Higher education institutions are experiencing one of the most tumultuous times in recent history. First, the pandemic forced universities to completely change how they operate, and then came the impending demographic cliff and market pressures.
A recent survey of college and university financial leaders found that financial leaders ranked enrollment as their top issue followed by labor costs and inflation. Even with the many challenges, the report found that a majority of finance professionals (85 percent) said their universities should be doing more to leverage financial data to make better decisions.
Even though financial planning was turned upside down by enrollment declines, rising labor costs, recruitment challenges, and inflation, the pandemic created some opportunities for higher education.
Because institutions had to operate on tighter budgets, colleges and universities had to identify the gaps in their financial plans and rethink how digital transformation could improve their financial health. Despite these challenges, the report’s data found that nearly nine in 10 financial leaders are confident their organizations will remain stable over the next five to 10 years. This was a moment in time for higher education institutions to embrace the future of technology by exposing their outdated legacy systems and choosing to drive change in their organizations with scenario modeling.
The need for long-term planning + scenario modeling
As a method of strategic financial planning, scenario modeling enables finance leaders to mitigate risk and prepare for volatility. Market pressures caused by inflation and rising interest rates bring to light to the need for establishing a long-term financial plan. As all higher education institutions face future uncertainties, scenario modeling enables leaders to quantify the financial and operational implications of change and analyze a range of possible outcomes. In the aforementioned report, data showed that financial professionals believe tuition and financial aid would benefit the most from improved data analytics and long-term financial planning.
The process involves identifying the key drivers of change for an organization, calculating an array of projections based on scenario modeling for potential variations in performance for one or more of those drivers, analyzing the results, and then determining how best to apply those results to the organization’s long-term financial and strategic plans.