Contribution Analysis

Tertiary Talk - April 2019

As tertiary institutions face ongoing financial pressures and constraints, it is increasingly important to better understand the course and programme landscape, and how each offering contributes to the institution’s financial and strategic objectives.

Understanding the full cost and revenue associated with the delivery of courses, and rolling this up to a programme view, can help an institution identify areas where performance is above or below expectations. This information can serve as a lead in to further discussion, and provide learnings and opportunities to improve returns and reduce costs, that can be shared with the wider organisation.

Understanding the contribution of the wider portfolio needs to be seen as a journey, and it will take both time and energy for an institution to identify appropriate cost drivers, source the data required, form a set of reasonable assumptions, and then develop capability and understanding throughout the organisation. The journey may take some time, with incremental changes as the institution’s capability and systems mature. It is important to acknowledge, at the outset, that contribution analysis will not be perfect, and nor is it intended to be. Rather, it should be seen as a pragmatic calculation that is “approximately right” and can aid strategic discussions, as any examination of an individual result, in detail, is likely to reveal that it is “precisely wrong”.

Some of the challenges that institutions are likely to face when undertaking contribution analysis are sourcing and interpreting financial data. The structure and detail of the general ledger, especially how it relates to identified cost drivers and delivery activities, will determine how much data manipulation is required and what assumptions need to be made to allocate cost.

Allocating teaching time may also present challenges. Staff costs are generally the single largest cost for an institution, yet depending on the data available, may be difficult to attribute to course delivery. Ideally, the timetable and work-load plan would be the basis for allocation, however these may not be used appropriately or consistently across the organisation. In the absence of reliable data sets, assumptions about the time that teaching staff spend in course-related activities can be applied.

Because any cost allocation will rely on a series of assumptions, it is essential to ensure that those assumptions are transparent and accepted by key stakeholders, and that the impact on the result is understood and able to be considered as part of any decisions. During the process, it is also important to be cognisant of the potential to over-analyse, and recognise the point at which the benefits of further effort are out-weighed by the costs. Striking this balance is delicate, but there are substantive benefits for institutions that can achieve it, and enhance their financial sustainability.

As well as the financial contribution, courses and programmes can be assessed for their contribution to an institution’s strategic priorities. Applying a strategic lens will help address some of the more qualitative aspects of the portfolio such as relevance, quality, student experience and emerging trends. Where courses and programmes are identified as strategically important, but not financially viable, the contribution analysis may contribute to a greater understanding of the reasons why, and highlight areas where improvements can be made.

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