The Goldilocks principle: Ensuring your capacity to meet demand is just right
The often-used businesses term “right-sizing” has in recent years become common in higher education. Though sometimes used as a euphemism for “downsizing,” it more rightly refers to an effort to optimize enrollment, human resources, programs and facilities—in other words, fixed costs.
There are a host of factors that should go into the analysis when an institution is attempting to match demand with its capacity to meet that demand.
The list that follows begins with several internal factors to consider—most of which the institution has some ability to control. It continues with external factors, over which the institution has limited or no control.
We can define enrollment capacity as the maximum enrollment attainable without having to add significant fixed costs (variable costs—such as adjunct faculty—can ebb and flow with enrollment). Naturally, fixed costs include the capacity of residence halls, classrooms, laboratories, dining halls, clinical placements and other campus facilities.
An institution must determine if its program offerings match the demand. An institution may consider raising caps on high-demand programs and eliminating or downsizing low-demand programs. Robert A. Sevier, senior vice president for strategy at Stamats, says schools often overlook demand when undertaking a cost assessment. (Stamats’ Academic Program Marketability Assessment can be useful in answering these questions.)
Ideally, you want to measure demand against the number of schools in your region that are offering similar programs. Where there is a gap between total enrolled students in a program and demand for that program, there is an opportunity. While quality of programs is always important, quality by itself does not guarantee student interest.
Closely tied to issues of curricular demand and program mix are questions of cost. Do you know the costs for each academic program? Do you know which programs are the best candidates for growth? Which programs are returning low financial contributions?
The Austen Group’s Curriculum & Cost Analysis and the University of Delaware Cost Study are two services that provide financial benchmarking. Mike Williams, president of the Colorado-based Austen Group, says the Curriculum & Cost Analysis examines demand, cost, revenue and contribution margins for all academic programs—traditional and nontraditional, undergraduate and graduate.
“The analysis captures the organizational nuances and uses course-level analysis to appropriately apportion costs and revenue to each department,” he says.
Institutional leadership can then use this information to make strategic, data-driven decisions based on mission, demand and program contribution margins.
Another way to reduce program cost, says Sevier, is to shorten time to degree. This requires continually evaluating and focusing your core curriculum to minimize the number of required courses. It also means providing the best possible advising so that students can better sequence their courses.
Institutional aid policies
How are targets set for net tuition revenue and discount rate? A given set of merit scholarship or need-based institutional aid policies result in a certain amount of net tuition revenue and a certain discount rate. For an actual admit pool in a given year, these are known quantities.
Alternative awarding scenarios can be tested with econometric models built on several years of data. Models can be used to examine the price sensitivity of the admit pool and project the impact of changes, such as raising enrollment limits on high-demand programs and establishing targeted scholarships for low-demand programs. Such simulations can be conducted within the framework of the price elasticity of the admit pool (and major subpopulations within the pool) to anticipate a group’s response to a higher or lower net price.
The particular mix of students your institution attracts will influence decisions on right-sizing. It is also important to understand the recent trends in applications and yields within each academic program.
If, for example, the goal is to reduce enrollment, then beware of attempts that suddenly increase selectivity. This may seem like a simple solution, but it can backfire without careful communications of your plan to prospective students, parents and high school counselors.
My favorite definition of strategy is “an action that changes your position relative to that of your competitors.’ ” The purpose of strategy is to differentiate your school from your competitors in ways your customers notice and will pay for. Any change you may contemplate making to your capacity, program mix, pricing, aid and other policies must be made from the perspective of your position in the marketplace.
Sizing up the competition
Here are some question to ask when analyzing your competition:
- Do you offer programs not offered by any of your competitors or does your curriculum mirror one or more of them?
- How does your institution rank relative to your closest competitors on price—both sticker and net?
- How well does your price align with public measures of prestige such as SAT/ACT scores, acceptance rate and U.S. News ranking?
- What changes are your primary competitors making in any of these areas—academic programs, aid policies, enrollment capacity?
Of course, one of the best ways to reduce the impact of your competitors is to focus on offering in-demand programs they don’t offer.
- What are Western Interstate Commission on Higher Education’s projections for the number of high school graduates in your primary market?
- Will the changes mean a smaller potential pool of eligible applicants?
- Will there be a shift in the racial/ethnic makeup of your market?
- Are there new markets you could develop?
- What is likely to happen to the demand for your programs? If you work at a law school, you’ve been asking this question for several years and you’re still asking it.
Sevier advises that you should always be developing one or more secondary markets. There is simply too much at stake to focus entirely on one geographic target.
State aid policies
If your students benefit from state aid programs, you should be aware of whether the state plans to make any changes in its programs. Few states are increasing aid; note the recent reductions to the HOPE program in Georgia.
The economy and job market
Since 2008, we’ve seen how the economy affects enrollment and the demand for higher education.
As an economy weakens, the demand for higher education can increase or decrease, depending on the sector. For example, the 2008 recession sent many students who were seeking a four-year degree to community colleges to begin that process at a lower cost.
Any decision to right-size, downsize or reposition an institution should be preceded by a thorough analysis of the internal and external factors at play.
There are many sources of institutional data that can be used to inform the decision and there are a number of outside resources that can be called upon to help interpret the information.
It takes a long time to change the operations of an institution. Before you get that train moving, make sure it’s on the right track.
Bill Berg is an enrollment management consultant at Scannell & Kurz, a RuffaloCODY company.
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