A Tale of Two Colleges
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair … —Charles Dickens, A Tale of Two Cities
From 2000 to 2006, Babson lost $33 million on its operations. In the following five years, the College earned $18 million on its operations on a GAAP (Generally Accepted Accounting Principles) basis. What changed?
The College worked hard to stabilize its finances, operations, and programs. The Board of Trustees mandated balanced GAAP finances for the first time in FY 07, and at the time we thought it would take four years to attain that stability. We accomplished it in a year by employing the following measures.
We created a targeted discount rate (30–33%) for undergraduate financial aid, and we stayed within that target. Financial aid can grow only at the rate of the growth in tuition.
Earlier in the decade, we had about 100 more students in the fall than in the spring due to agreements related to study abroad programs and students who graduated in December. To even out the population on campus, we took several steps: dramatically increased the number of students studying abroad but paid for more of their programs so we weren’t required to accept students in return; offered key courses in the spring and fall to give students flexibility; and identified and created study abroad programs for the fall.
We repurposed more than 50 rooms in the Babson Executive Conference Center for use by graduate students and repurposed two graduate dorms to house 80 undergrads. By increasing our class offerings and admitting a January cohort, we have expanded summer enrollment.
To make up for declining enrollment in the Evening Program, we have established and grown the Fast Track program in Wellesley and San Francisco, although the program has experienced uneven growth and volatile revenues.
We have increased our capital spending by 10% each year since 2006, allowing us to manage more of our critical plant needs before they become expensive emergency situations. We also have gone through several rounds of staff layoffs and hiring cutbacks, limited staff salary increases, reorganized, and employed other expense reductions. These efforts were to improve the bottom line financially and to free up funds for other investments.
We have renegotiated substantially more favorable terms with our vendors or changed vendors for a variety of services. Our new Advisory Committee on College Priorities made significant strategic changes in our approach to health insurance, which is changing our coverage and cost structure and has resulted in dramatic savings. We also are a founding partner of the first college and university health insurance purchasing group in Massachusetts, which will be operational for our next fiscal year.
The College has made this progress in a time of striking economic dislocation and uncertainty. Our debt, several revenue streams, endowment, tuition, giving, and other key financial elements have been under greater stress than at any time in the last 30 years. In spite of this, we have created a balanced Five Year Plan with our annual operating performance projected to be between $1 million and $2 million positive for each year through 2016. That is an operating margin of about 1% each year (our operating budget is $169 million in FY 12). This performance is based on some conservative assumptions on revenues and expenses but also on no new programs, initiatives, or investments. It includes steadily improving performance of some very volatile revenue streams.
In these next five years, we face three key challenges. Each carries substantial financial cost that is not included in our Five Year Plan.
- Building the faculty of the future.
- Investing in the physical plant to keep up with programs, environmental challenges, and community needs. Remember, we increased undergraduate enrollment by 350 students and have not added one square foot of space.
- Investing in technology to support and drive our programs forward.
We have a slightly positive budget situation that does not satisfy these three important needs. So if we look at programs, faculty, facilities, and technology as frozen at 2011 figures, we might be fine. But if we understand each of these as dynamic, then we have a revenue problem.
Where do we go from here? What is the answer? We must continue to diversify; continue to find new ways to leverage our brand; and continue to find opportunities to engage the world in the issues that we understand, teach, and manage better than anyone. The new revenue streams that we create together are the only way to meet our needs and provide insurance, stability, and growth to our financial model for the next five years and beyond.
The financial statements, from which the accompanying condensed financial data have been extracted, were audited by the College’s independent auditor, PricewaterhouseCoopers LLP.