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Business Officer Magazine

Hot Numbers

By overhauling its summer school, the University of Texas at El Paso cooked up a big jump in enrollment and several millions more in operating revenue. Here leaders share the model used and lessons learned.

By Jose Carlos Hernandez

*Traditionally, the academic courses at the University of Texas at El Paso (UTEP) have concentrated on large enrollments in the fall and spring semesters that were supplemented by limited summer term offerings. This traditional course scheduling model was embedded within the budget process, which focused on fall and spring instructional costs. The model fully funded fixed operating costs for 12 months related to physical infra-structure and administration, but largely ignored opportunities to offset these costs with increased summer instructional productivity.

Then UTEP overhauled its summer school management philosophy, increased its operational efficiency, and generated additional tuition revenue and state support. The new strategies resulted in a 17 percent increase in semester credit-hour production, as well as an additional $1.8 million in operating revenue for the summer of 2008 and an additional 2 percent growth in the summer of 2009, for a combined total increase of approximately 19 percent.

The process began in the spring of 2008 when, after reviewing a variety of possible policy changes, we decided to pursue a proposal developed by UTEP Provost Richard S. Jarvis that would increase curricular offerings in the summer and meet three institutional goals:

  • Provide opportunities for more students to progress toward graduation. UTEP is located in the El Paso, Texas–Juárez, Mexico, border area, a binational metroplex with a population of approximately 2 million. In the fall of 2008, the institution enrolled more than 20,000 students, 
90 percent of whom were from the local U.S.-Mexico border region (see Figure 1). These demographic trends have continued, and enrollment increased to more than 21,000 in the fall of 2009. UTEP enrolls primarily first-generation students and has a significant international student population, many of whom—given our proximity to Mexico—are commuter students.
  • Increase tuition revenue in light of dwindling state resources. Texas deregulated tuition policies in 2003 and delegated the authority to set tuition pricing levels, previously controlled by the state legislature, to college and university governing boards. The delegation of authority came in the wake of significant and retroactive general revenue appropriation reductions that the state implemented in 2002 and led to cost increases of 61.4 percent between 2002 and 2006, according to a report published by the state comptroller in 2007. The report also indicates that these increases occurred during a period when real-dollar appropriation increases were accompanied by a reduction—in constant real dollars—of nearly 20 percent.

    State appropriations are allocated biennially via a proportional allocation model based on institutional semester credit-hour production (weighted by discipline) relative to statewide semester credit-hour production. Therefore, increased summer enrollment would not only generate additional tuition revenues, but could also improve our proportional allocation of state support. The timing of these changes was critical because the summer of 2008 was the beginning of the base period for the following biennium.
  • Pursue increases in extramural funding for research in an ongoing effort to achieve Tier One or National Research University status, while continuing to support academic program development at all levels. This is an extremely challenging goal in an environment of decreasing state resources. Figures 2 and 3 show that UTEP consistently ranks among Texas’s top five public academic institutions on federal research and total research expenditures and is clearly on a growth path toward success in this area.

Summer Model Slowly Emerges

The proposal developed by Jarvis allowed increases in curricular offerings, with a focus on areas students need for degree completion—thereby increasing graduation rates. However, the increased offerings required additional summer budget support.

The annual budgeted revenue estimates, while conservative, were on track and left little room for additional allocations. Encouraged to look for alternative funding strategies, Jarvis determined that changing summer compensation practices would increase the purchasing power of the budget allocated for summer instruction. Cynthia Villa, vice president for business affairs, agreed to fund the incremental direct costs related to enrollment gains in excess of budget.

Our plan to enhance summer enrollment revolved around three changes:

  • Revise faculty compensation for summer courses. 
  • Amend institutional budget management philosophies to provide incremental direct cost support driven by enrollment increases. 
  • Implement an incentive model to reinvest increased revenues.

Revising summer faculty compensation rates proved to be the most challenging of these changes. Historically, faculty members had received one ninth of their nine-month base salary for each course they taught in the summer. Our budget, human resource services, and provost’s offices developed an alternative policy after reviewing the practices at other Texas public institutions. We modified the existing policy to incorporate maximum limits that varied by tenure track status and level of preparation for non–tenure track positions.

Initially, faculty members resisted this change, which would significantly influence the total compensation of faculty in high-cost disciplines. But, their resistance was tempered by the fact that enhanced summer offerings would increase the working capital available to the colleges and make additional class sections possible. After discussions, we implemented the policy.

UTEP’s annual operating budget includes enrollment growth projections and all estimated resources are allocated for the entire year, including a separate fixed allocation for summer instruction. We adjust this amount annually to mirror changes embedded in the institution’s salary policy and to accommodate incremental enrollment growth funding needs as requested by the provost.

Historically, we did not make real-time adjustments to this pool of funds 
for actual enrollment variances from budget estimates. This practice, coupled with the historical compensation practices, resulted in a lack of flexibility within financial resources that limited summer curricular offerings. To support additional enrollment gains, Villa agreed to consider real-time incremental funding requests for those colleges that exceeded a modest 5 percent in semester credit-hour production over the previous year.

Tool Tracks Progress 

To measure our overall progress toward our enrollment goals and to support a course-level, break-even enrollment analysis, the institutional reporting office and the budget office collaborated in developing a course-level analysis tool. Our enrollment management analytics tool included revenues available to support instruction (tuition and state formula funding) and total costs (direct instruction, academic administration, other college commitments, staff benefits, and estimated institutional overhead).

Our colleges used this tool to track the consumption of their summer allocation, which equaled the prior year’s funding plus 3 percent, and to measure the course-level impact on institutional margin. The tool gave us a holistic view of a college’s progress toward enrollment goals. Any requests for incremental funding increases had to be supported by a demonstrable positive effect on a college’s summer 
goal attainment.

As an incentive, we developed a reinvestment model to return a portion of the incremental revenue to the colleges that successfully increased their semester credit-hour production. We limited participation in the reinvestment model to colleges that exceeded a minimum 5 percent enrollment-growth target. Net changes in instructional margin were based on the college-level results reported in the course-level analysis tool.

Which Model to Choose?

Our budget office developed three different allocation models for consideration by the president, provost, and vice president for business affairs:

Model 1: Changes in instructional margin. This model proportionally allocated the change (current year over prior year) in net institutional summer instructional margin based on the margin change calculated for each college. This model allocated incentives based on results that combined both enrollment growth and cost management. Allocation results favored disciplines with high-formula funding weights, as these tended to generate more formula revenue. Colleges in which enrollment growth focused on master and doctoral enrollments benefited disproportionately, despite the higher unit-of-instruction costs.

Model 2: Changes in total semester credit hours. This model proportionally allocated the change in net institutional instructional margin based on total semester credit hours (unweighted) relative to total semester credit hours generated by all eligible colleges. This model allocated incentives based strictly on growth in semester credit hours, irrespective of unit cost. Allocation results favored disciplines with high demand and low unit-of-instruction costs, where it is easier to offer more sections irrespective of effect on gross revenue increases.

Model 3: Hybrid margin/total semester credit hours.  This model allocated 50 percent of the net instructional surplus in the same manner as articulated in Model 1 and 50 percent based on Model 2. 
We selected the 50/50 distribution with the intent that this model would balance the strengths and weaknesses of the first two models by distributing the allocation between the two methodologies, although we were uncertain as to whether it would actually do so.

We decided to implement the hybrid Model 3 as the preferred allocation methodology and we asked that reinvestment funds be characterized as one-time allocations, encouraging deans to use them for nonrecurring costs. We limited use of the funds to the following activities:

  • Graduate student support.
  • Undergraduate student support for engagement in faculty-directed creative or research efforts.
  • Projects designed to improve instructional effectiveness.

Evaluating the Process

Lesson We Learned: Communicate Clearly and Often

For the summer of 2008, the University of Texas at El Paso implemented a number of changes with startling nimbleness that required close collaboration between academic and administrative leaders. Over a very short four-month period, the leaders created policies, management tools, and curriculum plans for expansion of our summer curriculum.

This condensed time frame facilitated quick decisions on issues that could have otherwise languished in extensive research and discussion, but simultaneously limited the time available to test the effectiveness of decisions. A longer timeline may have delayed implementation, thereby diluting the positive effect on both tuition and state funding revenue streams.

In retrospect, we can pinpoint communication as a weak link in the process. Miscommunication created unnecessary tension among groups that clearly needed to collaborate with one another. For example, the details of agreements between academic and business affairs during policy and program development were imprecise. To further complicate matters, a conflicting version of the underlying details was communicated to deans and academic business officers, creating a different set of problems.

Many of these issues likely resulted from the condensed timelines associated with the program. But, we could have mitigated them by maintaining detailed documentation of the initiative details, distributing them to all constituent parties, and then recapping the information at a subsequent planning meeting and taking the time to ensure concurrence on all points.

While these actions might have been time-consuming, the resulting documentation would have served as a touchstone for resolving programmatic misinterpretations as they arose. Such effective communication is an area we should focus on in future change efforts.

In the aggregate, the changes generated great results, increasing our overall semester credit-hour production by 17 percent and generating additional tuition revenue of about $1.8 million. We used about $500,000 of the increased revenue to fund real-time budget adjustments needed to support the increased curricular offerings. We distributed the remaining $1.2 million to the six colleges that met the incentive plan participation criteria, out of the eight colleges at UTEP.

The structural changes to our summer compensation policy have remained in place and are no longer an issue. The compensation policy changes allowed the institution to maximize the efficiency of its existing resources by decreasing the unit costs of instruction. In the summer of 2007, before the implementation of the compensation policy changes, the summer semester credit hours represented 10 percent of total semester credit-hour production for the academic year. This number had increased to 12 percent by the summer of 2009.

Despite the overall gains, we hope to extract more productivity and further increase the efficiency of our summer instruction operating activities. We realize this is a difficult proposition, given competing priorities in regular instruction and research efforts related to our Tier One goals.

Our college deans and business officers continue to use the course-level analysis tool to manage their summer budget and curricular offerings. This is notable, given the level of effort required to update the tool for direct instruction costs and indirect college commitments. The analysis tool is built in Excel and all course-level data must be entered manually. Not only is this process labor-intensive, but the overall complexity of the tool created initial difficulties. Colleges assumed that the single-year net instructional margin was in fact the amount available to fund the reinvestment incentive, and clarifying this misunderstanding took time.

State funding is provided as a fixed award based on a historically reported period of semester credit-hour production. The course-level analysis assumed a linear relationship between revenues and semester credit hours that would not materialize, if at all, until a future funding period.

This difference between changes in productivity and state funding contributed to a potential overstatement of the instructional margin. Colleges tracked the reinvestment incentive with great anticipation as they saw their single-year margins grow with each additional course. Their earnings were much smaller when we clarified that only the incremental change in margin, over the prior year, would be available.

Given decreases in funds availability and competing demands, we did not implement a similar reinvestment plan for the summer of 2009.

Measuring State Support Proves Problematic

While the program resulted in a significant increase in tuition revenue streams, its impact on state funding is more difficult to ascertain. UTEP received a large increase in state support, but the complexity of the formula allocation mechanism complicates our ability to attribute these gains to our summer enrollment enhancement efforts. Total base-period semester credit hours increased by approximately 5 percent instead of a predicted 3 percent, generating the potential for increased state support.

Increased state support, however, is a function of institutional semester credit-hour productivity as a percent of total statewide productivity. Therefore, the funding power of the productivity increases is only positive to the extent that increases exceed the average growth by all institutions.

What we do know is that our summer enrollment program led to new compensation guidelines, increased productivity, and additional revenue to support ongoing activities and institutional goals.

JOSE CARLOS HERNANDEZ is associate vice president for business affairs and comptroller at the University of Texas at El Paso.