"As higher education evolves in unexpected ways, this new landscape demands innovation and flexibility from the institutions that serve the nation's learners" - A Test of Leadership, Charting the Future of Higher Education, Department of Education 2006
The cost wise college website has been established to highlight innovative and flexible solutions available to Higher Education Institutions to meet the financial and competitive pressures of the Twenty First Century.
Why did we dedicate an Activity Based Costing solution and website to Higher Education?
There were a number of reasons, primarily there was a sudden demand for our services and software in Australia, which prompted research in the U.S. which uncovered a major issue with the cost of Higher Education which has increased significantly in only a short period of time. This increase in cost prompted Congress to establish the National Commission on the Cost of Higher Education in 1997 to determine the reasons behind the increase in costs and make recommendations on how to control this cost.
In 2006 the U.S. Department of Education published the report "Test of Leadership - Charting the Future of U.S. Higher Education" which examined in detail a range of issues facing U.S. Higher Education and provided a number of recommendations to address these problems.
Also, in their paper "Using Activity-Based Costing to Manage More Effectively" funded by the PricewaterhouseCoopers Endowment for The Business of Government, Professor Granof and Assistant Professors Platt and Vaysman outlined a number of key challenges facing Universities.
- The costs of higher education are increasing far more rapidly than other goods and services.
- Most University faculty disdain any linkage between cost and benefits of their activities.
- University administrators lack the authority to manage appropriately with most business decisions made by faculty and administrators at the lower levels of the organization. Also these decisions are made with little to no consideration of the cost impact.
- Universities have complicated fund accounting systems where funds for the university come from multiple sources. Salaries of individual faculty members may be paid out of several different accounts, making it difficult to answer fundamental questions like what the total compensation of a faculty member is.
- University budgets usually mirror the fund accounting systems, making it complex and deficient in promoting sound management and control.
- The accounting systems of universities produce numerous periodic reports which are mostly unintelligible to their intended users.
- Universities lack well-defined objectives or measurable outcomes.
- The outputs of faculty are interrelated and not clearly separable from each other.
- The distinction between inputs and outputs and producers and consumers is blurred, as an example when Ph.D. students are appointed as research assistants and teaching assistants.
- Costs and revenues may be integrally related and certain costs may not be incurred unless they were explicitly funded from outside sources.
- Capacity constraints of universities are not clearly discernible.
In Australia a study was conducted by Ernst & Young funded by the then Department of Education, Training and Youth Affairs (DETYA) which came up with a number of cost management issues in Australian Universities:
- The current state of cost management in most universities is not adequate to support the needs of the enterprise and its changing landscape.
- Traditionally in Australian universities, the financial managers have focused on meeting the external reporting and basic management accounting requirements.
- Effective use of cost management is essential in Australian universities since “if you can’t measure it, you can’t manage it”.
- Cost management allows institutions to understand how they create, maintain or destroy value by their decisions and actions.
- Cost management is a business tool that allows university managers to obtain information and feedback necessary to meet the goals and track progress towards the achievement of the strategic agenda.
- The costing information is required in the universities for purposes of financial reporting and strategic requirements; understanding the cost of activities, products, services and customers; and providing feedback and insight to management on what causes costs.
We have extensive experience with large scale Government cost and performance modeling projects and more recently university modeling for a number of Australian Higher Education Institutions.
Using this experience, and based on the driving business requirements of Universities, we have created a template solution that can be implemented rapidly and address the pressing management requirements of University Administrators and Faculty.