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Fiscal Sustainability: Cost Cutting Is Not the Answer

You can’t cut your way to economic prosperity. 

This fact is often overlooked by businesses and other institutions that are struggling to address financial challenges.  Higher education, like many other industries, is undergoing a period of significant transformation.  Market contraction (12 percent since 2011) is leading some institutions to close and others to merge; declining enrollments (34 percent of schools failed to meet Fall 2017 targets) are upsetting the fundamental business model since most institutions rely on increasing enrollments and the tuition revenue derived from them.  Add to these trends shifting consumer behaviors and student demographics, the rise of cheaper and more flexible online educational alternatives, unbundling of the degree, and a greater realization among students and parents of the impact of student loan debt, and you can begin to see why some experts are speaking and writing with increasing alarm about the higher education crisis.  

Cost cutting is just a temporary fix to larger problems and is not sustainable long-term.  It may appear to be the easiest or fastest solution, but in cutting costs you may actually be negatively impacting top-line revenue.  “Death by 1,000 cuts” is a painful way to go, and should be avoided!  

Certainly, it’s important to manage costs and improve efficiency.   However, cost containment and realignment of expenses can be achieved more sustainably through high-level strategic thinking, planning, and action.  Increasing productivity, revising operating procedures, adopting new technologies, assessing course enrollments and program demand, and continuous assessment and financial modeling can produce short and long-term cost savings while also strengthening your institution’s financial position overall.  Innovation and new initiatives are far more likely to improve your institution’s financial health and lower costs than any other options.    

If you’d like to learn more about how AGBIS can assist your institution assess costs and identify cost-saving strategies, please call 202-776-0868 or email info@agbis.org.  We regularly provide free webinars on a variety of business and financial topics as they relate to higher education.   

Chris Moloney, Senior Consulting Associate, AGB Institutional Strategies