Part II: Measuring the Financial Impact of Academic Programs

In Part I of this blog series, we discussed the reasons why institutional, system, and state leaders are increasingly interested in understanding how individual academic programs fit into an institution’s overall finances. The previous blog examined how these leaders may use that information to make resource allocation decisions and more importantly, why it’s necessary to use data-informed criteria in making those decisions. We also discussed the challenges associated with this type of analysis and the need for detail and nuance in evaluating the finances of academic programs. In this follow-up post, we dive into NCHEMS’ approach for this kind of analysis, drawing on our work with the South Dakota Board of Regents (SDBOR) to illustrate our methodology and insights.

One of the first challenges in answering questions about the financial health of an academic program (for example, a bachelor’s degree in statistics) is that programs are intertwined with departments (for example, the math department) in complex and overlapping ways. Understanding these relationships is necessary because revenue and expenses are typically accounted for at the department level. NCHEMS created the following diagram to illustrate the complex relationships between a single academic program and multiple departments, which may or may not be equivalent to a budget unit within the institution’s chart of accounts, and the associated revenues and costs.

Flowchart illustrating the relationship of an academic program with various departments, budget units, and support services.

In our work for SDBOR, NCHEMS suggested a series of metrics that built upon the system’s existing program review process and honored this complexity while also being practical to compute and straightforward to interpret. The system’s existing process already covered other non-financial topics such as workforce relevance, student success, and competition/collaboration with other institutions; NCHEMS’ focus was specifically on financial sustainability. We proposed both program and department metrics. We then combined these metrics in several ways to calculate variables intended to help SDBOR identify programs and departments that were potentially underperforming or which merited additional resource investments, based on more than one factor.

Program Metrics:

• Number of program graduates.
  This metric, which was already included in SDBOR’s existing program review process, is an important measure of both student demand and student success.
• Number of enrolled student credit hours, disaggregated by department.
  SDBOR’s existing process already included student credit hours. Additionally, measuring credit hours by program allowed us to identify each academic program’s contribution to enrollment in each department, even those programs that are not normally associated with the department.

Department Metrics:

• Number of enrolled student credit hours, disaggregated by student academic program.
  Enrolled credit hours is a key measurement of departmental productivity. Understanding how those credit hours are distributed across academic programs provides a window into which programs are most important to each department’s enrollment.
• Number of faculty FTE dedicated to teaching.
  Faculty salaries are the largest expense of any academic department. Measuring Faculty FTE relative to student credit hours provides useful but simple insight into the largest expense/revenue components of a department. We focus on teaching FTE specifically, because it is not appropriate to compare research and service FTE to student credit hours. We also avoid analyzing faculty salaries and equipment expenses, as those costs can vary due to factors outside of a department’s control.
• Average class sizes by level (lower-division, upper-division, graduate).
  This metric provides additional insight into departmental efficiency and how faculty and student credit hours are distributed within departments.

While these metrics are a start, it’s important to recognize that they still do not tell the entire story; they simply provide an entry point for further questions and dialogue with members of the campus community, especially faculty. Programs and departments that appear low on multiple metrics likely merit further study, but the outcome of that study will depend significantly on the specific program and the reasons behind the numbers. Leaders will need to consider several important questions regarding the programs. They need to assess whether the program has a special mission-related role, how it is connected to and impacts other programs/departments, and if there are opportunities to improve the program or department’s efficiency. They should evaluate how the program aligns with state and local employer demands, its connection to other related programs offered by other institutions in the state or system, and any unique factors that should be considered.

The regular and rigorous review of each institution’s program mix is difficult and can be controversial, especially if it leads to some programs being discontinued. However, the costs of not doing this kind of analysis can be significant. Institutions that fail to make changes to their portfolios of academic programs risk their financial health and their relevance. They also lose the opportunity to re-allocate resources and invest in programs that should be added or expanded. These adjustments can help ensure that institutions meet the needs of students, employers, communities and states, and that the education they offer remains relevant into the future.

It is important to acknowledge that, in addition to the institution’s academic programming, many other factors impact institutional financial health. In NCHEMS’ next blog post in this series, we discuss our work modeling overall institutional finances, which shows how components of enrollment, expenses, revenue, debt, and assets all interact, and allows leaders to identify areas of financial vulnerability and strength.