Cost Cutting and Performance Management


By Lauren Weddell

The annual Higher Education Accounting Forum was held in Denver, Colorado. Representatives from public and private colleges and universities as well as national and regional accounting firm representatives were in attendance. Unsurprisingly, many of the sessions focused on the challenges associated with managing university resources and public expectations in a tough economy. While there was some discussion around recent accounting, tax, and federal legislative updates as well as an update on the Not-for-Profit (NFP) Advisory Committee’s progress around the NFP reporting model, roundtable discussions and breakout sessions often reverted back to rising tuition, decreased federal and state funding and cost-cutting measures.

Cost-cutting case studies were presented by two large private universities. The institution’s objectives were to cut costs while maintaining the organizational culture of their institutions. The steps taken at both institutions involved engaging the right people in the project, soliciting a wide range of ideas from many individuals for ways to increase revenue or decrease costs, exploring all the options presented, communicating with their constituents and measuring and monitoring success during the implementation of the options. Cost-cutting measures included, among others, evaluating open positions to see if they were still needed, early retirement programs, limiting overtime, leveraging of institutional contracts and pricing, implementation of a 403(b) eligibility waiting period, verification of dependents covered by the benefit plans, reducing or eliminating the frequency of non-mission critical services (for example, mail service, grounds keeping or custodial services), implementing temperature controls on campus. As a result of implementing a combination of these programs, one school estimated that they will save approximately $20 million and $40 million or 2% to 4% of their annual budget. The second university estimated that they will achieve $60 million in annual savings.

Reaching long-term success and goals while improving rather than sacrificing near-term performance dominated discussions on performance management. Making a significant change can’t always be done overnight, and it may be necessary to implement steps slowly over time and even find alternative choices to get you there. You may know where you want the end result to be, but at the time, the funds or maybe even the support from executive management is not there. As a result, it is often necessary to think outside the box. One of the speakers used the example of how an iPhone was not meant to be a flashlight but is often used as one.

Implementing change requires collaboration and buy-in throughout the entire organization. Colleges and universities are often decentralized, and individual departments focus on their own budgets or needs, so it is imperative to engage the right people in discussions so that there is management support and empowerment of employees to become leaders and effective change agents.

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