The Problem with Departmental Revenue/Cost (non)Analysis

All across the country struggling colleges (and universities) are hiring one of several academic consulting firms to help them get a handle on their finances. The ACTUAL problem the institutions face is low enrollment but this is experienced as "this place costs too much to run" (because tuition revenue is below expenses) and like management everywhere their brains turn to cutting labor costs. In the absence of a vision for what the academic program should look like (or in the presence of an unwillingness to put such a vision on the table), they turn to consultants to help them identify where to cut academic programs. One element informing decisions about academic restructuring in general and instructional personnel in particular is the so-called program cost structure analysis.

The basic logic of this analysis is to identify all the faculty FTE that staffs courses in a given area, identify the compensation of these individuals and then add in the cost of the program's share of administrative support and operating budget and then compare this with the "revenue" the unit generates through crediting a fraction of effective per student tuition for each credit hour earned by students in the program's courses. Then we either subtract one from the other or form a ratio and characterize the program as "in the black" or "in the red" a "net revenue generator" or a "net cost center," etc.

Distortion and Bias on the Cost Side

When such analyses use actual faculty salaries rather than average faculty salaries they bias the result by faculty seniority.  Since faculty are sometimes on leave and since senior faculty retire and get replaced by new assistant professors this introduces big year to year distortions that make comparisons problematic.

Suppose biology, for example, has had three senior retirements in recent years all of whom have been replaced by new junior faculty. If we look at the department 4 years back it looks very expensive, if we look at it today it looks very inexpensive.

Now, some will answer this observation saying you have to budget for the actuality of today. Point taken. But the stated purpose of this analysis is to understand the relationship between cost and demand.  We are trying to understand something about the liberal arts college of today. If we do the analysis and find that philosophy is more expensive per student than marketing but the reason is marketing is a brand new department that only just hired faculty last year and we make strategic long term decisions on the basis of this information we are going to be making mistakes.

The solution is simple: use weighted average cost that takes into account the actual distribution of the college faculty across pay levels.  This permits program to program comparisons unbiased on the cost-side of the equation.

Distortion and Bias on the Revenue Side

One piece of the demand and revenue side of the analysis is simply looking at student course registrations - how many students do we teach.  

This is a fair measure and it's not hard to zero in on how many students each faculty member has to teach each year to "pay their salary." When I did this computation a few years ago it came in at around 95 per year.

But using aggregate course registrations as a measure of student interest is problematic.  Many courses in the curriculum have numerous prerequisites and many courses are mandated as part of various minors and majors and general education schemes. And some courses are scheduled in a manner that reduces the number of potential enrollees (not necessarily out of poor scheduling strategy: languages may need to meet 4 times per week, some courses have required labs and labs may need to take up an entire afternoon).

A course that has an absolute prerequisite will almost necessarily never have more students in it than the prerequisite. Departments and programs that are more hierarchical will offer more courses that are necessarily smaller.  Courses with no prerequisites have a natural advantage. English, for example, has dozens of courses with no prerequisites or only English 1 as a prerequisite, a course that every student is required to take.  This gives the English program a huge advantage over, say, biology or biochemistry.

Programs that manage to control general education requirements and get more of their courses to count for GE will have enrollment numbers inflated over "actual student interest."

The Upshot

The bottom line is that there are a number of structural distortions that make credit hours generated an invalid measure of student interest, especially in comparisons among close cases.

When both the numerator and denominator in a metric are subject to biases moving in different directions the metric is not a valid measurement of what you think it is a measure of. Employing such a metric for comparisons between programs, development of curricular strategy, and ending instructors' careers is, at best, problematic.

Sometimes an analysis has a data problem ("garbage in, garbage out") and that's probably true here. But the far more serious problem lies in the methodology.

How to Fix

There really is no excuse for not using average faculty compensation, unless we do not care about chopping out a part of the curriculum simply because of when we hired the faculty who teach it. The other problem is much hairier.  The very nature of knowledge affects the results here, as do contemporary ideas about assessment that encourage a pedagogical trajectory from "introduction" through "practice" to "mastery." Taking into account how different programs manifest these is not easy.  But failing to take them into account undercuts the believability of one's results.

Hi My Name is Dan and I'll be Your Server

In a talk on October 14 blogger Audrey Watters described a dystopian future in which there were only 10 universities in the world.  The narrative arc of her provocation was that the rest of the "industry" would be replaced by variations on MOOCs and distance learning.  The real point of her talk (spoiler warning) was that this was not a necessary future, but one that some contemporary educational visionaries' ideas are pointing that direction, whether they know it or not.

I envision a different dystopian higher education landscape.  In my version, the rest of the institutions do not disappear.  Instead, they become "outlets" or "franchisees" of a small number of education "suppliers."  The business model analogy that's most apt, I think, will be chain restaurants.  Think about the food court at the airport or the restaurants in a strip mall or scattered around either suburbia or most city centers. This will happen because small colleges and universities will face the "make or buy" decision and everything will point in the direction of buy -- that is, to outsource the core educational content functions.

The entrepreneurs who run these establishments deliver a dining experience to customers who more or less beat a path to their door.  For better or worse they get a dependably consistent product.  It's challenging for others to compete with them because they have all the advantages of scale and name recognition and proven processes of food preparation.

If you look around at the contemporary practices of the big education companies (mostly publishers) and countless education startups, what you will see are the seeds of an industry that will (or want to) capture the entire constellation of things that happen in colleges and universities with the exception of student faculty contact, student-student contact, and research.  Before long we will likely see a separating out of education per se and research (for better or worse, well underway), then we can move toward a future in which colleges and universities partner with the education franchisors.  The colleges will be able to put a local wrapper on the experience and they'll have faculty and staff to "deliver" it, but the actual content, practices, and raw materials will be provided by the supplier.

What role will faculty and staff play?  Hard to say.  But if the best we can muster in defense of the ways we do college education is some variation on "relationships matter" then we might well find that that's the only part we (the we now is "we faculty") will play will be to serve up the corporate content and help students to get the most out of the experience.

Like Watters' narrative, not a necessary future, just a possible one.  To avoid it, I think we need to pay attention to efficiency and productivity within our institutions.  Otherwise, we'll get lapped by entities that are so much more productive that our claim to difference in kind will be drowned out.