Higher education institutions face significant challenges in adapting to a rapidly changing landscape. These organizations often lack the inherent capacity to plan effectively for the long term, as the speed of change outpaces traditional approaches. This underscores the need for a robust financial framework that not only elevates the impact of changes, but also enables leadership to test and refine their strategies. Such a framework fosters a shared understanding among stakeholders and supports agile decision-making. 

The challenges facing colleges and universities are manifold: workforce pressures, inflationary impacts, declining state and federal funding, shrinking pools of prospective undergraduate students, and decreasing graduate enrollments.  

These pressures demand a proactive and data-driven approach to institutional planning. Leaders at Lehigh University recognized this need when pursuing ambitious growth goals more than five years ago. 

The private research university in Bethlehem, Pa., faced limitations with its financial planning tools. Its custom-built strategic financial planning solution was inadequate for guiding senior leaders in their decision-making as the parameters of strategy changed. Moreover, reliance on Excel spreadsheets to manage budgets led to inefficiencies, including formula errors, inaccuracies, and time-consuming manual processes for calculating totals and evaluating budget requests. These issues highlighted the importance of adopting modern, integrated solutions to enable more effective and responsive planning 

Searching for a better solution 

Lehigh’s finance leaders wanted a comprehensive strategic financial planning solution that would allow them to streamline budgeting processes and draw data from various source systems. They also wanted the ability to project the impacts of multiple strategic initiatives to help determine how best to navigate current and future challenges. They opted to implement Strata’s AxiomTM Strategic Financial Planning (SFP) solution. 

The ability to model various scenarios allows the Lehigh University finance team to show university leaders the long-term impacts of different trends or strategies, said Jim Quinn, the university’s director of financial planning and analytics. For example, they can project the financial implications of a 3.5% versus a 4.5% tuition increase, a 5% rise in student aid, or a 10% increase in student retention — all of which would have significant impacts on the university’s bottom line. 

The goal is to assess financial risk for the institution, and to develop effective strategies to mitigate that risk. For example, when a previous university president wanted to cap annual undergraduate tuition increases at 3.75%, scenario modeling showed that such a strategy would cause the university to incur unsustainable losses in future years.  

“That modeling convinced them that we were going to need higher undergrad tuition rates, and that we were going to have to work a lot harder on student retention,” Quinn said. “We’ve learned quite a few lessons over the last few years. The SFP model has been a tremendous help.” 

Preparing for the demographic cliff 

More recently, Lehigh University leaders used Axiom SFP to project multiple scenarios and potential strategies for addressing the demographic cliff, which refers to a drastic decline in the number of potential incoming college freshmen due to lower birth rates. The underlying assumptions built into Lehigh’s model include a downward slope in tuition rates and an upward slope in discount rates, as university officials anticipate they will have to slow tuition growth and offer more financial aid to compete for a shrinking pool of potential students. 

“We all know the demographic cliff is coming, it’s practically upon us,” Quinn said. “Fertility rates have continued down, and there are going to be less and less high school graduates coming in as an option for all universities, so we’re all going to be competing for those dwindling numbers of students.” 

The analyses projected significant future shortfalls for the university, which historically was heavily dependent on undergraduate enrollment. Undergraduate tuition and room and board accounted for as much as 70% of the university’s revenues. It became apparent that Lehigh would need to increase revenue in other areas to fill those gaps, so university leaders took a hard look at their graduate-level programs. 

“When we analyzed our past and where we stand today, we saw that our graduate program has really floundered for about two decades,” Quinn said. “We have fewer graduate students than we had in 2000.” 

Meanwhile, external benchmarking data revealed that other institutions were able to grow their graduate programs over the same period. As a result, Lehigh implemented an ambitious goal to triple enrollment in its masters-level programs and double enrollment in its doctoral programs in coming years. 

Online students are expected to make up about 75% of the growth in graduate enrollment, which requires a significant expansion of the university’s online learning division. By growing Lehigh’s graduate and executive-learning programs, the institution hopes to counterbalance declining demand in its undergraduate programs and rising costs, such as the need to provide annual raises to retain faculty and keep pace with inflation. 

“You’re not going to cut your way to success,” Quinn said. “Expanding our revenue is our only option. We have been using the SFP model to analyze what it would require on an annual basis. Without the model, we wouldn’t have been able to identify what growth rates we need to achieve those goals.” 

Building greater accuracy and agility 

Using spreadsheets to build a budget and model different strategies under the old system was cumbersome and more vulnerable to human error. Modeling different scenarios — such as the impacts of rising electricity or food costs — could take days and there was no good way to double check the model if something was missed. 

The Axiom SFP solution allows Lehigh’s finance team to be more efficient, more accurate, and more responsive to inquiries from trustees and other university leaders. Finance can provide analysis with easy-to-understand charts and graphs that quickly and clearly convey crucial information to stakeholders. 

 “With this model, we can make tweaks within about half an hour and have outputs I can give them right away,” Quinn said. “With a spreadsheet, it can get pretty complicated. If I did this all in Excel, it could take days or sometimes weeks.” 

From a budget perspective, Axiom SFP allowed Lehigh’s finance team to integrate existing strategic planning documents during implementation, including actuals from the past five years. That meant the team could build a new budget based on reasonable assumptions, without starting from scratch. 

It also allows them to draw data from various sources, such as the university’s enterprise resource planning and student data systems. Axiom SFP provides a central location to analyze data from across the institution. Leaders gain visibility to various dynamics at play to help inform decisions, ranging from high-level strategic planning to more granular, unit-level planning. 

“We have used the model to help senior management make more informed decisions,” Quinn said. “Having the ability to quickly model and change assumptions on the fly is increasingly essential. It allows us to change and adapt as the world around us changes.” 

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