Cost Control: The Imperative for Higher Education

By Adams, Olin L., III; Shannon, David M. | College and University, January 1, 2006 | Go to article overview

Cost Control: The Imperative for Higher Education


Adams, Olin L., III, Shannon, David M., College and University


College costs have escalated for reasons rooted primarily in organizational culture and market forces. Institutions of higher education often have defined quality in terms of resources acquired rather than results achieved (Guskin 1994; Lovett 2005). Colleges and universities have survived profligacy through monopolistic competition, achieving sufficient differentiation from other institutions by way of geographic location and varying programs (Bowen 1980). But with rapidly improving technologies, the ability to deliver academic programs at a distance from the physical campus is eroding the product differentiation so long enjoyed by traditional colleges and universities.

Pressures to Control Costs

As the gap between schools lessens, the pressure on institutions to control costs has never been greater. Tuition at fouryear public institutions during the 2003-04 academic year increased at the highest rate in three decades-an average of 14 percent more than the prior year (Farelle 2003). State appropriations to public colleges and universities fell 2.1 percent from the 2002-03 fiscal year to the 2003-04 fiscal year-the first decline in eleven years (Hebel 2004). Colleges and universities, particularly private institutions, are only now recovering from the loss of endowment in 2002. The National Association of College and University Business Officers (NACUBO) study of endowment for that year showed that institutions of higher education lost 6 percent on their investments, marking the first time investments had declined for two consecutive years since 1974 (Lyons 2003). Like other employers, colleges and universities struggle with the escalating cost of health care for employees. Health insurance premiums rose 13.9 percent in 2003, which was the third consecutive year of double-digit increases (Basinger 2003).

Barriers to Cost Control

Institutions of higher education confront many barriers to cost control. Perhaps the most basic impediment is poor cost information. Progress was made in the 19708 as a result of the work done by the National Center for Higher Education Management Systems (NCHEMS), but the cost systems proposed by NCHEMS were largely abandoned in the 19805 (Turk 1992). Even now, internal management reports focus on salaries, travel, and research costs, and generally ignore such indirect costs as facilities and administration. Day (1993) notes that there is "no general consensus on costing methodology in higher education" (p. 13).

Strategies for Cost Control

We suggest various strategies for cost control, arranged within the context of administration, instruction, and athletics.

ADMINISTRATIVE COSTS

Outsource functions that are not core competencies, especially vending, dining, and bookstore operations.

Outsourcing is common within the business sector, but its adoption by colleges and universities is less documented. Dining operations and bookstore operations were generally the first functions outsourced by schools (Nicklin 1994), because the institutions lacked the special expertise necessary to perform these functions (Abramson 1994). Large public institutions usually operated their own food service, but in recent years, a trend toward the outsourcing of dining operations has been observed among these institutions. This decision has been driven primarily by financial reasons. For example, contractors often provide capital to assist in renovating dining facilities; such projects are otherwise often deferred by institutions (King 1997).

Outsourcing has not only helped colleges and universities save money, but also allowed them to generate revenue. Clemson University and the University of Georgia have outsourced their bookstore operations. Like other institutions, they have found that contractors tend to be far more skilled than institution staff in the marketing of merchandise (Gose 2005; Mercer 1995).

Streamline the decision process. …

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