Dr. Rob Johnstone New Jersey CC Student Success Summit Mercer County CC, New Jersey

1. The Economics of Innovation in the Community College: Exploring the Fiscal Considerations of Doing Things Differently Dr. Rob Johnstone New Jersey CC Student Success Summit Mercer County CC, New Jersey April 16, 2014

2. Agenda The Backdrop & Doing Things Differently Fiscal Considerations of Innovative Programs Demonstrating The ROI Approach in Action Demonstrating the Cost Efficiency / Cost Savings Metrics Approach Final Thoughts

3. Fiscal Considerations of Statway & Quantway – July 2013 Part 1: The Backdrop & Doing Things Differently

4. Data Backdrop • CC Completion rates for URM students 34%; non-URM closer to 50% • 55%-85% of FTF require Dev Ed; average of 25% to 35% ever complete transfer-level course • 80% of High-Income Students enter college; 29% of Low-Income Students enter college • College Graduation Rates by income (next slide)

5. College is a Meritocracy, Right?

6. Innovative Approaches • Programs and structures exist on every campus • IR data has demonstrated many as effective • Tend to be small in scope, serving relatively small numbers of students • Why?

7. Why are Non-Traditional Programs Isolated and Small? • Limited awareness about the research literature • Need for paradigm shifts in thinking of campus administrators, faculty & staff • Organizational change issues • Lack of IR resources to provide local data • “Pilot” mentality – w/o scaling plan • Perhaps the single biggest reason? • Perceived Cost of scaling these programs to many / most / all students

8. Other Motivations for Change • Student wage gains through higher education attainment – access to family sustaining wages • Workplace needs – 80% of 21st century jobs need advanced skills • Societal implications – lack of skilled workforce, competition in global economy • Equity & Moral Imperative – achievement gap vs. educational debt • Improvement Science Tenet: Every system is perfectly designed to achieve exactly the results it gets

9. It’s Our Moral Imperative • It’s easy to blame the student, blame K-12 preparation, blame parents, or blame the social, political, economic and educational conditions that create the systems that produce the inequities • Story on central line infections from healthcare (30,000 – 60,000 deaths per year to essentially zero) • Economic sustainability, social mobility and a living wage are on the line

10. But… • Community Colleges have to pay their own bills. Thus, we are left with a situation where: • Society and our moral imperative demand that we succeed in our mission of developmental education…. • But our funding system seems to suggest that we at the CCs can’t afford to do so

11. Part 2: Fiscal Considerations of Innovative Programs & Approaches

12. Fiscal Approaches to Consider • Cost analysis • Cost effectiveness / ROI • Cost efficiency / Cost per Completer • Cost reductions per student • Wage gains per student • Economic impact for communities

13. 1. Cost Analysis Approaches • An analysis of what it costs to “do things differently” vs. the traditional model • Can include costs such as: • incremental salaries • release time for faculty • stipends • IR support • tutors • travel • supplies • facilities* • Note: colleges are often good at identifying incremental costs…

14. 2. Cost Effectiveness Approaches • An investigation of not only the incremental costs to the college but also the potential for incremental revenue that may be generated at the college to offset costs • Also referred to as return-on-investment or ROI analyses • Fairly uncommon in higher ed until recently • Challenges of differential costs / returns by programs, interdependency with level of efficiency of college / departments, enrollment caps, state funding questions

15. 3. Cost Efficiency Approaches • An analysis of the effect of the program and its incremental costs on key outcomes such as completion, transfer or graduation • Also called “cost per graduate”, “cost per transfer”, “cost per completer”, etc. • Good when accountability calls for improvement in key outcomes – or determines incremental funding by them • Challenge that incremental costs still may go up, even when cost per completer goes down

16. 4. Cost Savings Per Student • As colleges become more efficient at creating structures that enable students to finish their degrees more quickly, there are direct cost savings for the student, including: • Tuition savings • Books cost per semester

17. 5. Wage Gains for Students • As more students finish degrees, the college’s net return on wage gains for their students will increase • As this is starting to be emphasized / measured, colleges are very likely to have key performance indicators / accountability measures based on such outcomes • Also, as an individual student finishes more quickly, she will experience the increased wages that a completion grants them earlier, producing a net wage gain for the student.

18. 6. Economic Impact to Community • With more students getting credentials / degrees / completions, the local, state, and national economies are catalyzed • Challenge is that this often hard to estimate, but important to call out as a fiscal impact of innovative programs that produce higher completion rates

19. Part 3: Demonstrating a ROI Approach for Statway / Quantway

20. Traditional CC Economic Reality • Community Colleges and Four-Year Colleges are set up to think in terms of fiscal periods (usually fiscal years) • Simplistically, this year’s salaries, fixed costs, & variable costs seemingly need to be offset by this year’s revenues from tuition, FTES apportionment, and other sources of revenue

21. A Different (?) Way of Thinking • As has become common in industry, we could think about deviating from our “traditional” model toward a return-on-investment (ROI) approach • Under this approach, we use our “traditional” model as the baseline for costs and revenue

22. Incremental Costs • We first account for the additional costs associated with the aforementioned more successful alternative programs. Examples: • Incremental salaried faculty/staff • Hourly personnel costs (tutors, etc) • Stipends • Equip / Supplies / Facilities • Note: We are quite good at assigning incremental costs to non-traditional programs!

23. The Flip Side – Incremental Revenue • Successful alternate programs have the following outcomes: • Increased course retention • Increased course success rates • Increased persistence • Increased progression to college-level work • Increase in overall units attempted / earned

24. What is the coin of the realm? • FTES & Tuition • As an example, in California, colleges generate $4,361 per FTES in apportionment • In most states, colleges also keep tuition and/or fee revenue • The incremental FTES apportionment and tuition generated in successful alternative programs can, in many cases, offset the incremental costs

25. Caveat before we move on… • This approach runs into an issue if a system caps apportionment funding and the college is at or near its enrollment cap • To our knowledge, only California does this • Somewhat ironic, given that this model was developed in California • Further irony - the caps are based at least partially on historical failures in developmental education • Could flood the system with successful students

26. Incremental FTES $$$ Not Without Costs • Instructional costs for students who are retained and progress – may require adding additional sections • May fill non-full classrooms especially in productive GE courses • Overhead / infrastructure costs • Estimating is very complex • Taken together, we estimate a range of 40%-75% “profit” from FTES

27. What the Model Doesn’t Do • This is not a sophisticated economic model • It doesn’t take into account economics concepts such as net present value (NPV), economic rates of return (IRR), discounting, etc. • Ultimately, it is designed to be an order of magnitude demonstration

28. Part 4: Modeled Outcomes & Other ROI Thoughts

29. Modeled Profit Summary

30. Modeled ROI Rate Summary

31. The Bottom Line (Literally) • In many cases, supposedly expensive programs such as Statway / Quantway do pay for themselves • Real-world examples from Cerritos, Chaffey, De Anza & Foothill in “Economics of Innovation” section of CA BSI paper on Developmental Education • Examples also applied to Illinois, Kansas, New York, Ohio, and Texas funding structures • In many cases, these programs produced a net financial benefit for the college • Can estimate 3-year incremental FTES for SW / QW now; will have real-world data in 2014/2015

32. The Soap Box • We should be looking to expand these more successful non-traditional basic skills programs for moral, ethical, and societal reasons • This approach suggests colleges alsomay have a financial incentive for doing so

33. Growing Pains • As programs are expanded past their current small reach, they will likely experience some decrease in incremental success • Flip side is that costs do not scale up proportionally – and this usually is a good thing as economies of scale emerge • May balance each other out?

34. Part 5: Demonstrating Cost Efficiency & Cost Savings Per Student Metrics for Statway & Quantway

35. Cost Efficiency Description • Uses the incremental cost summary from used in the ROI Model • Calculates the incremental spending increase per student as a percentage increase • Assumes a decrease in time to degree (modeled at 1 semester or 1 year until real-world data is collected)

36. Cost Efficiency Description (2) • Uses the 3rd semester persistence rate and 2-yr, 3-yr, 4-yr, and 5-yr graduation rates • Uses Control Group spending and SW/QW spending to estimate overall costs / group • Produces a net savings per SW / QW completer

37. Student Cost Savings Description • With decreased time to degree, student savings in tuition and books are estimated • Uses customized local tuition and average books cost

38. Student Wage Gains Description • Students will also experience a wage gain based on the incremental value of their completion vs. wages while in college (often only PT wages). • This incremental year may occur directly after the AA for terminal degree completers, or after the completion of BA • either way it’s a 1-year wage gain increase

39. Part 6: Early Modeled Outcomes on Cost per Completer, Student Tuition & Books Savings, and Wage Gains

40. Modeled Cost Per Completer Summary

41. Modeled Student Tuition & Books Savings Summary

42. Modeled Student Wage Gains Summary

43. Part 7: Final Thoughts

44. Summary • Numerous ways to estimate the fiscal impact of innovative programs on colleges and students • ROI analyses best for estimating net revenue impact to colleges; also tricky as it bumps up against state funding issues, college enrollment trends & capacity issues • Cost efficiency analyses useful for demonstrating effects of improved completion / time to degree

45. Completion by Design? Completion by Accident? Resources • The downloadable Excel Model and accompanying white paper are available at: • http://www.inquiry2improvement.com/publications-resources • While examples use SW-QW, have also developed similar models for tutoring, supplemental instruction, structured pathways – can be customized to most situations

46. Find Out More • The National Center for Inquiry & Improvement website www.inquiry2improvement.com • Dr. Rob Johnstone, Founder & President rob@inquiry2improvement.com • Carnegie Foundation for Advancement of Teaching’s Statway & Quantway: http://www.carnegiefoundation.org/developmental-math