By William J. Husson, Ph.D. CFO Perspectives
Additional Perspectives CFO Perspectives: Online Education Programs is one in a series of white papers that looks at the role of the CFO within different institutional or operational settings. Each white paper, available free from NACUBO and released during 2012, the 50th anniversary, focuses on the unique demands of a particular type of institution and how to manage strategy and business operations within that distinctive context. Written by authors with extensive experience in financial operations, the white paper series offer insights that may prove helpful to new CFOs or board members, presidents, senior administrators, faculty, and staff. For a list of the other titles available in this CFO Perspectives series, please visit www.nacubo.org. Acknowledgement A special thank you to Michael Townsley: for his contributions in developing publications for the business office. NACUBO would like to recognize his leadership in bringing together a collection of articles that cover key topics and issues that will resonate with NACUBO members for years to come. 2012 by NACUBO
A report issued by The Sloan Consortium in 2010 indicated that more than 4.6 million students were taking at least one online course during the fall 2008 term and noted that the 17 percent growth rate for online enrollments far exceeded the 1.2 percent growth of the overall higher education student population. In addition, a 2009 study by STAMATS, Adult Students TALK, reported that 57 percent of the respondents found online-only courses appealing, and 38 percent found online and on-campus hybrid courses very appealing. Today, the students taking online courses tend to be older adults who, by virtue of their jobs or lifestyles, are not able to attend campus-based classroom programs. Over time, however, the online phenomenon will spread to younger campus-based student populations. Although each institution must determine its own range of online or blended delivery offerings, all institutions will definitely need to address the inclusion of online components. From the CFO s perspective, online programs can create significant financial savings. In most cases, the institution will need fewer physical facilities to house classes and the technology associated with modern classrooms. Additionally, not having students present on campus reduces the need for a wide range of student support facilities. On the other hand, most universities have not created the infrastructure to support online programs, which requires significant investments in software, personnel, systems integration, and IT. Moreover, organizational and governance alignments may require adjustment to ensure online programs fit an institution s strategic mission and vision. For-profit universities have already invested heavily in the infrastructure needed to successfully deliver online programs. In fact, the most rapid growth in online education has occurred within the for-profit sector. Public and private nonprofit universities are looking at their options for succeeding in this market as well. Model Decisions When operating within the online marketplace, one option is to use online courses as window dressing. In this scenario, the university delivers some courses via online technology, perhaps by joining a consortium that provides the courses, to augment a student s course of study. Another option is to develop robust programs and degrees that students can accomplish completely online. In this latter case, the college is entering a mature, competitive environment and will need to commit significant resources to the effort. Numerous vendors provide the nonprofit sector with the essential elements for a successful online program: the conversion of courses to the online mode and commercial marketing and recruiting expertise and investment. While this type of outsourcing can bring an institution close to instant online success, the price is high. In fact, most vendors will want a significant share of all revenue coming from online programs sometimes as high as 70 percent or more. Once engaged with a vendor, a college may later have difficulty disengaging from the relationship because the outside contractor usually has a tight hold over the technology and infrastructure. Most universities use asynchronous approaches to online learning. This allows students in multiple time zones to participate at all hours of the day and night. Courses start on a specific date and at a specific time and conclude on a specific date. Within an academic time frame a semester, for example students are expected to participate online in regular classroom-type activities, such as turning in assignments, taking tests, and submitting papers. For-profit universities use accelerated course models, usually compressing a semester course into an eight-week timeframe. This model has proven academically sound and cost efficient. Because the accelerated timeframe has become the norm in online delivery and is readily accepted by the regional accrediting agencies, public and private nonprofits are also using this dynamic model. Top Considerations Here are the key areas to consider when any college or university seeks to develop or increase its online education activities. Software A robust Course Management System (CMS), sometimes referred to as a Learning Management Systems (LMS), is needed to support all aspects of web-based learning, 1
from web-facilitated instruction, to hybrid components, to completely online learning. The largest company providing a software delivery system is Blackboard; its competition comes primarily from Open Source models such as Moodle and Sakai. While Open Source programs are far less expensive, they require a significant amount of programming that most institutions cannot provide internally. When evaluating a CMS, look at its: License fees for student participation. Learning features. Back-end connectivity. Hosting capabilities. In many cases, for example, outsourcing the CMS hosting proves both costproductive and efficient because it translates into less downtime for the institution. Student support, such as tutorial services. Quality control measures, such as authentication and electronic plagiarism services. In particular, the federal and state governments have expressed growing concerns about authentication ensuring that the same student who registers for the course actually takes the course and receives the grade. Increasingly, high-tech methods used by the financial services industry are being applied to online education programs to validate a student s identity. Marketing In addition to regular advertising campaigns in print, radio, cable, television and other media outlets, online programs must be advertised not surprisingly on the Internet. This opens up the world of: Pay-per-click ads. Typically, pay-per-click proves successful when the right keywords are chosen and when the scope and duration of the campaign properly align. Banner advertising. Banner ads can be helpful if they are limited to the regional area and carried by local Internet Service Providers (ISP). National banner advertising is prohibitively expensive, and it is difficult to compete with national for-profit brands. Social media. Sites such as Facebook, Twitter, and LinkedIn provide the opportunity to establish a conversation link with potential students, who are familiar with the medium and will judge the relevance of the program by its connectivity with current social media components. Purchasing prospects from online lead providers. Of course, an institution s website remains its primary marketing tool. First and foremost, the website should be attractive and easy to navigate for prospects evaluating potential schools. Whether looking for classroom-based or online programs, prospects will quickly move to another site when they cannot find the information they seek. Ideally, after clicking on the program, the prospect should be quickly directed to a sales-oriented web page. Unfortunately, most institutional websites offer too much information and serve too many audiences, which limit their ability to target a marketing segment. Instead of sending online program prospects to the institution s website, it s better to send them to a landing site that contains all the relevant information for a specific program. The program-specific site should encourage prospects to provide their names and contact information so an enrollment counselor can make a follow-up call. Based on best practices in the industry, a response to a student, either electronic or in person, should take place within three to five minutes. A conversation that occurs more than 24 hours after the initial inquiry is considered futile. Student Recruitment According to Noel-Levitz Reports, private colleges and universities spent the most to bring in new undergraduates in 2009, with median costs of $2,143 per new student. Private institutions also had the most staff, with a ratio of one FTE staff member for every 35 new students (median). While these costs cover all aspects of recruiting, the costs of online marketing, advertising, and recruiting have contributed significantly to the overall increases experienced by all educational institutions, especially private colleges and universities. Colleges and universities can enhance their online recruiting by using technological tools such as voice over internet protocol (VOIP), auto-dialing, customer relationship management systems (CRMs), lead scoring, web chat, 2
and search engine optimization (SEO) mechanisms. Many public and private nonprofits have turned to commercial call centers to support these services. The role of the online enrollment counselor has changed from the person visiting high school counselors and talking with parents to a role that more approximates a telemarketer. Many leads now come from online lead providers who identify prospective students from a variety of sources. A cost benefit analysis will be required to evaluate the various vendors and their approaches to recruiting. To determine which vendors to use and which to eliminate, measure their conversion percentages how many potential students actually enroll. In some cases, better leads will be significantly more costly. Most sophisticated online education operations employ re-enrollment counselors. A counselor calls each student each term to see how the student is doing and what assistance the student needs to register; the counselor then registers the student for the next class in the program. Rather than giving academic advice or providing specific student support services, a re-enrollment counselor serves as a sounding board and connects each student with a faculty advisor or the appropriate student support service. Regulation and Compliance Each state regulates institutions of higher education within its borders. In the past, licensing in another state was necessary only when a campus, branch, instructional site, or office opened in that state. Most states did not regulate online programs because the educational institution had no physical presence within their borders. In the last few years, however, more states began requiring approval and licensing of colleges that enroll their residents in online programs, even when the institution has no physical presence in those states. Although the direct cost for licensing an online program in another state is not large, the costs associated with preparing paperwork and being present for licensing approval and renewal meetings can be significant. When advertising a program nationwide, the college must determine which states require online program licensing. If a student from a state requiring licensure enrolls in an online course, the program could be out of compliance with state regulations. Regional accreditors will authorize a college or university to conduct courses online as long as the list of courses offered is not extensive. When entire programs or a substantial portion of the program such as more than 50 percent is offered online, the institution may have to submit a request for substantive change in its accreditation. The request must be submitted before the institution reaches the level set by the regional accrediting agency for a substantive change. Labor Labor issues typically loom large during the development of online programs. Personnel include online program faculty; the registrar s office; and new positions or online departments that offer, market, and manage online programs. Most colleges or universities that offer online programs establish a new organizational unit, typically called the distance learning or learning design department. This department houses instructional designers, programmers, and staff familiar with video streaming and the creation of graphics and animation. The instructional designer, who typically has extensive experience in the online medium, works with faculty to convert classroom courses into online courses. In a disaggregated curriculum model, a team develops each online course and syllabus, which are then used by all instructors teaching the course. These course templates serve as the official syllabus. Faculty who teach from these templates can enhance the media-rich core content with their individual styles. The templates enable the institution to build a large inventory of courses while reducing the cost per unit involved in designing online courses. Who owns an online course: the faculty member who designed it or the institution? Answering that question can lead to considerable conflict; the solution requires a written policy that reflects faculty input and review by legal counsel. Most institutions opt for university ownership of their online courses so that each course can include a wide array of media elements that could not be afforded to individual faculty each teaching from their own syllabus. 3
Compensating faculty on a per-head basis, with a minimum guarantee, is a reasonable approach for full-time and adjunct faculty. Compensation should be based on the norms the institution has developed for the remuneration of faculty for their ground-based courses (in conjunction with the union, if applicable). Most online programs use adjunct faculty to deliver courses to adult students. The adjuncts are discipline experts either teaching at other colleges or working as managers and administrators in business and industry. Using an adjunct represents a fraction of the cost of a full-time faculty member (who may also be tenured). Many online programs contract with faculty who reside outside the institution s state. The college or university staff must ensure adjunct faculty have the appropriate credentials to teach the assigned courses and must be reviewed in light of the institution s mission. The online program director should work with the business and human resource staff to review contracts, tax withholding, and other documents to ensure they conform to the law and to the institution s policies and procedures. Many colleges and universities now outsource legal and regulatory reviews of contracts, tax requirements, and employee policies because of increasing complexity. Organization and Governance The unique nature of online programs makes them awkward fits for academic governance, organizational responsibility, and financial control. Online programs are market-driven, which implies that they work best when managed by an independent unit that responds to market changes. However, an online department that manages marketing and finance while also having responsibility for the academic program, including faculty hiring, evaluation, course and program development, and program assessment seems to fly in the face of traditional academic governance. Notable failures have occurred when online units were separated from their academic disciplines; nevertheless, online programs seem to flourish best within adult collegiate units that have a high level of academic, marketing, and recruiting autonomy. 15 Tips for Online Programs Management Tools When possible, pay faculty on a per-head basis with a minimum dollar guarantee. Hire adjunct faculty with appropriate credentials. Use consortia courses for low-enrolled courses or specializations. Weed out under-enrolled courses or programs. Strategic or Management Principles Develop the range of curriculum based on the student population. Develop delivery software using products that most computers can manage (for example, Flash is not compatible with Apple computers). Seek minimum bandwidth requirements and provide high-content components on media, such as DVDs. Ensure the university owns all intellectual property rights for all media it produces. Have faculty sign a work-for-hire agreement, and do not use any components that require the payment of royalties. Develop a learning objects repository (LOR) database so other faculty can use or repurpose media components. Metrics for Measuring Performance Calculate the number of students taking each online course. Identify the development costs of each course. Determine an annual costing analysis for each course using the previous criteria; eliminate courses that are not productive. Identify a cost per lead for all online programs based on marketing, recruiting, and admissions costs; regularly compare your costs with national norms. Develop metrics based on a Likert scale to track student satisfaction. 4
The CFO s Contributions By playing an integral role in planning, financing, and budgeting for online programs, CFOs will clearly understand the programs cost structure, cash requirements, and debt expectations. Typically, the president will set up a planning team that, in addition to the CFO, includes the chief online administrator, registrar, financial aid director, admissions director, head of marketing, and chief information officer. The team should be charged with developing the policies, procedures, financial plans, and marketing strategies to launch and operate a successful online program. Specifically, the CFO can contribute to the effort by: Assisting the chief online administrator in developing the initial budget. This would encompass formulating staff and faculty compensation plans (pay and benefits); determining the number of faculty and staff needed to support online instruction; estimating costs of supplies, equipment, and the installation and maintenance of online hardware and software; and calculating the costs of instructional and technical support for students. Offering advice on financial aid matrices and/or pricing. Most adults, especially if they are working, do not meet the criteria for need-based aid. These students are looking for the best price for an online program, and a low tuition price can prove more attractive than a high posted price with an unstated amount of financial aid. Participating in capital purchase decisions. The online infrastructure will probably require a significant capital contribution to purchase hardware and software and to repair and replace parts of the system over the years. The CFO should ensure bidding and purchasing policies and procedures are followed and assist in reviewing the infrastructure proposals against the bid specifications. The CFO might also join the chief online administrator in visiting other institutions that use the hardware and software and questioning users about ease of use, problems with installation or maintenance, and real costs of operation. Given the probable size of this initial expenditure, the CFO and chief online administrator will need to submit their purchase recommendation to the president and to the board of trustees. Working with the chief online administrator to develop a multi-year budget and to test several pricing and enrollment levels. It is not unreasonable for a budget to be in the red the first years as the program builds enrollment momentum and pays off any investment capital made by the institution for start-up costs. Before enrolling students and putting the system into operation, the chief online administrator should meet with the CFO and registrar to ascertain whether to revise procedures or policies to accommodate online registration and payment. This team needs to also sort out financial aid issues (typically involving loans), refunds, drop dates, withdrawal dates, and records that need to be kept for accounting and regulatory purposes. Suggested Reading 2009 Cost of Recruiting Report: Comparative Benchmarks for Two-Year and Four-Year Institutions (Noel-Levitz Reports, Coralville, Iowa, 2009). Learning on Demand, Online Education in the United States, 2009, by Elaine Allen and Jeff Seaman, Babson Survey Research Group. (The Sloan Consortium, January 2010). Marketing Accelerated Programs: Stamats 2009 Adult Students Talk Research July 2010, by Brenda Harmes (Stamats, Cedar Rapids, Iowa). Outsourced Ed: Colleges Hire Companies to Build Their Online Courses, by Mark Parry, Chronicle of Higher Education, July 18, 2010. William J. Husson, Ph.D. is vice president for new ventures and strategic alliances at Regis University. 5