presenting information in a usable format
Following are answers to questions submitted during the "Understanding academic program costs and margins" live webcast:
Q: Can you provide a simple example of the specific fields used to develop the contribution margin?
A: For contribution margin, the calculation is as follows:
Tuition amount (paid per student)
+ Course fees (paid per student)
- Institutional aid (given per student)
- Instructor cost (salary + fringe per instructor, from payroll entry by pay period)
- Other direct costs related to instruction (e.g. from the general ledger, expenses coded to academic departments such as supplies)
= Contribution margin
Contribution margin percent = Contribution margin/tuition (gross)
Q: How do you to account for direct expenses in a major view, given students take classes across numerous colleges with different cost structures?
A: For each contribution margin view, the expense is tied back to the student level based on the major or program the expenses are attributed to even if the courses spread across multiple departments and colleges. As such, the direct expense will be allocated across the courses the student took; and then consolidated based on assigned major rather than by the department or college the course is attributed to.
A: Do you have any recommendations for a contribution margin benchmark?
Q: RSM is not aware of any benchmarks. Some organizations use the Delaware Study in an attempt to benchmark instructional costs by academic area. In our opinion, there is some ambiguity into what goes into the cost structure from each reporting organization, which leads to varying responses to the accuracy of the benchmarks. The main objective is to establish an internal benchmark for each program and make improvements on the respective benchmark year-over-year.
There is always significant variation in contribution margin between programs, which makes it difficult to state an average or desired percent.