Generating capacity within Higher Education

Third-level institutions must adapt their financial strategies to the new normal by generating capacity and funds, using levers including spend, liquidity, credit, and portfolio management, writes Aoife Donnelly, Managing Director, CFO and Enterprise Value, Accenture.

Now, more than ever, it is clear that third level institutions need to invest in their people, processes, and digital solutions. Even in more normal times, this would be challenging, but today we’re living in a time that could be described as the never normal. It is forecast by the Higher Education Authority (HEA) that there will be a potential shortfall of €500 million this year and next for third level institutions across Ireland. As is widely known, this shortfall stems from reductions in income sources, including academic fees from international students but also many lesser-known income sources, including tourism, catering, events, English language teaching, and others. The pandemic has impacted all of these revenue drivers, like so many other areas of the economy.

While some welcomed Government support has been provided, there will be a gap between third level institution’s income and the spending required to deliver transformation as a result of the pandemic, such as student information systems, support hubs and other digital solutions (e.g. Virtual Open Days). Third level institutions across the country will need to look at how they generate capacity and funds from within. When looking to generate this capacity, there are several levers they can consider:

Manage spend

The pandemic has accelerated cost management programmes and encouraged new ones across all areas of the economy. Third level institutions do not wish to revert to some of the sharper cost takeout approaches that were taken during the 2008 recession, where department budgets were cut en masse. The sector needs to take a smart and targeted approach to reduce spend, generate capacity and funds to focus on the most critical initiatives, while protecting services, students, and staff. When it comes to managing this spend, this will involve understanding consumption trends, price, and challenging accepted ways of working. For example, in a world where hybrid learning is already the norm, what short-to-medium-term property lease arrangements can be immediately terminated? How can lectures be scheduled to minimise energy usage? What controls can we put around printing to direct focus to online resources? What systems do we have in place to review fees to third parties?

How can employee engagement and workforce scheduling be managed to reduce both absence and overtime?

Third level institutions must also be aware that where spending cuts are imposed, they may not be sustainable in all areas. Some staff are going to have to travel again. Work may need to be contracted again, but there is an opportunity to re-evaluate costs and the processes around them to ensure that they do not return to previous levels.

Manage liquidity

Every third level institution has to carefully manage working capital, and make sure there’s always cash to pay bills. Putting a hold on non-essential work, leveraging contractors for the right work, and talking to suppliers about invoice arrangements and outstanding payments can also shore up liquidity and avoid unnecessary bank charges.

Financing and credit

Many institutions are moving quickly to renegotiate debt paydown and credit facility options on borrowings with their banks to help. The banking industry in the main has stepped up to the impact of Covid on their clients. As a result, there is an opportunity for third level institutions to evaluate their credit arrangements, supporting their liquidity goals.

Portfolio management

Third level institutions should carry out a strategic review of performing and non-performing assets and divest where appropriate. Some institutions hold significant property portfolios. Now, is the time to review these investments, start to manage the portfolio strategically ensuring alignment with long term plans in order to and understand where costs can be avoided.

All of these are levers that come up in discussions that Accenture is having with its clients in the education sector in Ireland and around the world. A new willingness to embrace technology is also apparent as part of these discussions; for example, the business case for delivering services from the cloud instead of on-premises IT stacks – the OPEX versus CAPEX argument. This is likely to gain even more traction.

There will likely be continued uncertainty ahead as the lasting impacts of the pandemic edge into the 2021/2022 academic year, and finances are still a big unknown. What is certain is that third level institutions need to put financial strategies in place to navigate these uncertain times.

For more information, or to discuss your requirements, please contact:

Aoife Donnelly
Managing Director, CFO & Enterprise Value, Accenture
E: aoife.donnelly@accenture.com