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Culture of Clarity

June 2019

By Michael Wagner and Patricia Spellman

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A Dartmouth College course enlightens campus stakeholders about the institution’s financial drivers and decision-making processes.

Historically, higher education’s management of its finance and operations involved relatively little discussion among the diverse array of stakeholders on campus. By contrast, today’s college and university constituents have a deep interest in the financial condition and operations of their institutions, and they also have greater expectations about providing educated input into decision-making processes. 

At the same time, higher education’s increasingly complex economic landscape—especially since the Great Recession—requires enhanced communication, engagement, and transparency with virtually every stakeholder, both internal and external. It is, therefore, critically important to create a framework for campus conversations about financial principles and operating models to ensure that college and university communities have access to the best information and are prepared to help weather the financial implications of economic, political, and operational challenges that seem endless, interconnected, and pervasive. 

At Dartmouth College, Hanover, N.H., we have invested the time to embrace this need. Soon after Phil Hanlon’s arrival as college president in 2013, he proposed the creation of “Inside Dartmouth’s Budget” (IDB), a course designed to increase the understanding of the college’s business model and the broader challenges facing higher education that would be made available to all Dartmouth students, faculty, and staff. President Hanlon also envisioned the course as an opportunity for constructive dialogue among these community members on topics spanning long-range strategic planning to annual budgeting to ad hoc funding requests for new programs and positions. 

Dartmouth offered the first IDB session in spring 2014, and the course has been offered annually since then, reaching around 350 Dartmouth faculty, staff, and students so far. The impact of IDB has been significant. While financial realities, opportunities, and risks have evolved since the 2008 financial crisis, the Dartmouth community now has a better shared understanding of the college’s operations, decision-making processes, and resource limitations. 

For any higher education leaders considering facilitating important discussions on their campuses about the financial underpinnings of their institutions, an examination of the breadth and scope of IDB, its value and perceived benefits, and its rationale and framework are essential. 

The CBO as Communicator

Every institution’s stated mission likely encompasses broad objectives regarding academics, research, and community service. The sheer complexity and breadth of financial considerations within each of these areas and how each impacts the larger picture of the institution’s overall financial viability can be daunting. Financial considerations may include tuition pricing and financial aid, endowment investment management and intergenerational equity, federal and state funding priorities, investment needed to operate a substantial research enterprise, and long-term obligations and opportunities presented by new facilities and programs. 

In response, your institution likely has embraced at least some elements of enterprise risk management and financial readiness techniques. Depending on the particular segment of higher education in which your institution operates, these might include:

Dartmouth College students, faculty, and staff learn about advancement and financial aid during a spring 2019 session of Inside Dartmouth’s Budget.

While members of our campus communities—students and their families, faculty and staff, program administrators, alumni, trustees, donors, and research sponsors—all have a vested interest in the resource allocation decisions and the financial stability of the institution, understandably many are not experts on institutionwide financial and operational topics. Likewise, our campus constituents may have deep knowledge of the operations and finances from their individual perspectives, but it may be less common that these individuals will have the broader perspective of the operating principles and business model that allow the institution as a whole to navigate competing priorities and economic trends. 

Furthermore, stakeholders in competing or conflicting individual programs designed to support the institutional mission do not always have a mutual understanding of resource constraints and why there may be necessary impacts on their individual programs.

The need to help bring clarity to campus constituents is evident from an internal operational standpoint. In addition, because the public, the press, and federal and state legislators have become more frequent critics of higher education in recent years, restoring public trust in our institutions is also a necessary priority. With a deeper understanding of how higher education works and is funded, individual members of our campus communities can become citizen messengers, conveying information about how education is situated within the broader context of federal and state policies and budget allocations to the citizenry of their own cities and towns. This deeper understanding is achievable in part through a stronger, more consistent dialogue about the sources and uses of institution funds.

Chief business officers—along with chief executive officers, chief academic officers, and other senior colleagues—are often called upon to communicate the need for, and implications of, complex organizational and operational initiatives to the broad range of stakeholders present within any small or large college or university environment. 

More so than in the past, one of the most important roles of today’s CBO and other top finance professionals is to help explain the institution’s operating and financial model to multiple audiences in a comprehensible way. This can be accomplished in part by highlighting those operational and financial features that contribute to achieving individual objectives, as well as the features that may not always make sense from an individual community member’s perspective but nonetheless are important for institutional success. 

The Core of the Course

For the broad overview of Dartmouth’s IDB course content, see sidebar “Tackling Big-Picture Topics and Metrics.” A summary of the general framework of Dartmouth’s course is as follows: 

Lively Discussions

Among the course topics covered, one of the consistently livelier discussions is the business model of nonprofit higher education and how this compares to a for-profit business. During the first class each year, it does not take much more than one prompt to elicit deep and passionate discussion from every participant group regarding Dartmouth’s products, customers and markets, governance, value proposition, sources of capital, and revenue and cost models. 

Dartmouth’s commitment to need-blind undergraduate admissions for domestic applicants and meeting the full demonstrated need for all accepted students encourages a discussion of the cost of higher education relative to other goods and services, and trends in sticker price versus net price over time.

A review of the various budget models employed in higher education leads to a thoughtful discussion of the appropriate uses of incremental budgeting versus responsibility-centered management, as well as the implications of using incentives, cost sharing, and cost allocation in the resource allocation process. The resource allocation decision-making process is brought to life with a subgroup exercise that asks participants to prioritize capital projects from a list of proposals that include renovating academic spaces to create “smart” classrooms, building a new residence hall that also allows existing facilities to be renovated, upgrading life safety systems to comply with federal regulations, constructing a vivarium to provide additional animal research space, or constructing a new parking lot. 

These resource allocation discussions in particular provide an incredibly important avenue for discussing and debating Dartmouth’s core values, the benefits derived from the generosity of Dartmouth alumni, the roles and responsibilities of board members and senior leaders, the role of incentives in the budget process, the allocation of central costs to schools and programs, and Dartmouth’s unique place among American higher education institutions. Other topics addressed provide insights many participants do not typically have access to in their individual roles on campus. These include:

More Than PowerPoint

The IDB course is not a static set of presentations. Since its launch in 2014, the course has continued to evolve, in part due to emerging hot topics in the economy and higher education generally, as well as changes at Dartmouth more specifically. Much of the course’s evolution is also driven by participant feedback. Dartmouth upgraded the course significantly in 2016 when representatives of the school’s instructional design team provided advice on developing specific learning objectives, organizing course content and classroom sessions for adult learners, and integrating advance reading and classroom materials to better serve learning objectives. 

One of the most important and consistent themes of the course since its inception has been a focus on transparency around topics of interest identified by participants. President Hanlon emphasized from the beginning that all voices should be heard, and all questions should be answered fully. 

In addition to the classroom lecture and discussion sessions, the course includes a modest amount of advance reading or viewing of brief videos, deeper-dive case studies on the finances and financial pressures of an individual school or division, a bring-your-own breakfast-and-lunch series to discuss topics in more detail, in-class live polling, use of the Canvas learning management system to organize course materials and questions and answers from participants between sessions, and a glossary of key terms.

Lastly, a panel discussion in the final session that includes some combination of the president, provost, a dean, a senior faculty member, and a trustee is a highlight each year. The panel discussions reflect the impact of the course overall, as participants actively engage with these campus leaders on topics addressed throughout the course. 

Return on Investment

Dartmouth has realized a number of benefits from offering its IDB course. For starters, the course as a means of educating campus stakeholders has improved dialogue in the boardroom and among senior leaders, administrators and faculty, and financial administrators throughout Dartmouth during financial planning and budgeting discussions. The principles described during IDB have also provided constituents with a great framework for evaluating potential new initiatives, such as growth in the undergraduate student body; creation of new programs and institutes; and planning for Dartmouth’s ongoing  $3 billion Call to Lead Campaign, focused on developing solutions and leadership to address pressing global human concerns. 

In the annual review of the IDB program, more than 95 percent of survey participants reported that their understanding of the topics had improved, and more than 95 percent would recommend the course to a colleague. In addition, here are some of the biggest takeaways participants reported in their evaluations:

Among the most gratifying testimonials from participants were these two comments: “I am very proud to be a part of this institution and its values,” and “This has solidified my dream of working as a U.S. senator on the budget committee.”

In addition to participant feedback, the IDB course team members have reported key accomplishments and observations from their involvement:

Extended Gains

The IDB course is one element of a larger Dartmouth College strategy for engaging our entire community in open and ongoing dialogue about institutional opportunities and challenges. Segments of the IDB course materials have been used as the core elements of board member orientation, in discussions with faculty governance and budget committees, in town hall gatherings of faculty and staff, with alumni groups, in finance and advancement staff professional development programs, and as part of an undergraduate student gathering. 

To be sure, campus stakeholders’ expectations regarding the institution’s financial condition and resource allocation have evolved to include a desire for more input, participation, and transparency. As resource constraints are unlikely to loosen anytime soon, it benefits the entire institution to have an informed and engaged community with a common understanding of these constraints, resource allocation principles, and necessary trade-off decisions. 

The continuous learning environment in which higher education leaders operate is ideal for encouraging a healthy and constructive exchange of ideas that make our institutions stronger. 

In fact, as members of institutions committed to learning, asking questions, engaging in conversations, and respecting different perspectives is already in our DNA. While a well-informed community will not always agree with allocation decisions, it will at least have a basis from which to understand the trade-offs and decision-making processes. This shared understanding positions campus community members to become constructive partners in making our colleges and universities stronger, more efficient, and more focused on our key priorities of education, research, and community service.

MICHAEL WAGNER is chief financial officer and PATRICIA SPELLMAN is assistant vice president for finance, Dartmouth College, Hanover, N.H.

Credit: Eli Burakian, Dartmouth College

Related Topics

“A common understanding of the financial framework should lead to a more constructive and collaborative conversation about funding choices and trade-offs among many great ideas competing for limited resources.”

—Phil Hanlon, Dartmouth College president

“To make meaningful change at the college, we first need to understand how finance at the college works, and Inside Dartmouth’s Budget provides one window to meet that challenge.”

—Julia Huebner, Class of 2020, in her opinion column, “Mercy for Administrators,” published May 18, 2017, in The Dartmouth

The IDB course is one element of a larger Dartmouth College strategy for engaging our entire community in open and ongoing dialogue about institutional opportunities and challenges.