Given my decades of experience working with higher education finance, I can confidently say that the least understood finance-related activity I have seen is managerial accounting and reporting. College and university leaders have tremendous expertise when considering financial accounting practices, but the industry consistently struggles to identify, organize, and disseminate managerial information to the academic and administrative leaders tasked with spending the money and generating the revenue. One example I would draw attention to occurred at a Midwestern university that had decided all funds at the academic department level were used for instructional purposes and all funds at the college level were used for academic support. In theory, this approach could work; however, the colleges controlled all instructional equipment and supplies, making it impossible to know how much each academic discipline was spending. In contrast, the academic departments controlled all of the administrative staff, and the expense for this would not normally be considered a direct instructional expense. This environment created a situation in which nobody knew how much it cost to deliver the curriculum, and, as importantly, academic leaders did not have the information they needed to make financial decisions. This approach led to a lack of strategic decision making and low morale, as the only solution to an ever-increasing operating deficit was across-the-board cuts.

Financial Resources

As the story that opens this section suggests, the next area of focus is the operational overhead, such as that for administrative support, supplies, equipment, and other components, which are also considered direct expenses when associated with an academic discipline. Each institution has a chart of accounts that provides a complete listing, by category, of every account in the general ledger. The general ledger then serves as the repository for capturing revenues and expenses associated with delivering academic programming. Further, the NCES requires Title IV‒eligible institutions to categorize core expenses to include instruction and academic support. In most cases, the general ledger currently has these categories in place to ensure compliance and simplify external reporting. In an ideal world, the chart of accounts allows for each instructional and academic support expense to be associated with the academic unit or discipline consuming the resource. In cases such as these, the administrative support, supplies, and equipment directly associated with the academic unit spending these dollars are considered direct costs and allocated on a per-credit basis to that department or discipline. Of course, the operational nature of higher education does not always align with the ideal world. For example, one institution I worked with chose to include only faculty compensation in the instructional category that was subsequently aligned with the academic department. All administrative support, supplies, equipment, and other components were then identified as academic support and subsequently allocated to the dean’s office. As a result, the institution was unable to allocate discipline-specific items such as microscopes, musical instruments, software, and others to the discipline consuming the resource. As a side note, this cost component is normally a small portion of the cost to produce a credit hour when compared with the compensation allocation described in the faculty effort section. Regardless, I would recommend a thorough review of the chart of accounts and identify opportunities to align the cost of these items with the unit consuming these resources should this be lacking in your current budget process and general ledger.

Academic Unit Cost Drivers

Once the four key areas have been developed, the next step is to establish a transparent and sustainable approach to sharing this information with faculty and staff. As you may imagine, introducing the concept of a unique cost per credit based on the academic discipline can be overwhelming, and even intimidating, for the institutional community. Our experience suggests that members of the community will ask questions and express concerns, especially those who are associated with academic disciplines that may cost more or receive less revenue than others. This reaction is quite normal and should be embraced as part of the academic cost development process. As shared previously, this approach should be communicated as formative, and material decisions should not be made immediately whenever possible. Rather, I suggest the following steps:

• Listen – Devote considerable time to listen to, collect information from, and empathize with the community as people attempt to understand this novel approach. There are multiple options for senior leaders to collect feedback, but I would suggest an emphasis on academic department-level conversations, as they create a more thoughtful and directed assessment of the information important to faculty within the discipline being discussed.

• Let Go – If the tool is built correctly, many faculty and staff will have had the opportunity to vet the academic cost framework during the build stage. However, faculty may perceive this information as summative, and this will create a sense of urgency that did not exist during the academic cost framework development phase. In response, I encourage leaders to share the underlying data, encourage faculty to conduct their own analysis, and willingly consider alternative approaches to interpreting and organizing the information. This real-world application of a formative learning approach to building the cost model is critical to the success of the project, especially following the initial rollout.

• Communicate – Once the community has had the opportunity to vet the data and provide material feedback, adjust the model where applicable. Of course, not all suggestions will add value to the model, so it is important to seek alternative options to be sure voices are heard and concerns are addressed. Once the model has been revised, communicate these changes, and give credit to the faculty, chairs, and committees that made the suggestions. If feedback is not implemented, be upfront with the community and share alternatives in a public forum. This approach will increase community ownership and reflect a partnership that does not always exist between faculty and administrators.

Although time consuming, the effort described above is critical for developing a shared understanding of the detailed approach being undertaken to understand academic costs at the institution. Institutional leadership that develops these cost metrics in isolation from the faculty do so at their own peril for two primary reasons. First, faculty are the best source of information for establishing an academic cost framework, as they are keenly aware of the work they do and the anomalies existing within the institutional information systems. Second, and perhaps more importantly, leaving faculty out of the development stages suggests a lack of transparency and does not encourage academic cost stewardship expertise where it is needed most—with the faculty. Figure 10.1 provides an overview of the most common cost and revenue drivers used to establish a comprehensive approach to developing an academic cost stewardship framework necessary for academic departments, schools, and colleges to make informed and strategic decisions benefitting both the discipline and the institution.

Figure 10.1 Academic Unit Cost Drivers

Now that the institution has established and shared a holistic cost framework focused on direct expenditures and tuition revenues, the next step is to consider the alignment of this framework with the institutional budget planning cycle. We will consider this in the next section.

Key Points

• An emphasis on developing an academic cost framework for integrating faculty effort and financial resources is needed.

• Faculty effort variability and its alignment with learning outcomes and institutional goals are crucial.

• Financial resources should be categorized as direct expenses and aligned with the academic units consuming these resources.

• Transparent communication and feedback in the decision support phase are vital for community ownership and continuous academic cost framework development.

• The decision support phase emphasizes transparent communication, feedback, and adjustments to ensure community ownership.

Exercise for Provost, Senior Academic Administrators, Faculty and Staff Leaders

We often find that the activities for quantifying faculty effort and introducing financial resource allocation methods present a significant learning curve for both faculty and staff. In fact, this is the area where many academic cost stewardship initiatives become delayed or break down entirely. To address this, I suggest undertaking the following activities prior to the work being conducted so that faculty and staff have the opportunity to ask questions, address concerns, and reflect on the process.

1. Data Validation Workshops – Organize workshops in which faculty and staff members work together to review and validate the data being used in the new decision support system. This can include verifying faculty effort data, financial resources data, and the accuracy of data points retrieved from relevant information systems. These workshops help ensure that the data are accurate and reflective of the actual situation in different academic departments, and they create a cohort of expert faculty that their colleagues can reach out to with questions or concerns.

2. Policy Review and Update Sessions – Conduct sessions to review and update policies related to faculty effort and financial resource allocation. These sessions should involve faculty members, academic department chairs, and administrative staff. The goal is to clarify existing policies, identify areas of ambiguity, and update policies to reflect current practices and institutional goals. This helps in creating a more transparent and consistent approach across the institution.

The successful implementation of these strategies is crucial for enhancing the efficiency and transparency of faculty effort quantification and financial resource allocation in the institution. By proactively addressing the challenges through data validation workshops and policy review and update sessions, leaders can significantly reduce the likelihood of delays and breakdowns in this academic cost stewardship project. It is imperative these steps be taken to foster a collaborative and well-informed environment among faculty and staff. Therefore, it is essential for key stakeholders to actively engage in these activities, embracing the opportunity for dialogue, learning, and improvement. The collective commitment to these efforts ensures the institution is equipped to navigate the complexities of resource management in an ever-evolving higher education landscape.