Viewing education as a return on investment can be problematic. Just as one does not make ‘return on investment’ calculations for setting up public hospitals, libraries or parks, the benefits of higher education are accrued over extended periods and with unpredictable impacts.
In their excellent article, “Vice-Chancellors: ‘Funding of public higher education institutions is in crisis mode’,” (Daily Maverick, 19 January 2025) university vice-chancellors Professors Sizwe Mabizela and Thandwa Mthembu argue that higher education should be recognised as a public good and that funding higher education should not be viewed as an expense, but as a strategic investment in the country’s future.
Viewing education as a return on investment can be problematic. Just as one does not make “return on investment” calculations for setting up public hospitals, libraries or parks, the benefits of higher education are accrued over extended periods and with unpredictable impacts.
Nevertheless, many of the universities that we work with do find return on investment to be a useful tool for managing and prioritising. Their thinking is reflected on how to be more effective, efficient and economic.
Above all, this helps them make better investments; investments where one improvement generates the funds for the next improvement in an ongoing, positive, virtuous cycle. The need for universities to make significant improvements has been exacerbated by dramatic changes to the funding landscape over the past five years.
Effective means responding to the socioeconomic need
Probably the first area that one thinks of when considering university funding is that of effectiveness; how effective are universities at supporting the economy?
The biggest bottleneck to growth in the country is reportedly no longer a shortage of capital. The biggest bottleneck, as seen by entrepreneurs and corporates alike, is a lack of proficient graduates to hire.
Over time qualifications become outdated; some need to be refreshed, others no longer match society’s needs. It is not just the marketing qualifications that the talk show hosts seem to always raise. There are other qualifications where the same student progresses from school, to Technical and Vocational Education and Training colleges, to undergraduate, to graduate and to an internship without being fully aligned to a competitive economy.
The universities we are working with are increasingly looking to reprioritise qualifications towards Stem (Science, Technology, Engineering and Mathematics) and toward professional careers where there is an identified scarcity.
To do this they are triaging other qualifications to make space in their curricula. By shifting to Stem subjects, and by refreshing the curricula and modalities of instructions, universities are starting to align their graduates to a changing economy.
In this context, many universities have stopped talking about entrepreneurship as a solution to not getting a job. Entrepreneurs are people who create substantial businesses.
As one academic put it in frustration, we are not creating “those entrepreneurs”, we are creating “subsistence entrepreneurs”. In his words, “entrepreneurship is about growing the economy, not about self-employment for people who cannot get a job”. This has implications for the business of education.
Efficiency means understanding the business of education
In any professional organisation, be it law, accounting, or consulting, an employee starts by understanding their profession’s requirements, but are then also expected to understand the business behind the profession. As Woody Allen once said: “We call it show business because it is a business; otherwise we would have called it show-show.”
Academics are expected to understand the business of academia. In a world of limited resources, it is necessary to understand where surplus is made, where deficits are accrued and how surplus can be reinvested to create further surplus, and ultimately value to the university, the student and the economy.
Yet until recently, if you asked an academic what to do to increase sustainability, they would suggest adding electives and qualifications. If you ask why costs are under pressure, they would point to the increase in student numbers.
Of course, this is (exactly) wrong. Income increases with the number of students. Costs increase with the number of staff, and, with the exception of very large classes, the number of staff is driven by the number of offerings, that is electives and qualifications.
Also, except for universities with massive endowments, it is the undergraduate teaching that generates the income. In almost all universities the undergraduate programmes subsidise the graduate programmes, which in turn generate prestige, which in turn is needed to attract the best students. This balance is delicate and requires strategic choices and active management.
Funnily enough, when they run the numbers, universities find that it is not the few very big classes (such as Economics 101) that bring in the money. Rather it is the rationalising of the small classes, marginal qualifications and electives, that squeezes the waste out of the system and makes surplus available for the big strategic investments.
And as with most professionals, academics rate marginal income disproportionately to the core business. For a R2-billion organisation, renting out facilities, contract work and an additional couple of hundred publications will have a marginal impact on the budget. A 5% improvement in the core business — actually quite easy to achieve — can easily be worth an extra R100-million in revenue.
More and more universities are taking the income and expenditure responsibility away from the CFO and assigning that accountability to the academic management.
What does it mean to be economic?
Economic means getting the best value for money. This applies to many parts of running an institution; from security to energy. One area of importance is accommodation.
Customer-facing organisations have a concept: share of wallet. Student accommodation represents a significant share of wallet for the student and the parent. Pedagogically suitable accommodation has been shown to have a significant impact on student success.
We have assisted several institutions with their student accommodation strategies, and on occasion taken them through to testing the market with tenders that cater for many diverse student accommodation modalities.
Where in the past universities were happy to wait for the government to provide a capital budget and build on that basis, increasingly they are starting with the size of the accommodation deficit and working back from that. There is no point, as one chief operating officer intimated, to spend R50-million on 200 beds when we have more than 6,000 students needing assistance.
Even worse, we have seen examples where hundreds of millions of rand of government money was spent, but at a cost that was effectively twice the price of an equivalent new, private-sector development.
In the past this might have been seen as a Department of Higher Education and Training grant that was earmarked and therefore non-fungible. Vice-chancellors are now less likely to spend an extra R100-million on an overpriced development; they see the loss as an opportunity cost, rather than a Department of Higher Education and Training capital allocation.
This is equally true of lecture theatres where targeted spending can save significant operational costs. This brings us to the need for well targeted and well managed investment, which can have a payback of less than three years.
Return on investment
There is a saying that in business you need to spend money to make money. In any organisation the ability to invest well is a virtuous cycle, with the investment generating income that can be used for future investment to generate further income.
There are numerous examples of this in the university environment, from lecture theatres to automation to student support.
One university looked at the pass rate of all the students in all their modules. Of the nearly 200,000 registrations, over one in four were failing or dropping out. Surprisingly, just 70 of 1,400 subjects were responsible for over half of the loss, the student failure and dropout rate.
The university was able to attach a cost to these losses. Initiatives could be then tailored to each of these “bottleneck subjects”. In the past, student support was funded through donations, and with special motivations to various strategic funds. Now, instead of looking to soft money, the funding will be sourced from future savings.
More importantly, the funding could be done to scale. Taking a leaf from the private sector, savings with a payback of less than a year don’t even need to be budgeted for. They pay for themselves within the first budget cycle, and from then on they just keep giving.
Implications of the change in the funding landscape
Until a few years ago, the biggest income for most universities has always been the “student input grant”, the grant given by the state per student enrolled. The biggest income item is now student fees.
This has many implications, including ballooning student debt, and as professors Mabizela and Mthembu indicate, the start of the academic year “has often been marred by instability and disruptions, which appear to pit students against universities”.
The changes in the landscape affect the expectations of the student, the relationship of the student to the university and the relationship of the university to the department and, as the intermediary, the role of the university between the student and the National Student Financial Aid Scheme.
In the universities where we work, these changes are being understood as part of the strategy, as opposed to the strategic planning. Within the complex academic governance structures, we are seeing vice-chancellors playing a more direct role, highlighting and managing the difficult choices needed to get more done, but with fewer resources. DM