Last month the Office for Students (OfS) published its November update on the “Financial sustainability of higher education providers in England”. Halpin Consulting Fellow Will Spinks outlines why it is essential reading for anyone trying to understand the generic financial challenges and risks that the English Higher Education sector is currently facing.
If you’re a member of a university’s governing body, however, what does it suggest to you that you might need to do to help manage your Higher Education Code of Governance commitment that “there is an effective and proactive system of risk management in place by which risks are rigorously assessed, understood and effectively managed across the organization”?
OfS had previously been concerned that, in aggregate, “providers’ financial forecasts were based on predictions of student recruitment that were too optimistic”. In this update, they state, “The latest information indicates that, overall, UK and non-UK student recruitment are significantly below the sector’s previous expectations ……….. Based on our latest modelling we estimate UK undergraduate entrants to be, in aggregate, 10 per cent lower than the sector’s forecasts for 2024-25, and non-UK entrants to be 23% lower than those forecasts. It is clear that the financial context for the sector is becoming even more challenging”.
The impact of these changes differs significantly depending on which part of the sector you operate within.
Size (and brand strength) matters. Large research-intensive institutions have been able to grow UK undergraduate acceptances by 10% despite having indicated in their OfS submitted a plan that they expected to be broadly flat. Medium and smaller-sized institutions have seen their acceptances fall (by 5% in the case of smaller institutions) despite their intent to grow them significantly. The large research intensives have decided to manage their immediate financial challenges by seeking to grow home undergraduate numbers to offset declining international applications and are succeeding in doing so.
Whether this works in the medium term – and what it means for smaller and medium-sized institutions that were planning on growth to balance the books – are very much open questions. Hardly surprising, therefore that, ignoring the caveats, the headline message that was picked up was of “up to 72 per cent of providers being in deficit, and 40 per cent having low liquidity” by 2025-26.
So, how is your institution going to manage your way through these difficult times?
According to the OfS providers cannot rely on future growth in student numbers to balance the books. Instead, they expect that “many providers will need to take increasingly bold action to address the impact of these challenges” not only preparing for the transformation required but delivering it in practice and appear concerned that “cultural and other barriers in the sector may deter institutions from considering some of these options”. They want you to get moving if you haven’t already started.
So, what do you need to do?
I’m not a big user of AI tools but I thought I’d use ChatGPT to see what it might come up with. This was based on a prejudice that the challenge for institutions might not be in trying to work out what the intellectual challenge might be but may be more in their ability, as the OfS implies, to put whatever they conclude into practice. Sure enough, ChatGPT, in less than a second, came up with a credible, albeit generic, ten-point plan as to how to go about it.
As an aside, why is it always a ten-point plan? – according to Chat GPT itself “It’s a balance between thoroughness and brevity. Ten is enough to provide depth, but not so many that it becomes too long or tedious. It’s kind of like the ‘golden number’ for structure—complete, but digestible.”
Key points included (I’ve limited these to five):
- Clarity of Governance Structures and respective roles: Universities should have clear, transparent, and well-defined governance structures, with distinct roles and responsibilities for the Board of Trustees, senior leadership, faculty, and other stakeholders.
- Focus on Risk Management: Establishing or enhancing risk management and financial oversight processes and structures that provide the governing body with assurance that financial risks are systematically identified, assessed, and managed.
- Long-term Financial Planning: Including using scenario planning, which considers multiple possible futures.
- Cash Flow Management: Effective management of cash flow is crucial. Ensuring that there are sufficient reserves to meet short-term obligations, particularly in times of revenue uncertainty and unexpected expenses, to avoid liquidity crises.
- Expense Control and Efficiency: Universities should continuously assess and control operating expenses and seek to implement cost-saving measures. (The suggestions included shared services, administrative streamlining, efficient procurement and technology investments among other things. I think someone else may have been asking ChatGPT the same question…..).
So, what are the practical challenges of putting these concepts into practice that might help individual institutions respond better to the challenges they face?
Real-time data – Institutions have historically relied upon lagging indicators of performance concerning the attraction, recruitment and retention of students. Many have struggled to find real-time leading indicators of indicative performance and turn these into useful models that can influence decision-making. Some are now doing this very well. Do you know how your institution is responding to this need?
Leadership capability – inevitably, as the external environment becomes more challenging, you begin to find out how capable your leadership team is, collectively and individually, in leading in more difficult times. What support do they need and is this being provided? Are there obvious weaknesses that need to be addressed? Who is ensuring this is being done?
Relationship between the executive and the governing body – Is there an environment in which real issues can be surfaced and discussed? Are these discussions taking place outside of full governing body meetings? In committees? More informally?
Agility in decision-making processes – where institutions are responding best to the immediacy of changing external pressures, there is evidence of adopting more agile processes, appropriately delegated, to respond. How is this being dealt with in your institution? Fully delegated to executive leadership or inclusive of some more agile involvement of governing body members?
Relationship between Leadership and the wider institution – Where significant change may be required across the institution, whether it be in academic or professional services processes or structures, how credible is the leadership team in being able to carry these through? Is there a common vision for the future? Is there dissatisfaction with the present state? Are the practical first steps to be taken agreed upon?
There aren’t any simple answers to these questions on ChatGPT I’m afraid.You’ll need to work out which are the most important for your specific institution, find the answers and seek to put in place the necessary actions.