“Free college for all” was often in the news during the presidential campaign, and questions about the affordability of college can be expected to loom large whether any such proposal is enacted or not. There also will be new demands for accountability and transparency in the management of teaching cost. Colleges and universities mostly were successful in fending off previous demands. They argued that the needed data can’t be obtained, and that the use of incomplete data would produce bad decisions that undermine quality education. We can expect the Trump administration to double down on the demands for cost management and accountability, and not be inclined to take “no” for an answer.
Chapter 4 of Reengineering the University introduces a methodology for getting good data on teaching cost, and doing so in a way that helps colleges and universities maintain or improve quality as well as contain cost. The methodology is “Enhanced Activity Based Costing” (E-ABC), which uses data from a school's existing systems to describe teaching activity and calculate costs, revenues, and margins at the level of individual courses. The course-level results from E-ABC are rolled up to departments and degree programs, with overhead costs being added, or not, depending on the decision problem to be addressed.
E-ABC has been described as a "game changer." The breakthrough concept is to integrate academic decisions about course and program offerings, course configurations and class-sizes, and personnel and facilities usage with commensurate financial data. The approach bridges the gap that exists between academic and financial officers in many institutions. Joint use of the new data improves resource allocation and, importantly, encourages conversations among deans and faculty about more cost-effective teaching solutions. It also helps schools demonstrate their cost containment record to external stakeholders, and to predict the cost of proposals like “free college for all.”
Bringing data on academic activities together with that for costs, revenues, and margins solves the often-encountered problem that cost-cutting or margin enhancement will trigger a "race to the bottom" in teaching and learning quality – a race that can skew course and program offerings and lead to larger class sizes, more use of adjunct teachers, and heavier faculty teaching loads. Reengineering takes an additional step, however: it addresses the fundamental problem of how to balance soft subjective judgments about mission contribution with hard objective financial data. The solution is laid out in terms of well-grounded economic theory as well as practical and readily accessible methods for balancing mission with money.
Other chapters in Reengineering address the academic business model of not-for-profit universities, new concepts and technology-based approaches for the improvement of teaching and learning, modern approaches for developing effective and sustainable financial plans and budgets, and advice on how to get needed change processes started on one's own campus. The latter question, in particular, will be of interest to governing boards and oversight bodies as well as to the many university presidents, provosts, deans, financial officers, and faculty who can be expected to benefit from the specific solutions provided.
William F. Massy, a higher education consultant, is professor emeritus of education and business administration and a former vice president and vice provost at Stanford University. The author of Honoring the Trust: Quality and Cost Containment in Higher Education, he is the former president of the Jackson Hole Higher Education Group. His latest book, Reengineering the University: How to Be Mission Centered, Market Smart, and Margin Conscious, is available now.