2 long-term planning exercises to prepare for future revenue threats

Higher education institutions’ futures are increasingly uncertain. But higher education leaders are not powerless bystanders to these external events. Finance leaders, in particular, are critical to anticipating these future scenarios and preparing their institutions to respond.

To plan for future risks, all finance teams should consider two exercises: First, building scenario-based financial models and second, facilitating scenario planning workshops.

1. Model the financial impact of potential revenue threats

Scenario-based financial models are powerful tools that help leaders control their institutions’ destinies. They allow finance leaders to anticipate the financial impact of known, likely, and unlikely future events—and to educate boards and cabinets on the gravity of those events occurring. But by Kaufman Hall’s estimate, only 19% of higher ed institutions regularly perform this type of analysis.

Leaders at Stevens Institute of Technology credit scenario-based modeling with helping them prepare to respond to enrollment risks. More than half of Stevens’ enrollments are graduate students from India and China. This international enrollment saturation creates significant revenue risk. When recent political events elevated the risk to the board’s attention, Stevens’ finance team built a model to help them understand the magnitude of the risk and develop a mitigation plan. The model used what-if scenarios and sensitivity analyses to demonstrate the impact of one or both markets faltering. Ultimately, the finance team estimated that for every one lost international enrollment, they’d need to enroll 1.5 new undergraduate students.

Stevens Institute of Technology – International Recruitment Shortfall Modeling Exercise

Without quantifying the risk, campus stakeholders didn’t understand the gravity of the potential fallout. The numbers were a rude awakening. They prompted leaders to plan, so they could act quickly to recover if these enrollment events unfolded.

2. Workshop the impact of revenue risks with senior leaders

Some finance leaders are also facilitating scenario planning workshops to plan for future revenue risks. In these sessions, academic and administrative leaders convene to discuss a handful of potential future scenarios that would affect institutional sustainability.

The graphic below illustrates how leaders at a private research institution in the Midwest conducted such a workshop. The CBO, President, and VP of Enrollment Management brought together 38 leaders and board members to discuss four hypothetical scenarios related to pricing, financial aid, and local competition. Stakeholders discussed the scenarios in small groups and then shared out ideas with attendees more broadly.

Even if the discussed scenarios never occur, leaders benefit from deliberating over them. They may choose to implement some of their ideas anyway, and the “doomsday” nature of the discussion may be the spark needed to prompt necessary changes to institutional policy and processes.

Customizing scenario planning exercises to your campus

Whether you build quantitative models or host qualitative discussions to plan for future uncertainties, a key first step is determining which scenarios to consider. To help you get started, we built out a list of the most common scenarios modeled in higher education (on the left of the graphic below) and a starter list of assumptions to incorporate (on the right). Finance leaders should consult external research and historical results when making assumptions and should check their reasonableness with relevant subject matter experts, such as advancement leaders for assumptions about alumni giving rates.