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Is It Worth It? Conducting a Program Cost Study to Determine Return on Investment

Leadership Abstracts

December 2011, Volume 24, Number 12

by Lori Alexander

Comprehending what a program costs is important to everyone from faculty and program directors to senior administrators. With increasing enrollments, understanding the costs associated with offering additional sections of courses is critical to planning. And, with decreasing budgets, knowing the cost of a program helps prioritize resources during tough economic times and helps make the case for additional funding from external sources in support of high-demand/high-cost programs. Central Piedmont Community College (CPCC) in Charlotte, North Carolina, recently updated and expanded a Program Cost Study prepared in 2007-2008 to help determine which academic programs needed to be subsidized, revitalized, consolidated, or retired.

Conducting a Program Cost Study. Collecting the right financial and enrollment reporting data is critical to answering the question, “What does this program cost?” To do a cost study, institutional researchers must have access to financial data that can be broken out by individual budget codes for the academic program areas. Also needed are the enrollment reports used to determine FTE for the institution, and these numbers must also be available by budget code for academic programs. Within each type of institution and each state, there is a different formula for determining FTE, but all of them must be translated into credit-hour allotments. Once a per-credit-hour allotment is established, the entire cost of the program can be determined.

Applying a Business Approach to the Study. With a business approach to the study, researchers organized the work into two overarching tasks.

Task 1. Using the two-year trend analysis data for enrollment (FTEs) and the corresponding program costs, programs were plotted into one of four categories in a variation of the Boston Consulting Group’s Growth Share Matrix. A healthy portfolio is fairly balanced.

Task 2. We then determined which objective to assign to each program or cluster of programs and what support it needed. In making these determinations, we used the following alternatives:

  • Subsidize. The objective is to seek industry support and funding to help underwrite costs.
  • Revitalize. The objective is to identify and invest resources selectively.
  • Consolidate. The objective is to reduce costs by creating efficiencies.
  • Divest. The objective is to divert resources where they can be better used elsewhere.

Outcomes of the Study. Sixty-eight percent of the programs generated a positive return on investment in FY09-10. And, 74 percent of the programs grew in FTE from 2008-09 to 2009-10. Based on the two-year FTE and Program Cost Comparison Data, the programs were mapped accordingly into one of the following four categories:

  1. High-demand/Low-cost Programs (42, or 49%)
  2. High-demand/High-cost Programs (21, or 25%)
  3. Low-demand/Low-cost Programs (16, or 19%)
  4. Low-demand/High-cost Programs (6, or 7%)

Results of the Study. Recognizing that many of the programs that fell into the High-growth/High-cost category were health-care career programs and strongly aligned with occupations that are in demand, they were assigned an objective of “subsidize” and the academic administration adopted a strategy of seeking industry support and funding to help underwrite these high-cost programs. A fund-raising campaign spearheaded by the CPCC Foundation was targeted toward the two major hospital systems in the Charlotte region, resulting in more than $500,000 in cash gifts and pledges, plus equipment and supplies.

Due to high program costs and inefficiencies in the statewide Information Technology (IT) curriculum, CPCC created a new degree, Computer Technology Integration (CTI), in collaboration with Stanly Community College. With a flexible curriculum, the program can be customized to meet the needs of the local IT Industry. Four courses that make up the core and cover the IT competencies defined by the Department of Education’s IT Career Clusters. A fifth course is chosen from one of five different subject areas. After completing the core classes and the required general education courses, the student chooses a specialty focus area. For CPCC, this single degree will eventually replace five of the current IT degrees.

Uses of the Study. The program cost data in this return-on-investment study provides findings that can be used by the academic administration for a number of purposes:

  • Compare costs across disciplines.
  • Understand the impact of offering additional sections of specific courses.
  • Manage enrollment growth.
  • Prioritize allocated budget resources.
  • Make the case for additional money from external sources.
  • Help evaluate the performance of programs, including incorporating the study into the Program Review process.
  • Determine what objective to assign each program or cluster of programs and what support will be needed.

Variables Among Institutions. Conducting a program cost study is influenced somewhat by the variables at play within each institution, but it essentially requires that any college compare costs going out—salaries, benefits, supplies, and equipment—with dollars coming in—tuition, fees, and FTE reimbursement. For more information about conducting a Program Cost Analysis/ROI Study at your institution, contact Lori Alexander or Terri Manning

Lori Alexander is Assistant to the Vice President, Learning Unit, at Central Piedmont Community College in Charlotte, North Carolina.

Opinions expressed in Learning Abstracts are those of the author(s) and do not necessarily reflect those of the League for Innovation in the Community College.

Posted by The League for Innovation in the Community College on 12/15/2011 at 12:04 PM | Categories: Leadership Abstracts -