The Economics of Innovation
in the Community College:
Exploring the Fiscal
Considerations of Doing
Things Differently
Dr. Rob Johnstone
New Jersey CC Student Success Summit
Mercer County CC, New Jersey
April 16, 2014
www.inquiry2improvement.com
Agenda
• The Backdrop & Doing Things Differently
• Fiscal Considerations of Innovative
Programs
• Demonstrating The ROI Approach in
Action
• Demonstrating the Cost Efficiency / Cost
Savings Metrics Approach
• Final Thoughts
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 1:
The Backdrop & Doing Things
Differently
Fiscal Considerations of Statway & Quantway – July 2013
www.inquiry2improvement.com
Data Backdrop
• CC Completion rates for URM students 34%; nonURM closer to 50%
• 55%-85% of FTF require Dev Ed; average of 25%
to 35% ever complete transfer-level course
• 80% of High-Income Students enter college;
29% of Low-Income Students enter college
• College Graduation Rates by income (next slide)
National Center for Inquiry & Improvement
www.inquiry2improvement.com
College is a Meritocracy, Right?
COLLEGE GRADUATION RATES BY
INCOME QUARTILE & TEST SCORES
70%
30%
26%
9%
HIGHEST INCOME QUARTILE
High Scores
National Center for Inquiry & Improvement
LOWEST INCOME QUARTILE
Low Scores
www.inquiry2improvement.com
Innovative Approaches
• Programs and structures exist on every
campus
• IR data has demonstrated many as
effective
• Tend to be small in scope, serving
relatively small numbers of students
• Why?
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Why are Non-Traditional
Programs Isolated and Small?
• Limited awareness about the research literature
• Need for paradigm shifts in thinking of campus
administrators, faculty & staff
• Organizational change issues
• Lack of IR resources to provide local data
• “Pilot” mentality – w/o scaling plan
• Perhaps the single biggest reason?
 Perceived Cost of scaling these programs to many /
most / all students
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Other Motivations for Change
• Student wage gains through higher education
attainment – access to family sustaining wages
• Workplace needs – 80% of 21st century jobs need
advanced skills
• Societal implications – lack of skilled workforce,
competition in global economy
• Equity & Moral Imperative – achievement gap vs.
educational debt
• Improvement Science Tenet: Every system is
perfectly designed to achieve exactly the results
it gets
National Center for Inquiry & Improvement
www.inquiry2improvement.com
It’s Our Moral Imperative
• It’s easy to blame the student, blame K-12
preparation, blame parents, or blame the
social, political, economic and educational
conditions that create the systems that
produce the inequities
• Story on central line infections from
healthcare (30,000 – 60,000 deaths per year
to essentially zero)
• Economic sustainability, social mobility and a
living wage are on the line
National Center for Inquiry & Improvement
www.inquiry2improvement.com
But…
• Community Colleges have to pay their own
bills. Thus, we are left with a situation
where:
 Society and our moral imperative demand
that we succeed in our mission of
developmental education….
 But our funding system seems to suggest that
we at the CCs can’t afford to do so
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 2:
Fiscal Considerations of
Innovative Programs &
Approaches
www.inquiry2improvement.com
Fiscal Approaches to Consider
1.
2.
3.
4.
5.
6.
Cost analysis
Cost effectiveness / ROI
Cost efficiency / Cost per Completer
Cost reductions per student
Wage gains per student
Economic impact for communities
National Center for Inquiry & Improvement
www.inquiry2improvement.com
1. Cost Analysis Approaches
•
•
An analysis of what it costs to “do things differently” vs.
the traditional model
Can include costs such as:
•
•
•
•
•
•
•
•
incremental salaries
release time for faculty
stipends
IR support
tutors
travel
supplies
facilities*
• Note: colleges are often good at identifying incremental costs…
National Center for Inquiry & Improvement
www.inquiry2improvement.com
2. Cost Effectiveness Approaches
• An investigation of not only the incremental costs
to the college but also the potential for
incremental revenue that may be generated at
the college to offset costs
• Also referred to as return-on-investment or ROI
analyses
• Fairly uncommon in higher ed until recently
• Challenges of differential costs / returns by
programs, interdependency with level of
efficiency of college / departments, enrollment
caps, state funding questions
National Center for Inquiry & Improvement
www.inquiry2improvement.com
3. Cost Efficiency Approaches
•
An analysis of the effect of the program and its
incremental costs on key outcomes such as
completion, transfer or graduation
•
Also called “cost per graduate”, “cost per
transfer”, “cost per completer”, etc.
•
Good when accountability calls for improvement
in key outcomes – or determines incremental
funding by them
•
Challenge that incremental costs still may go up,
even when cost per completer goes down
National Center for Inquiry & Improvement
www.inquiry2improvement.com
4. Cost Savings Per Student
•
As colleges become more efficient at creating
structures that enable students to finish their
degrees more quickly, there are direct cost
savings for the student, including:
•
Tuition savings
•
Books cost per semester
National Center for Inquiry & Improvement
www.inquiry2improvement.com
5. Wage Gains for Students
•
As more students finish degrees, the college’s net
return on wage gains for their students will
increase
•
•
As this is starting to be emphasized / measured,
colleges are very likely to have key performance
indicators / accountability measures based on such
outcomes
Also, as an individual student finishes more
quickly, she will experience the increased wages
that a completion grants them earlier, producing
a net wage gain for the student.
National Center for Inquiry & Improvement
www.inquiry2improvement.com
6. Economic Impact to Community
•
With more students getting credentials / degrees
/ completions, the local, state, and national
economies are catalyzed
•
Challenge is that this often hard to estimate, but
important to call out as a fiscal impact of
innovative programs that produce higher
completion rates
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 3:
Demonstrating a ROI Approach
for
Statway / Quantway
www.inquiry2improvement.com
Traditional CC Economic Reality
• Community Colleges and Four-Year Colleges are
set up to think in terms of fiscal periods (usually
fiscal years)
• Simplistically, this year’s salaries, fixed costs, &
variable costs seemingly need to be offset by this
year’s revenues from tuition, FTES
apportionment, and other sources of revenue
National Center for Inquiry & Improvement
www.inquiry2improvement.com
A Different (?) Way of Thinking
• As has become common in industry, we could think
about deviating from our “traditional” model
toward a return-on-investment (ROI) approach
• Under this approach, we use our “traditional”
model as the baseline for costs and revenue
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Incremental Costs
• We first account for the additional costs
associated with the aforementioned more
successful alternative programs. Examples:
• Incremental salaried faculty/staff
• Hourly personnel costs (tutors, etc)
• Stipends
• Equip / Supplies / Facilities
• Note: We are quite good at assigning incremental
costs to non-traditional programs!
National Center for Inquiry & Improvement
www.inquiry2improvement.com
The Flip Side – Incremental Revenue
• Successful alternate programs have the
following outcomes:
•
•
•
•
•
Increased course retention
Increased course success rates
Increased persistence
Increased progression to college-level work
Increase in overall units attempted / earned
National Center for Inquiry & Improvement
www.inquiry2improvement.com
What is the coin of the realm?
• FTES & Tuition
• As an example, in California, colleges generate
$4,361 per FTES in apportionment
• In most states, colleges also keep tuition
and/or fee revenue
• The incremental FTES apportionment and
tuition generated in successful alternative
programs can, in many cases, offset the
incremental costs
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Caveat before we move on…
• This approach runs into an issue if a system caps
apportionment funding and the college is at or near
its enrollment cap
To our knowledge, only California does this
Somewhat ironic, given that this model was developed in
California
• Further irony - the caps are based at least
partially on historical failures in developmental
education
Could flood the system with successful students
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Incremental FTES $$$ Not Without Costs
• Instructional costs for students who are retained and
progress – may require adding additional sections
May fill non-full classrooms especially in productive GE
courses
• Overhead / infrastructure costs
Estimating is very complex
• Taken together, we estimate a range of 40%-75%
“profit” from FTES
National Center for Inquiry & Improvement
www.inquiry2improvement.com
What the Model Doesn’t Do
• This is not a sophisticated economic model
• It doesn’t take into account economics concepts
such as net present value (NPV), economic rates of
return (IRR), discounting, etc.
• Ultimately, it is designed to be an order of
magnitude demonstration
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 4:
Modeled Outcomes & Other
ROI Thoughts
www.inquiry2improvement.com
Modeled Profit Summary
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Modeled ROI Rate Summary
National Center for Inquiry & Improvement
www.inquiry2improvement.com
The Bottom Line (Literally)
• In many cases, supposedly expensive programs
such as Statway / Quantway do pay for themselves
•
•
Real-world examples from Cerritos, Chaffey, De Anza &
Foothill in “Economics of Innovation” section of CA BSI
paper on Developmental Education
Examples also applied to Illinois, Kansas, New York,
Ohio, and Texas funding structures
• In many cases, these programs produced a net
financial benefit for the college
• Can estimate 3-year incremental FTES for SW / QW
now; will have real-world data in 2014/2015
National Center for Inquiry & Improvement
www.inquiry2improvement.com
The Soap Box
• We should be looking to expand these more
successful non-traditional basic skills
programs for moral, ethical, and societal
reasons
• This approach suggests colleges also may
have a financial incentive for doing so
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Growing Pains
• As programs are expanded past their current
small reach, they will likely experience some
decrease in incremental success
• Flip side is that costs do not scale up
proportionally – and this usually is a good
thing as economies of scale emerge
• May balance each other out?
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 5:
Demonstrating Cost Efficiency
& Cost Savings Per Student
Metrics for Statway &
Quantway
www.inquiry2improvement.com
Cost Efficiency Description
•
Uses the incremental cost summary from
used in the ROI Model
• Calculates the incremental spending
increase per student as a percentage
increase
• Assumes a decrease in time to degree
(modeled at 1 semester or 1 year until realworld data is collected)
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Cost Efficiency Description (2)
• Uses the 3rd semester persistence rate and
2-yr, 3-yr, 4-yr, and 5-yr graduation rates
• Uses Control Group spending and SW/QW
spending to estimate overall costs / group
• Produces a net savings per SW / QW
completer
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Student Cost Savings Description
• With decreased time to degree, student
savings in tuition and books are estimated
• Uses customized local tuition and average
books cost
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Student Wage Gains Description
• Students will also experience a wage gain
based on the incremental value of their
completion vs. wages while in college
(often only PT wages).
• This incremental year may occur directly
after the AA for terminal degree
completers, or after the completion of BA
•
either way it’s a 1-year wage gain increase
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 6:
Early Modeled Outcomes on
Cost per Completer, Student
Tuition & Books Savings, and
Wage Gains
www.inquiry2improvement.com
Modeled Cost Per Completer Summary
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Modeled Student Tuition & Books Savings
Summary
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Modeled Student Wage Gains Summary
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Part 7:
Final Thoughts
www.inquiry2improvement.com
Summary
•
Numerous ways to estimate the fiscal impact
of innovative programs on colleges and
students
•
ROI analyses best for estimating net
revenue impact to colleges; also tricky as it
bumps up against state funding issues,
college enrollment trends & capacity issues
•
Cost efficiency analyses useful for
demonstrating effects of improved
completion / time to degree
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Resources
• The downloadable Excel Model and
accompanying white paper are available at:
• http://www.inquiry2improvement.com/publicatio
ns-resources
• While examples use SW-QW, have also
developed similar models for tutoring,
supplemental instruction, structured
pathways – can be customized to most
situations
Completion by Design? Completion by Accident?
National Center for Inquiry & Improvement
www.inquiry2improvement.com
Find Out More
• The National Center for Inquiry & Improvement
website
www.inquiry2improvement.com
• Dr. Rob Johnstone, Founder & President
rob@inquiry2improvement.com
• Carnegie Foundation for Advancement of
Teaching’s Statway & Quantway:
http://www.carnegiefoundation.org/developmental-math
National Center for Inquiry & Improvement
www.inquiry2improvement.com
46