Colleges and universities provide a setting for the contemplative life. The word "school" is derived from the Greek schole, meaning leisure. Efficiency is not always prized on campus, and this spirit has translated to fiscal matters. Bowen (1980) captured the spendthrift philosophy of higher education in his "revenue theory of cost": "Each institution raises all the money it can" and "spends all it raises" (p. 20).
College costs have escalated for reasons rooted primarily in organizational culture and market forces. Institutions of higher education often have defined quality in terms of resources acquired rather than results achieved (Guskin,1994; Lovett, 2005). Colleges and universities have survived profligacy through monopolistic competition, achieving sufficient differentiation from other institutions by geographic location and programs (Bowen, 1980). But high technology, which supplies the capacity to deliver academic programs at a distance from the physical campus, is eroding the product differentiation so long enjoyed by traditional colleges and universities.
Pressures to Control Costs
The pressure on institutions to control costs has likely never been greater. Tuition at four-year public institutions in the 2003-04 academic year increased at the highest rate in three decades, an average of 14 percent more than the prior year (Farelle, 2003). State appropriations to public colleges and universities fell 2.1 percent from the 2002-03 fiscal year to the 2003-04 fiscal year--the first decline in 11 years (Hebel, 2004). Colleges and universities, particularly private institutions, are only now recovering from endowment losses in 2002. The National Association of College and University Business Officers' study of endowment for that year showed that institutions of higher education lost 6 percent on their investments, marking the first time investments had declined for two consecutive years since 1974 (Lyons, 2003). In company with other employers, colleges and universities struggle with the escalating cost of health care for employees. Health insurance premiums rose 13.9 percent in 2003, the third consecutive year of double-digit increases (Basinger, 2003).
Barriers to Cost Control
Institutions of higher education confront many barriers to cost control. Perhaps the most basic impediment is poor cost information. Progress toward improved costing for higher education was advanced in the 1970s by the work of the National Center for Higher Education Management Systems (NCHEMS), but the cost systems proposed by NCHEMS largely were abandoned in the affluence of the 1980s (Turk, 1992). Day (1993) noted "no general consensus on costing methodology in higher education" (p. 13). Even now internal management reports focus on salaries, travel, and research costs, and generally ignore such indirect costs as facilities and administration.
Higher education is also a labor-intensive endeavor, making gains in productivity more difficult and exposing institutions to the spiral of benefit costs. Moreover, consensus management continues to pervade academic administration and bring inefficiency to the decision-making process (Zemsky and Massy, 1990).
Strategies for Cost Control
Various strategies are suggested for cost control, arranged according to the context of administration, instruction, and athletics.
Administrative Costs
1. Outsource functions that are not core competencies, especially vending, dining, and bookstore operations.
Outsourcing is common in institutions of higher education, but its adoption by colleges and universities has been documented less than its acceptance in business organizations. Dining operations and bookstore operations were generally the first functions outsourced by higher education institutions (Nicklin, 1997). Colleges and universities tended to outsource dining and bookstore operations because the institutions lacked the special expertise necessary to perform these functions (Abramson, 1994).
Large public institutions usually operated their own food service, but in recent years, a trend toward the outsourcing of dining operations has been observed among these institutions. The decision to outsource dining operations at large public institutions has been driven primarily by financial reasons. For example, contractors often have provided capital to assist in the renovation of dining facilities, projects long deferred by the institutions (King, 1997).
