The college needed infusions to bring critical financial elements back to health. This edition of In the Know celebrates the financial staples that nourish the higher education enterprise and encourages a balanced diet.

Cheers to your institutional health!

Tracy Filosa

The college's extreme circumstances are a reminder of how important a balanced business equation is to the health of an institution. While an institution may withstand a short period of financial disequilibrium, the imbalance must be corrected quickly to halt damaging momentum and avoid demise. Financial stability requires constant vigilance. Leaders must pay attention to vital business components and advocate for appropriate levels of investment.

Building Endowment
Endowment funds are a savings account and insurance policy all in one. An endowment is in equilibrium when its growth outpaces inflation and spending. While performance can vary depending on the size and sophistication of the investment portfolio, a healthy endowment is essential to supporting operations and institutional goals.

Raising money for endowment and spending prudently are financial disciplines that provide enduring rewards. The endowment provides a mechanism to dedicate funds to faculty chairs, scholarships and other mission-critical priorities. Higher education is a multi-generational business. The endowment embodies that time horizon and ensures donors that their investments will have lasting impact.

Maintaining Facilities
Most colleges and universities are building new dormitories, recreation centers, student centers, classrooms and laboratories to attract and retain faculty and student talent and secure funding. These high profile projects are vital to maintaining market share and delivering excellent academic, research and social opportunities. Renewal and replacement efforts for existing facilities don't necessarily get as much attention, but business officers know that these lower profile investments are essential to maintaining financial health. Older buildings are part of the campus fabric and traditions. Structures on historic registries are legally protected and must be preserved.

Whether the institution's investments in physical plant are going toward exciting new structures, or invisible maintenance of existing facilities, the investments are essential. This effort requires vigilance and advocacy. Neglected facilities can quickly shift a campus from charming to blight and compromise programs and enrollment. While it is not always possible to do all the projects in the queue, leadership should commit to a disciplined approach to maintaining the physical assets that house the institutional mission.

Engaging Alumni
If students are not engaged during their years on campus and beyond, they simply become former customers. On the other hand, if they are connected to the institution they become supporters, mentors, volunteers and advocates.

Investments in student services and alumni relations build community and commitment. Engaging students, alumni and future stakeholders cultivates resources and secures ongoing support.

Managing Enrollment
Current and prospective students are reliable barometers of institutional health. If they are matriculating and satisfied with their experience and therefore staying to graduate, then the institution has its health. Academic and extracurricular programs, quality of student and faculty populations, institutional reputation, quality and range of facilities and student services are important to those considering attending. If students are leaving early, or not coming in the first place, then the school should be heeding a warning call.

Pay attention to prospective and current student opinions. It does not take long for discontent to actualize in enrollment declines. Institutional priorities should include student satisfaction and retention goals, fostering an environment of participation and loyalty.

Balancing the Financial Equation
Ultimately the financial statements evaluate the financial health of the institution. A balanced budget demonstrates sufficient revenue streams and disciplined spending. A healthy balance sheet shows a willingness to build resources and access capital markets for sound borrowing opportunities.

When the financial equation is imbalanced the institution relies on drastic, corrective measures. Fundraising campaigns, program changes, expense cuts and outreach efforts can come to the rescue, but these measures take time. Even the most effective turnaround strategies cannot correct years of problems overnight. The consistently balanced regimen is a healthier course for higher education.

Josh Lerner of Harvard Business School and Antoinette Schoar and Jialan Wang of the Sloan School of Management have published an interesting research study about what drives university endowments.

To read an abstract of their research and download the full report, follow this link:

Secrets of the Academy: The Drivers of University Endowment Success »

In a recent Boston Globe article Robert Weisman discusses the endowment study and the performance gap between the elite endowments at a dozen top-tier schools and those at higher education institutions as a whole since the early '90s.

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