Walter A. Brown and Cayo Gamber, Cost Containment in Higher Education: Issues and Recommendations, ASHE-ERIC Higher Education Report: Volume 28, Number 5, San Francisco: Jossey-Bass, 2002. ISBN 0-7879-5838-7
It is not the usual practice for NCNE to report on publications that are geared specifically to only one sub-sector of the nonprofit economy. Cost Containment in Higher Education by Walter Brown and Cayo Gamber focuses exclusively on higher education, but it is a nicely written publication that addresses a number of important generic economic issues common to nonprofit organizations virtually across the board. The book offers a synthesis of the literature, helpful case studies and current thinking about the economic challenges of universities, particularly the rising costs faced by these institutions and the strategies available to contain those costs. In the present environment of fiscal stress and reduced funding, the subject matter is of general concern to all nonprofits – how to keep expenditures within feasible limits, and how to make the best use of resources so that mission is addressed as effectively as possible.
The book addresses a broad spectrum of critical economic issues. For example, the largest expenditure for universities, as for most nonprofits, is personnel. Nonprofits are generally labor intensive. As such, cost control and productivity issues center largely on how expenditures for human resources are deployed. The book considers this issue from several important angles. How can institutions find the appropriate mix of full-time (often tenured) staff and part-time (adjunct) contractual workers, so as to move towards a cost structure that has an efficient balance of fixed and variable costs? Where can technology be used to enhance productivity of staff and substitute for investment in personnel? Can redeploying staff to high demand programs and developing collaborations with other organizational units or institutions to make lower demand programs more efficient achieve greater efficiencies? How does one deal with the issues of rising benefit costs associated with health care and social security, the potential unionization of part-time workers, and the elimination of mandatory retirement policies? All these questions are faced in the arts, health care, social services and other nonprofit fields of service, and can be informed by the experience in higher education.
The book also contains interesting chapters on library services, plant and equipment, research funding, student services, and the external environment of accountability. The library chapter addresses strategies of technology investment, outsourcing and collaboration with other institutions – all in the service of increased effectiveness. The experience of university libraries with technology is particularly germane - a case where substantial up front investments, while painful, leads to substantial savings in the long term. The libraries’ experiences also provide models for collaboration in such areas as sharing of information, and group purchasing of journals and other resources, and insights for outsourcing of both routine functions such as photocopying as well as functions such as cataloguing which are closer to the heart of the library mission.
The chapter on plant and equipment addresses the classical issue of deferred maintenance, highlighting how the short-term savings achieved by postponing obligations under regular maintenance and replacement schedules can lead to significant longer-term costs and ballooning maintenance deficits over time. A number of sensible solutions are reviewed for this problem as well as the use of outsourcing for more effective allocation of funds for maintenance and operations.
The chapter on research funding is most cogent on the dilemmas of external funding as they relate to focus on mission. External funding can influence the direction of research in ways that depart from a university’s basic values, and it can also favor research over education, creating opportunity costs if faculty resources are shifted from one to the other. The research chapter also addresses the subject of fragmentation within universities, and strategies for interdisciplinary collaboration for greater overall effectiveness – an issue that arises in hospitals, social service agencies and other larger nonprofits that are departmentalized along specialty lines.
The chapter on student services also focuses on a number of generic nonprofit issues. How can pricing (tuition) schedules be designed to ameliorate the impact of price on mission achievement, in this case the ability of the university to attract worthy students regardless of economic background. As with other kinds of nonprofits, ability to pay must be accounted for in the fee structure in order for the institution to (at least partially) cover costs while allocating its services in an appropriate way. This chapter also presents interesting perspectives on the sensibility of spending on amenities in order to address client (student) retention, and on the use of consortia and outsourcing to spread or control the costs and enhance the effectiveness of services such as student health services, campus security, and food services.
Finally, the report addresses some general issues of management and organizational structure as they relate to the control of cost and enhancement of revenues. Use of techniques such as performance indicators, activity-based accounting, and budgeting tied to performance is one thrust. Another is restructuring according to the principle of “responsibility centered management”, creating cost and profit centers (usually based on schools and departments within the university) so that managers (deans) can be made aware of, and held responsible for, the costs of their operations, and can be provided with incentives (budgets, opportunities to raise and retain revenues) correlated to the performance of their units. These are general strategies that most intermediate and larger sized nonprofit organizations can consider.
In all, while Brown and Gambers’ report deals specifically with higher education, the issues, principles and case studies are grist for the larger mill of nonprofit economic decision-making. Managers of all sorts of nonprofit organizations are likely to benefit from reading this report and translating the concepts into their own venues.