In order to manage resources effectively, it’s important to know how much it costs to teach students in your programs. Instructional costs vary from program to program based on class size, faculty salaries, equipment, and technology. And not all programs will generate enough revenue to cover costs. That’s OK as long as those high-cost programs are balanced with “cash cows,” those programs that generate more revenue than expenses. Instructional cost data can play an important role in strategic planning.
In 2004 Central Piedmont Community College began conducting program cost studies to help determine which programs to subsidize, revitalize, consolidate, or retire. Terri Manning, associate vice president for institutional research, got involved in this analysis when the executive vice president wanted to determine “what it was costing to teach our students.”
“We always look at how much it costs students, and we look at how much FTE we get every year. But [the executive vice president] was interested in trying to break that out to what it costs us to generate credit hours in various courses and programs. We saw a lot of economic impact studies and a lot of return on investment work—for every credit hour students accrue they earn this much salary in their lifetimes. Nobody has ever really calculated what it costs the college to generate a credit hour by course per student,” Manning says.
Conducting a cost study
The idea of such a study is pretty straightforward. It requires access to financial data broken out according to individual budget codes for each academic program and enrollment reports used to determine FTE, which must also be available by academic program budget codes. “I ask the budget person who works for the instructional area to run me the end-of-year report of all the money spent for all budget codes and then the vice president’s unit. It will have the county money, state dollars, and institutional fund (which includes grants, contracts, etc.) separated out by budget code. Our budget codes are department codes here. And then I merge [the budget report] with our FTE reports that give the budget code that each course belongs to. So you have two big files—one sorted by budget code for financial data and one sorted by budget code for FTE data.”
In North Carolina, an FTE is equivalent to 16 credit hours per semester times two terms. To determine the total number of credit hours generated, simply multiply the number of FTEs by 32 credit hours. Then divide that number into the budget cost. “It’s not rocket science. It’s just really tedious and a lot of detail,” Manning says.
Only direct instructional costs are included in CPCC’s program cost studies. “What’s not included would be those costs that the program might benefit from that are funded from other areas in the college, for example the technology plan budget,” says Lori Alexander, assistant to the vice president for learning.
Using this data, each program is assigned to one of the following categories according to a variation of the Boston Consulting Group’s Growth Share Matrix:
- High-demand/low-cost programs—programs with growing enrollments and positive return on investment
- High-demand/high-cost programs—programs with growing enrollments and negative return on investment
- Low-demand/low-cost programs—programs with declining enrollments and positive return on investment
- Low-demand/high-cost programs—programs with declining enrollments and negative return on investment
“The idea behind the Growth Share Matrix is that you’re looking for a balanced portfolio,” Alexander says. “The question is what to do with that cluster of programs. For instance, clearly you want to leave the general education programs alone. You want them to continue to make money, but the high-cost, high-growth programs such as health care, engineering, and other high-tech programs—programs that are in demand that prepare students for occupations that are in demand—you obviously want to continue to invest in those programs.”
Once you determine where a program falls on the Growth Share Matrix, you can take the most appropriate of the following four actions:
- Subsidize—Seek industry support and funding. One of the biggest benefits of these cost studies has been the ability to provide industries that benefit from the colleges with data on how much instruction in those programs costs, which can be helpful in asking for support. “One of the reasons our leaders wanted [the cost studies] done was that we have a lot of programs for which we don’t get back nearly enough revenue to cover costs. The college wanted to use this data to fundraise—to go to the hospitals and say, in essence, ‘You snap up every one of our cytotechnologists, all our nursing students and phlebotomists, and we’re not making the money back that it’s costing us to teach those students, so pony up.’ And it’s worked,” Manning says.
- Revitalize—Identify and invest resources selectively.
- Consolidate—Reduce costs by creating efficiencies. One example of a program consolidation that occurred as a result of an instructional cost analysis was the combination of several computer science programs into a single program with several areas of emphasis from which students can choose.
- Divest—Divert resources to where they can be more useful. Although no programs have been terminated as a result of these cost studies, the college stopped investing in growing programs in real estate, construction management, and mortgage banking—programs that were negatively affected by the economic downturn because “the market just wasn’t there,” Alexander says.
Advice
Based on their experience conducting these cost studies, Manning and Alexander recommend the following:
- Validate and vet the data. Give the deans the opportunity to vet the data before presenting it to a wider audience.
- The study is only as good as your financial data. You need to be able to align the financial data and program cost data with the actual programs. “That’s a problem in a lot of schools—especially small schools. Instead of having a budget code for each subject area within a department, they have one budget code for the department, so then your history, psychology, sociology, political science, and anthropology are all under one budget code. You can only drill down as far as your budget codes let you drill down. Budget codes are all put together by the finance people to meet their needs, not the needs of the programs, which want to extract data that they can use,” Manning says.
- Expect resistance. “Politically, I think there’s some resistance to this. Sometimes it comes from business and finance people who may not think the data has been put together in a way that works,” Manning says.
People in programs that generate more revenue than they receive might resent more expensive programs that don’t cover their instructional costs. However, as Manning explains, “You don’t earn your dollars and get to keep them in higher education. That’s one of the things that you have to be aware of. It can turn nasty.”
