Challenges to the Decision-Making Process

So how do we apply these concepts in practice? In reality, so much of it's going to depend upon context-- the particular decision, the particular institution. What are the revenues and costs associated with that decision in this context? Often, it can be challenging. So let's talk about some of the challenges that typically occur in practice. One is trying to come up with a good estimate of the marginal revenue, or the marginal cost. It's easy to talk about averages, but figuring out how something's going to change because of a decision will also be hard. And this is especially hard with revenue because it often depends upo, how many more students we are going to attract if we do this. That's a difficult thing to estimate.

Another thing is how do we assign costs to particular activities or programs. The classic one is we may want to figure out the instructional costs associated with the academic activities on campus. But at that higher education institution, we might be also performing research or we might be doing lots of outreach. So how do we isolate the effects of instruction, especially when we have a large number of personnel doing multiple activities? And typically, what people do, not because it's a perfect solution but because there doesn't seem to be a better option,  is to simply assign these costs to the various categories with a certain percentage i.e. 40% research, 40% instruction, and 20% service, or something like that.

And finally, it's often difficult to identify, but really especially to communicate costs that lack dollar signs. Just because something can easily be converted to a dollar value doesn't mean it's really important. And so you need to really think hard about how to value those things that cannot be easily quantified.

Mission Oriented Decision-Making

To this point, we have just been examining revenues and costs. But that really provides an incomplete picture of decision-making on a college or university campus. Because the vast majority of college universities are not-for-profit. And so they're not fixated on simply having revenues exceed costs. Instead, they're really fixated, often, on mission attainment.

Zemsky, Wegner, and Massy provide a nice framework for continuing to consider revenues and costs, but also incorporating this idea of mission attainment. They say, you engage in an activity if the marginal mission attainment plus the marginal revenue exceeds the marginal cost. And I like to just slightly alter that, to say-- you engage in the activity if marginal mission attainment exceeds marginal cost minus marginal revenue. To think about that even further, it's really marginal mission attainment is greater than the cost of the activity. Because most activities on college and university campuses lose money, and so the question is, is this a good investment?

Now, let's play with this framework a little more. I find it most helpful to think about this if I frame it in three ways. If I think about the activity, and think about whether the activity is mission-neutral, whether the activity is pro-mission, or whether the activity is anti-mission.

Mission-Neutral

First of all, if the activity is mission-neutral, then it's a pretty simple idea that you would engage if the marginal revenue exceeds the marginal cost. You wouldn't engage in the activity if the marginal revenue was less than the marginal cost. So, for any sort of activity that really doesn't further the primary goals of the college or university, but could have a financial implication on it, it's a simple calculus of, do the revenue exceeds the cost.

Pro-Mission

Now, let's think about activities that could be pro-mission. In this case, you simply need to decide whether the marginal mission attainment is greater than the net financial loss. That is, we're going to spend a certain amount of money on the philosophy department. And so the question is, is the mission attainment from the philosophy department worth that investment? And it very well may be, because that may be central to the particular institution.

Occasionally, you have activities that are both pro-mission and produce net financial gain. Those are quite easy decisions, in that regard.

Anti-Mission

Now, you also have, occasionally, activities that are anti-mission, that you are concerned could distract students from things that represent the primary goal of the institution, or could have other negative consequences. Then you have that very tough decision of whether that decline in marginal mission attainment is less than the net financial gain. That requires really hard thinking about whether you're willing to sacrifice or lay down your mission so that you can have a net financial gain which could then be invested in things that will help you achieve your mission.

Zemsky, Wegner, and Massy also frame this using these ideas of market-smart and mission-centered. And they talk about this idea of cross-subsidies. That is, you have these different activities on campus. An institution can engage in new, sort of market-smart activities that could then supplement the mission-centered activities. What are they pushing? In this chapter, as they say often, there's this fight between well, should we do this particular activity that's related to market, or should we do this particular activity that's related to our mission?

They're saying well, in certain cases that market-related activity will generate positive net revenue that you can then use to then do more of the mission-centered activities. So it's not that you have to choose between the two. You can actually do more of both. To think that, you always have to make sure that that market-smart activity is actually producing that positive net revenue.

If it is, this is really an important idea, because it could help higher education institutions continue to meet their mission during difficult financial times. But it can also be a dangerous idea, in that institutional leaders can become so fixated on the market that they forget the mission, and that the market is really a means to the end. The market is something we engage in, in order to generate funds that will allow us to attain our mission.

It's just a means to an end. But if one's not careful, the market can become the end, and the primary focus now becomes on the amount of revenue generated, and there's very little consideration of the mission attainment.