Gail Biddison and Tom Hier are principals of Biddison Hier, Ltd., Management Consultants to Higher Education, Washington, DC. Demands for greater efficiency and cost controls on the part of higher education, escalating for years, have now reached the level of the United States Congress. Reacting to the fact that tuition costs have increased three times faster than inflation (the price of attending a four-year public institution increased 234 percent in the last 15 years, while median household incomes increased only 82 percent), both the House and the Senate this summer passed legislation directed at forcing colleges and universities to exercise greater financial accountability and control.
One of the largest assets on any college or university balance sheet is its facilities. All told, higher education owns and operates more than 4 billion square feet of space which have a replacement value of more than $500 billion. This substantial asset also represents significant costs to paraphrase the old adage that "time is money," space is money. So clearly, given the size of the facilities portfolio, efficiencies in this area are one of the keys to institutional cost savings.
One thing is certain: significant change is not optional. If higher education doesn't take aggressive action on its own to control costs, controls will be imposed upon it. But in the facilities arena, what kinds of initiatives are most likely to yield major, meaningful efficiencies and cost savings that can be measured at the institutional bottom line? What do you need to do to achieve them?
For the purpose of finding ways to wring dollars out of campus space, it is useful to divide campus space into two categories, non-revenue generating and revenue generating. Non-revenue space has no direct source of revenue to support its operation. Classroom facilities are one example. Funds to maintain and operate classrooms typically come from tuition or other general revenue sources. Revenue-generating spaces, as the term suggests, are associated with identifiable revenue streams. A good example is campus housing, paid for by room fees.
This article uses these two types of space to illustrate the potential cost savings that can result from good space management practices.
While classrooms typically represent a small portion of total campus square footage, operational costs are substantial. Often functioning as 24-hour spaces, classrooms place a high demand on utilities and require daily maintenance.
Perhaps the most significant threat from a cost standpoint is the introduction of technology into the classroom. Very simply, technology eats money. It is expensive to purchase and even more costly to support and maintain. On many campuses, the "classroom technology plan" has consisted of little more than finding ways to wire buildings for access to the Internet, sporadically installing computing workstations at instructor podia, and cobbling together funds to purchase computers for a few computer labs scattered across campus. Equipment standardization, a hierarchical plan for distributing technology around campus, and technical support and training are more often a hoped-for glimmer in the eye of an information officer than a reality. This ad hoc approach to classrooms leads to the frustration of many; more importantly, it can be expensive and consumes resources inefficiently.
The "politics of space" is another complicating factor. At some institutions, classrooms are among the most contentious real estate on campus. "Owners" of classroom space are many, and the incentives and desires to share are few. Reminiscent of kindergarten, favorite words of those who control classrooms are often "mine" and "no." This leads to highly underutilized spaces, inequitable distribution of classroom technology resources, and ultimately higher than necessary capital and operating costs for instructional space.
The Cost Impact
So what is the cost impact? To understand this, a shift in thinking may be helpful. The tendency is to think of classrooms as "free goods" they're just there. Widely accessible, part of the basic infrastructure of running a university, and paid for, so why worry about the cost? But, of course, they're not free. Classrooms consume resources (people, dollars, technology) just as any other physical investment on campus. With this frame of reference classrooms as one claimant on an institution's scarce resources the importance of understanding the cost impact becomes clearer. Measuring the cost of classrooms is a tricky business, and an evolving field in the world of higher education management. Classrooms do not produce revenues that can be measured, so the focus must be on the cost side that is, finding ways to reduce the cost of space. This leads indirectly to assessing the productivity of classroom space, since productivity improvements ultimately result in lower costs per square foot.
Measuring Classroom Productivity
One standard way to measure classroom productivity is to look at room utilization, the percentage of time a classroom is occupied in a representative week. While there is no definitive room utilization standard, conventional wisdom suggests that utilization targets of 66 percent or better are reasonable. (That is, on average, an institution's classroom should be occupied 30 to 33 hours in a normal 45 to 50 hour week.)
Classroom utilization analysis is an emerging discipline, and there is not yet a wide body of empirical utilization statistics. Our research, however, has turned up utilization rates as low as 20 percent; utilization greater than 50 percent has been rare. (Public institutions are often held more strictly to utilization standards than private institutions and, as a group, tend to have better utilization.)
The cost of poor utilization is substantial, as an example illustrates. A campus that schedules roughly 4,000 hours of course time (between 1,300 and 1,800 courses) in an average week and with an average room utilization of 45 percent will require a minimum of 237 rooms to accommodate all of its courses. At 60 percent utilization, the number of rooms required is 178. The difference almost 60 rooms is substantial in cost savings and potential benefits to the institution.
Cost Savings and Benefits
Cost savings are realized in two ways:
Savings: are the costs associated with new construction. Sixty rooms at an average of 600 square feet per room is 36,000 square feet of classroom space. At a conservative cost of $120 per square foot for new construction, an institution saves $4.3 million of its resources for other uses.
Savings: as above, the cost of constructing new space is reduced (in this case, for other parts of the campus that are the beneficiaries of the excess classroom space). Additionally, while operating costs are not necessarily reduced (as long as the space is kept in service), they can be reallocated to other campus budgets, in sync with space reallocation, so that responsibility for operating overhead is better matched to the consumers of space. To do otherwise distorts the true cost of campus operations. In this example, if operating costs were $7 per square foot, classrooms would bear an annual burden of $252,000 for space that it did not really require.
Table 1 summarizes the potential cost savings that attend reductions in the classroom inventory.
The Power of Objective Quantitative Data
Examples like the one in Table 1, although admittedly simplified, not only illustrate the potential for wringing cost savings out of classrooms, they yield quantitative, objective data that provide a real picture of costs associated with policy decisions. In the example, the campus debate is instantly reframed. Instead of adhering to the common wisdom that "students don't like early morning classes and faculty won't teach on Friday," campus administrators must ask the question, "Is a 45 percent room utilization really okay when we can pick up 36,000 square feet of space for other uses just by scheduling courses a bit more intensively in less popular times?" In short, this approach to classrooms permits the institution to make informed choices about resource allocation, and can lead to significant cost savings over time.
Revenue Space Housing
In the arena of cost savings, student housing stands out for three reasons: 1) its connection to the mission of the institution makes it more than just a "bottom line" to be improved, 2) it is potentially both a huge asset and a significant liability, and 3) it offers the potential for significant operational cost savings and efficiencies.
Link with mission. While a significant producer of revenues, housing is often closely linked to the educational mission of the university. Accordingly, maximizing revenues and minimizing costs is usually not a primary goal for a housing system.
Asset and liability. Much housing was constructed in the 1960s and 1970s and as such, for a number of years has been generating substantial revenues. It has been tempting for many institutions to divert some portion these revenues to other university needs in times of budget crunches, and many have done so. This has resulted in either underfunding or no funding at all of reserves to perform ongoing maintenance and repairs on the housing stock. The result of this practice is that many housing facilities are in deplorable condition, as run-down as some inner city neighborhoods.
This lack of attention to housing maintenance in the past has turned this asset into a liability. Repair costs for deferred maintenance alone for a 3,000-bed system can easily reach $50 million and higher. And before too long, these investments will have to be made, if only to stave off the substantial liability issues that are associated with crumbling and unsafe housing. This will impose substantial new debt burdens and, ultimately rent increases, on the housing system.
Operating efficiencies. The advent of private sector student housing providers (in both development and management) has forced institutions to look more carefully at their own means of creating and managing student housing. In the process, opportunities for reducing operating costs, improving customer service and generating new ancillary sources of revenues are being uncovered on campuses. While this work is only beginning, early signs are hopeful that with equal attention to the business and program sides of the housing equation, operational efficiencies should be realizable without great sacrifices to the mission aspect of housing.
Options for Savings
Cost savings in the housing area may be viewed from two perspectives, active and passive. The active ways have received considerable attention in the last several years, and have received a boost from the entry of the private sector into the student housing market.
Active Cost Saving Measures
Developers have been building market-style housing in nearby neighborhoods off-campus for years; only in the last three to five have they been actively seeking to enter into partnerships with universities to build on-campus housing. While the focus has heretofore been on new housing, discussions are now beginning between developers and universities about ways to involve the private sector in the renovation of existing housing, a much more difficult and complex issue. Unlike bookstores and food service facilities where relatively small capital investments will suffice, the capital investments in housing can be substantial and would require many years to amortize.
Another relatively new "active" housing area where universities seek cost savings, or efficiencies, is in the area of housing management. The University of Pennsylvania last year awarded the management of not only its housing, but all campus facilities, to Trammel Crow. George Mason University in Northern Virginia has entered into its second three-year housing management contract with Century Management.
Passive Cost Saving Measures
The second avenue for cost savings is in what may be called "passive" areas. These are less obvious, but yield cost savings equally as dramatic.
There has been an assumption, often implicit or subliminal, that housing reinvestment carried with it the need to make major changes to the configuration of housing, i.e., to gut and reconfigure old-fashioned "dorms" as suites or apartments. Having performed market research with thousands of college students, we find some interesting counters to this assumption.
We have found that the primary determinant of housing "mix" is the composition of on-campus student populations. For example, a small, private residential college with the goal to house all freshmen, 50 percent of sophomores, and 20 to 30 percent each of juniors and seniors should have double bedrooms, singles, suites, and perhaps apartments. A large, public institution with the goal of housing 90 to 95 percent of freshmen, 25 percent of sophomores, and very small percentages of juniors and seniors would be adequately served with a very high proportion of dormitory-style buildings.
Also, administrators and staff often are more negative about the double bedrooms and community bathrooms than are students, particularly freshmen. After freshman year, tolerance for this type of living typically drops off dramatically, but freshman typically both tolerate it and like the collegiality it engenders.
These findings and trends bode well for reaping passive cost savings from student housing. Rather than engaging in costly, wholesale reconfiguration from dorms to suites and apartments that is a trend today, campuses can reduce the amount of investment required by better understanding student interests in and tolerances for different unit configurations including dormitories and tailoring their renovation programs accordingly. The savings that can be realized by avoiding major reconfiguration can be substantial.
A compelling statistic is that moderate reconfiguration (addition of common space, more community baths, etc.) can be expected to result in the loss of about one-third of the original beds in a residence hall, while more substantial reconfiguration to create suites or apartments results in the loss of half or even more of the original bed count. Since every bed lost represents lost revenue as well as the potential for new capital investment to create replacement housing, the differential financial impact between moderate and substantial reconfiguration can be eye-opening. A simple example illustrates the point.
Realizing Cost Savings: Implications for Managers
As we noted earlier, change (and significant change) is no longer optional for higher education. The combination of the threat of government intervention and regulation, the pressures of the commercial marketplace, and student demographics, to name just a few, are all drivers of this change. The need to realize cost savings is one significant aspect of this change.
Another significant change is in university organizational structures, with newly created positions for "executive vice presidents" and "chief operating officers," and new offices of "university services" being among the most observable developments. The creation of these offices signals the recognition that the universities which will thrive in the 21st century are those that accept the proposition that university administrators must move from a "caretaker" to a "manager" mentality. Uncovering innovative methods for measuring and controlling costs will be an important part of this new management philosophy.
This philosophy could bring with it new management models that may require fewer staff in middle management, but a staff with higher skill levels and more entrepreneurial spirits who will be more highly compensated. Those with an entrepreneurial bent will be in a position to make substantial contributions in "wringing dollars" to achieve cost savings that will make their institutions viable.
For enterprising facilities managers, two factors will be paramount in empowering them to generate cost savings and effect changes in space management quantitative data and a champion for change.
As the classroom example demonstrated, quantitative data, coupled with compelling analysis, is critical to shaping campus debate about issues of space management and ownership. It is the key to obtaining senior level/decision maker attention to an issue and getting the decision to make a change. The provost of one of the premier educational institutions in the country was prepared to make a major decision affecting space allocation "by fiat," if necessary, because the data presented about space utilization was "so compelling."
A Champion for Change
Every space management issue that involves substantial policy modifications to reap cost savings requires at least one champion, and ideally more than one. If no one "owns" the issue, then it is likely to die. Someone needs to be the keeper of the flame managing the data collection and analysis, assembling the right parties to develop consensus, and generally coordinating the effort for change. It is also helpful to have an institutional champion who either has the ear of senior decision makers, or is one, and who can ultimately bring the issue up for resolution.