In the life of an institution, the chief financial officer helps drive the big narrative, but also digs down into the day-to-day. A CFO is strategist and analyst, decision-maker and inspirer, and protector and possibility-seeker all in one.
We connected with four CFOs from institutions public and private, large and small, to talk about the shifting opportunities and expectations of their positions. Read on to hear from Nim Chinniah, executive vice president for administration and chief financial officer at the University of Chicago; Jamie Moffitt, vice president for finance and administration and CFO at the University of Oregon; Glenn Carter, associate vice president for financial administration at Walla Walla University in Washington state; and James Mello, assistant provost for academic administration, budget and planning at the University of Hartford.
As Peter Drucker said, “If you can’t measure it, you can’t manage it.” What are some of the metrics you prioritize in your work? What metrics would you add to the list, if you could?CHINNIAH: From a senior management perspective, we focus on the key drivers of financial performance, such as fundraising, endowment performance, federal support, and expense levels. And, though financial metrics are critical to the responsible financial stewardship of the university, we also must make leadership decisions with an entirely different set of measurements in mind that focus on our institutional eminence, the quality of our teaching and research environment, and our impact around the world.
(Related UBTech presentation: Collaborative Efforts Increase ROI)
MOFFITT: We pay attention to a number of financial metrics related to our fund balances, cash balances, and our debt position. Because of the recent student growth we have experienced on our campus—20 percent in the last five years—we are also extremely focused on metrics regarding how quickly we are building our human and capital infrastructure to support that growth, such as growth of our tenure-related faculty and number of new classroom seats added with each capital project.
CARTER: We prioritize the Composite Financial Index (CFI), which helps evaluate the overall health of the institution and enables us to evaluate proposed major institutional initiatives. We also prioritize: net tuition revenue, which is important at a time of increased competition for students; operating gain, as we expect operations to provide funding for strategic initiatives and to address deferred maintenance; student/teacher ratio, which is a good base indication of the efficiency of our delivery; and working capital, since having a target level of resources in reserve provides a buffer and helps us remain disciplined.
MELLO: We have begun to utilize performance indicators for our academic units that focus on financial and outcomes-based performance. Our success is found in our students’ successes and that comes through learning and degree completion. A measure such as cost-per-degree-granted helps us integrate cost figures, a positive student outcome, and an acknowledgment of efficiency.
As a planning tool, it is important for our leadership not to become overly absorbed or distracted by chasing a certain number of any one of the performance indicators. As a private institution, we do our share of monitoring enrollment figures and managing budgets accordingly. Enrollment serves as the start of the formal learning process. It’s important that our performance indicators provide us true measures of performance, not just quantity of inputs and outputs.
How do you promote an environment of smart decisions on resource allocation?
CHINNIAH: With limited resources, the focus is on the strategic priorities of the university. I devote a great deal of time to engaging with my team to articulate the ways in which their work is meaningful and advances the goals of the university.
MOFFITT: We’ve worked very hard over the last few years to implement new processes around the allocation of resources. We’ve implemented an RCM [responsibility-centered management] budget model for our schools and colleges, and a new structured budget process for central departments. We also have a set of new, more holistic processes to consider how we allocate other valuable resources such as space, fundraising efforts, and requests to our legislature for capital resources.
In my mind, there are a few critical principles that must be followed to make smart resource allocation decisions. These include establishing processes that enable the institution to:
• Assess resource investments on a side-by-side basis so that opportunity costs can be considered;
• Include a cross-functional group of individuals;
• Collect relevant data and information on the front end(e.g. total cost of an investment); and
• Consider how resource allocation decisions align with strategic goals and priorities.
I think communication is the key. We try as best as possible to communicate to all stakeholders the rationale and principles behind any process changes. CARTER: The process of promoting effective resource allocation begins with building relationships across the campus. They open doors for discussions about strategies and how collaboration between departments can better answer questions that no single department can.
Where are you realizing cost savings? And, where would you like to see more investment?
CHINNIAH: We have consolidated our purchasing power and aggressively negotiated contracts in areas from dining services to benefits to information technology. In this period of cost savings, we are also leaning heavily on our talented staff members to do more with less without compromising a high standard of performance. We have reorganized the areas in finance and administration to have a service focus to campus and have implemented process changes to be more nimble and efficient. We must find ways to invest in and support the teams we have built.
CARTER: We are looking for cost savings in several areas, including the following:
• We are investing in energy efficiency initiatives, and using subsequent year savings to fund yet more initiatives.
• We are looking at a variety of operational areas to see where we can apply operational improvement concepts to improve the effectiveness of our operations while lowering or maintaining costs.
• We are looking at blended instructional modalities to see how these may provide cost savings.
I’d like to see additional investment in assessing various instructional modalities. By testing several options we can generate the data needed to evaluate which best meets our challenges, and will also have experienced faculty who can be champions for a larger rollout.
The warming economy means real estate and other costs will likely rise. How does that affect your strategic financial plans?
CHINNIAH: We are fortunate in that, over the past five years, we were able to continue with our capital plans, and took advantage of lower costs of construction and real estate. Every capital project had a direct tie to the strategic plan, so there was confidence to continue capital investment during a difficult economic period. We were also able to continue with investments in other strategic priorities, such as faculty expansion, with economic conditions providing opportunities for attracting significant talent to the university. With the improved economy, we are moving forward with our major fundraising initiatives, which support continuing investments in these strategic priorities.
MOFFITT: In the future, I expect we will be able to alter our strategic financial plans to react more nimbly to changes in the economy. This past month, the Oregon Legislature passed legislation that provides for an independent governing board for the university, and increased authority to issue debt, manage our financial assets, and enter into a broader array of financial arrangements. In the past, we have not had the independent authority to react as quickly to market conditions as we would have liked.
CARTER: The current economy brings challenges because many prospective students are from families that are still feeling or recovering from the pain of the economic woes. There are other impacts related to the number of potential job candidates and whether they can afford to make a transition, but improving economic conditions bring benefits as well.
MELLO: I think leaders at any institution would welcome the challenges associated with a warming economy as long as the institution is able to continue to clearly communicate the value of higher education. The potential for increased real estate costs may be balanced by cost reductions in technology. The advances in virtual teaching and learning are challenging us to re-imagine our campus spaces. In some cases, the whole idea of space is changing and the previously assumed cost and maintenance estimates no longer properly inform campus planning and decision-making.
These days a chief financial officer in the corporate world is often expected to know and do more—to be both attentive to the small details as well as strategic about the big picture. Do you find the role has shifted?
CHINNIAH: While once the CFO was narrowly focused on finance-related activities, now the CFO has an integral role in the development of the priorities of the university. The CFO must support the work of all of the programmatic and administrative functions of the university and its affiliated organizations by establishing himself or herself as a partner who brings value and gets things done. To do this, you must surround yourself with a very strong and knowledgeable analytical team. Particularly in a higher education environment, a CFO brings added value by not being reluctant to take a broad-based approach and bring very different perspectives to the table.
MOFFITT: I’ve only been in the CFO role for 18 months, so it is difficult to draw on personal experience to say whether there has been a shift. I can share that in all of the various positions I have held at the university over the last 10 years, I’ve operated at multiple levels every day. This is one of the things I enjoy most—the challenge of working on a broad range of issues and with a large number of people.
CARTER: I definitely see a shift in expectations for finance professionals. We were seen as technical experts and custodians of the records and resources, and are now expected to proactively seek to identify and promote strategic initiatives which benefit the entire institution. By seeing and understanding opportunities and creatively identifying ways to achieve strategic initiatives, financial leaders can build the level of trust and good relationships needed to promote effective resource allocation in other administrative areas. It is crucial to present these efficiency initiatives within the context of the institution’s vision, to be thoroughly engaged in creating that vision to ensure it is achievable and sustainable, and to see that the requisite resources can be, and indeed are, allocated within the budget process.
MELLO: Particularly at institutions with somewhat flat organizational structures, the blended roles of leader, manager, and processer are displayed continuously. I think that challenge makes for an opportunity for new types and styles of CFO leadership to emerge. Just being an accountant or IT or budget manager is no longer good enough to grow into a leadership role. A CFO really needs to be able to “walk between worlds” and engage academics, auditors, accreditation agencies, boards, and others. For me, it’s not only being a financial officer but truly being a resource officer, encompassing financial, human, physical, and virtual resources that support the mission of the institution.
Caryn Meyers Fliegler, a former editor at UB, is a staffing manager at the nonprofit TNTP.