The past eight months have thrown up challenges for universities greater than they have ever faced before. From the closure of international borders to the massive disruption to movement of people, COVID-19 has forced universities to reinvent their way of working almost overnight.
Many have risen to the challenge. Classes were transferred online. Short courses were rapidly created. Researchers pivoted to examine the impacts of the virus. New collaborations sprang up. Efficiency initiatives were launched, scaled up and accelerated.
Now they have adapted to the immediate problems, universities are thinking about the longer-term. It is clear revenue will not rebound any time soon. With the federal budget deficit forecast to reach $214 billion this financial year, appeals for more funds from government are likely to fall on deaf ears.
Universities need to find ways to work with reduced resources.
Universities will need to make some tough choices when it comes to saving money. The shortfall caused by COVID-19 has been forecast to reach between $11.5 billion and $18.1 billion by 2024.
It is unavoidable that valued colleagues will be farewelled and treasured initiatives will be shelved. But with prudent management, universities can make the decisions they need to get out the other side in a strong position.
Recently Nous analysed the finances of 15 leading Australian universities to understand where they have the capacity to reduce operating costs. We applied conservative assumptions based on our knowledge of those universities and actual savings from our work with universities in Australia, the UK and Canada.
What did we find? On average, these universities can each save around $100 million (ranging from $25 million to $220 million), which is an average of 9.5 per cent of their operating costs. In total, these 15 universities can save $1.52 billion from their operating costs.
Based on our experience, these cuts are achievable and sustainable. They enable universities to direct scarce resources to core functions of teaching, research and engagement. For some institutions, these savings may be fundamental to their viability.
These savings come from five fundamental strategies:
By implementing these strategies, universities can not only reduce costs, they can strengthen their institutions and position them to succeed through the pandemic and beyond.
Many leaders will recognise the need for reform but see challenges in implementation. This is understandable given the scale of the task.
From our experience, major change needs to be segmented into three time horizons:
Short-term savings will plug budget holes but will not deliver value in the long term. Cautionary tales abound: before working with Nous to improve their cost reduction, some of our clients underwent substantial, painful staffing cuts, incurring large redundancy costs, only to see costs quickly rebound to levels higher than before the cuts.
Sustainability comes from a well-planned portfolio of changes that address the underlying drivers of cost and value in higher education. These underlying drivers include governance and empowerment, complexity, specialisation, quality, automation, standardisation and incentives.
From our experience working with leading universities in Australia, the United Kingdom and Canada, we know that long-term success comes from a portfolio approach focussed on the interventions that will deliver greatest long-term value.
Get in touch to discuss how we can help you to achieve sustainable cost savings.
Published on 16 October 2020.
 Modelling individual Australian universities resilience in managing overseas student revenue losses from the COVID-19 pandemic, University of Melbourne, 28 May 2020