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January 16, 2023 | Labor cost benchmarking

Smarter benchmarking helps colleges thrive

Colleges and universities are increasingly being asked to support their decisions with data. A 2022 report from Educause highlights this as one of the top trends driving institutional decision-making and strategic planning for the future.

Having reliable, actionable data at the ready has become a critical component for running day-to-day operations at the university level. The proof for this is evident in a growing number of data governance and benchmarking initiatives at institutions.

Benchmarking has the power to change organizational thinking and action. With access to benchmarking data, institutions can better understand and optimize their investments over time. It’s an underutilized approach to solving higher ed’s biggest pain point: providing high-quality education in the most efficient way possible.

What is benchmarking?

Benchmarking is the process of comparing your institution’s performance to others to gain insights into areas of improvement. This can take place internally, by comparing practices among departments or divisions, or externally, by measuring the institution against its peers and competitors in your industry or other industries. When done effectively, benchmarking can show where changes are needed, how to optimize existing resources, and where to make strategic investments to promote financial sustainability.

For example, the Higher Learning Commission, an accreditor, has developed several financial and non-financial indicators that can be used by institutions to benchmark internally and externally. Beyond maximizing financial, administrative and human resources decision-making, benchmarking data can also be leveraged to inform ongoing best practices that address key areas and emerging issues such as mental health, campus safety, student services, teaching and research, information technology, marketing and communications, fundraising, facilities, and diversity, equity and inclusion.

Despite its effectiveness, colleges and universities have been slow to adopt benchmarking. Developing standards for comparable, cross-institutional metrics has been a long-standing challenge. However, it’s an area where significant progress is being made.

What needs to change for benchmarking to work better in higher ed?

In the past, colleges and universities have used common benchmarking measures such as rankings, test scores, enrollment, and graduation and retention rates to gauge themselves against others. While these metrics can be valuable, they are not enough on their own to help an institution achieve financial sustainability or maximize return on investment. 

Labor cost benchmarking has become an important area of assessment because employees are typically the largest expenditure for institutions. Staff salaries and benefits may total up to 70% of total spending. Benchmarking labor spending can also be useful for accreditation reporting to demonstrate credible and tangible evidence of being good financial stewards.

A major concern for higher education now is the looming enrollment cliff. Exacerbated by the COVID-19 pandemic, the enrollment cliff is a projected reduction in the number of high school graduates who will enroll in college. The incoming college population is expected to decrease by 15% between 2025 and 2029. Rather than bracing for the worst and hoping for the best, leveraging data to chart a strategic course of action is the best way forward for colleges and universities.

How does smarter benchmarking allow institutions to thrive in the face of market disruptions? 

Smarter, data-driven benchmarking can better illuminate where hidden opportunities lie to reinvest in student success. 

When major market disruptions occur, it’s only natural for leaders to want to shift their immediate focus to cost cutting and layoffs to stay afloat. However, it’s crucial to understand the data first, because in some instances resource reallocation might be the wiser choice than cost cutting in the long run for overall financial stability and return on investment. It’s equally as important to understand where the institution is underinvested in order to strike a proper balance. 

Once comparable and actionable data is made available, administrative officers can begin answering questions such as: Are our labor investments aligned with our university mission and strategic initiatives? Which activities do we need to be investing in more to remain competitive and best serve our students? Which administrative activities are we investing in more compared to benchmarks, and what is our return on these investments?

Benchmarking is all about learning from others. Harnessing the power of data among peers creates an important intersection for collaboration and learning. With more strategic cooperation and collaboration, higher ed can leverage data to improve how it efficiently and effectively serves students and staff. It can adapt and evolve in a manner that better aligns with stakeholders’ needs, while at the same time colleges stay true to their missions.

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