Optimizing Resource Allocation for Teaching
An experiment in activity-based costing in higher education
University of California Riverside
How can a cutting-edge university continue to deliver a superior education to a growing student population, in an era of reduced state funding? That is the question leaders of the University of California, Riverside (UCR) are actively seeking to answer with innovative new approaches today – and it is the reason that UCR’s Provost and CFO joined forces to implement an Activity-Based Costing (ABC) pilot initiative. ABC has emerged as a promising tool that introduces the potential to inform decisions about where and how to invest in order to better serve the needs of students – a way to answer the critical question of how best to deploy resources (people and funding) to achieve the educational mission. ABC is already a widely used practice in the business world, but has so far been used sparingly in higher education – primarily in Australia. At the same time, many leading thinkers in higher education have begun to advocate its adoption in the U.S.
This whitepaper serves as a final deliverable to the Bill and Melinda Gates Foundation (Gates Foundation). It documents the experience of designing and implementing the activity-based cost (ABC) management models at Johnson County Community College (JCCC). The whitepaper is intended to be a supplement to the University of California – Riverside (UCR) whitepaper – and is thus designed to compare the model development and implementation experiences at JCCC with those detailed in the UCR whitepaper. As a pilot project, lessons learned by JCCC may also benefit other community colleges in understanding the process undertaken to create and implement a cost management model.
Experience-based approaches for seizing opportunities and addressing challenges: Grant Thornton’s sixth annual State of Higher Education report. Of particular interest is Implementing Cost/Revenue Modeling for Meaningful Decision-Making. The paper introduces a way to gain a better understanding of business operations—the interlacing relationships among costs, revenues, activities, courses, programs, etc. The institutions most likely to succeed in this respect will effectively assess how their use and allocation of resources – such as facilities, class size and academic workloads – contribute to financial sustainability. All of this can be implemented in Pilbara Group’s modelling software and we are working closely with Grant Thornton in the United States.
Anyone concerned about how colleges and universities can remain viable, and indeed thrive, in the face of today’s many challenges should read this paper carefully. The ideas are profound and the recommendations are potential game-changers that challenge the conventional wisdom. They will help institutions transform themselves—in ways appropriate to twenty-first-century values, market conditions, and technology—to become better and more innovative.
Cost Structure of Post-Secondary Education
Maria Anguiano, Senior Advisor
Bill and Melinda Gates Foundation: Post-Secondary Education Success
A Guide to Making Activity-Based Costing Meaningful and Practical
The higher education industry and its observers have wrung hands over rising costs for years. While there are many reasons for escalating costs, there is at least one that higher education leadership has complete control over and could start addressing immediately. The fact of the matter is, there is almost a complete lack of visibility on how much it actually costs to deliver post‐secondary education and how those costs compare with the outcomes achieved. While the “measuring higher education outcomes” portion of the equation has been receiving growing national attention, the “cost to deliver” portion of the equation has received much less attention. Both issues must be addressed. Accurately measuring costs and comparing them with outcomes is one of the most important strategies that can be pursued in transforming the economics of higher education.