Activity-Based Accounting: Optimizing Resources to Improve Student Outcomes

By Karli A. Grant, September 22, 2017 — “What about a tool for measuring the viability of our academic programs?” As a solutions vendor, I hear this question frequently when I visit with higher education institutions.

As budgets continue to shrink and regulatory accountability for student outcomes increases, institutions are seeking greater insight into the true value of programs beyond traditional metrics or accounting methods.

Faculty costs, for example, are considered a direct cost of a program or course. But what about the additional administrative services or more specialized faculty (i.e., more ‘expensive’ faculty) that a new program demands? What about the specific classroom space, equipment or additional library services, energy, added security and even janitorial needs that a particular program requires? Rather than allocating these costs into general operational overhead, activity-based budgeting seeks to assign them to their respective programs and services.

More commonly utilized in other industries such as manufacturing and healthcare, activity-based accounting is now generating interest among higher education executives who face increasing uncertainty about the long-term financial viability of their institutions. A recent survey of higher education chief business officers by Inside Higher Ed bears this out. Less than half of those surveyed, 48 percent, agree that their current business model will be sustainable over the next 10 years*.

This may explain why I get that question so often when I visit colleges and universities today. Even as they look to cut costs, these institutions want to add more options and alternative programs (e.g., competency-based education, continuing education) to attract traditional and nontraditional students alike. They are asking for a solution that can help them project the value of these programs and their impact on the bottom line.

And yes, there are advanced analytic tools on the market today that can provide the visibility institutions need to accurately assess program ROI. These tools (e.g., Power BI) are only the final layer in the technology stack however. They depend on an enterprise-wide financial or ERP system underneath them that can aggregate and contextualize data from multiple systems and departments. Higher education’s continuing evolution toward cloud-based systems aligns well with this accounting method’s need to compile data from across the enterprise.

While the technology now exists, ultimately the move to activity-based budgeting is as much about the institution’s mission, values and culture. For a private liberal arts college, the value of their programs are measured more in the classical education and critical thinking skills gained by their students and less in the revenues generated by any given program or course. Even at larger public institutions, determining the value of programs by their financial efficacy alone could run afoul with faculty and students.

The fact remains that higher education institutions of every size and mission are looking for ways to serve students more efficiently. They are trying to do more with less. For institutions that have embraced activity-based accounting, it’s about gaining greater insight into program patterns over the long-term and being able to make adjustments at the right time. Their executives use it as another important method for finding a program’s sweet spot and the ideal mix of courses and resources to make it more efficient and successful for students and the institution, today and ten years from now.

In the end, the goal of activity-based budgeting is putting dollars where they’re needed most, in the programs that help more students achieve their academic and career goals.

Karli Grant is Director of Product Marketing at Campus Management Corp.

*2017 Inside Higher Ed Survey of College and University Business Officers

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