Trusteeship - November/December 2021 - 24

A LOOMING CRISIS FOR MIDWEST COLLEGES
and various forms of recognition, it is only
reasonable that we will want to compare
our performance along several dimensions
with those institutions. Ratio analysis formalizes
and adds rigor to that process.
The financial ratios are subsumed under
the standard categories used in higher education
accounting: instruction, research, public
service, academic support, student services,
institutional support, operation and maintenance
of plant, scholarships, and auxiliary
enterprises. The data used to construct the
comparisons are all in the public domain.
Selecting the most appropriate comparison
cohort is the critical first step.
The process is an opportunity to draw the
board, faculty, and staff into a productive
discussion. When comparing salaries, similar
institutions in the state and region are
probably most appropriate. When comparing
expenditure patterns, all similar institutions
nationally provide an instructive
picture. Next, once ratios are developed
for the cohort group, questions should be
asked such as: " If we say, " Students come
first, " shouldn't our expenditure patterns
reflect that commitment? or, " Why are our
expenditures for physical plants so out of
line with similar institutions? "
While static ratios are informative,
compound average growth rates (CAGR)
provide the most robust picture for an
individual or group of institutions. What
they reveal is the institutions' comparative
growth histories. As we compare percentages
of allocation we can also compare
percent rates of growth regardless of great
differences in size.
How They Work
To illustrate how ratios can be used to help
evaluate an institution, we tracked the 57
private colleges in our four-state region
over a three-year period. The institutions
range in size from 37 to 16,413 students; all
but two are or have been church affiliated.
As previously mentioned, the data used
to construct the following graphs are all in
the public domain at NCES-IPEDS. " Posi24
TRUSTEESHIP NOV.DEC.2021
tion " on the Y axis refers to the institutions'
absolute standing among its peers. (For
example, the number of enrolled students.)
" Performance " on the X axis refers to the
three-year CAGR (Compound Average
Growth Rate) of that particular variable. (For
example, the direction and speed at which
the institution is growing or shrinking.)
We selected seven ratios to analyze for the
cohort group. Six institutions are highlighted
to illustrate the different challenges faced.
181
Enrollment
Revenue & Investments
Instruction
Academic Support
Student Services
Staffing
Institutional Support
-8
1
1
-15
-5
-2
2
191
-21
8
-12
-4
6
-9
1
Conclusion
What we have done with this example
is show how ratios can be used to gauge
the current health of an institution. More
importantly, from an internal perspective
these same ratios can suggest areas
where expenses could be reduced while
maintaining the balance needed to provide
a well-rounded educational experience.
Of course, such choices ultimately reflect
values. Our values lead us to advocate for
201
-11
14
1
-16
-3
-3
-2
221
-10
3
-3
-6
-5
-5
6
222
-5
11
-1
3
3
3
15
THIS TABLE compares our six sample
institutions across the seven ratios. Reading
horizontally one can see that all of the
institutions have experienced declines in
enrollment and all but one institution has
increased administrative expenditures. All
of the institutions have shown some gain
in revenue and investments, but of course
the significance of this measure has to be
compared to its base. Example 191 appears
to be in serious difficulty. Enrollment has
declined and investments in instruction
have declined while institutional support
(i.e., administrative costs) have gone up
slightly. Example 221 has similar problems.
Additional ratios could be selected
for analysis. The seven displayed here are
illustrative of the type of information gleaned
from this type of comparative analysis.
231
-8
18
-10
1
1
-1
10
preservation of instruction while focusing
on reducing administrative overhead and
other nonteaching areas.
Institutions that successfully weather
the coming enrollment storm will need to
develop multipronged strategies. Deciding
early on where reductions in spending can
occur will create emotional space on campus
for productive discussions regarding recruiting
and other programmatic strategies.
Endnotes
1. Nathan Grawe, Demographics and the Demand for
Higher Education (Baltimore, Maryland: Johns Hopkins
University Press, 2018).
2. Clayton M. Christensen and Michael B Horn,
" Innovation Imperative: Change Everything, " (New York
Times, Nov. 1, 2013).
3. Clayton Christensen, noted for his theory of " disruptive
innovation, " is quoted extensively in making this
prediction, including in an article in Inside Higher
Education, April 28, 2017.
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