Like many business theory concepts, the dashboard/scorecard eventually found its way into the lexicon of independent schools. The concept’s widespread adoption was likely hastened by the need for schools to develop a digestible, data-driven approach following the 2008 financial crisis.
A Dashboard Evolution
In 2011, NAIS introduced “The Trustee Dashboard,” a tool designed to streamline and simplify the wide range of data and information about the operational and financial health of a school that trustees would typically receive. This tool, which outlines 12 key data measures—operating budget, operating cash flow, admission, endowment/debt, physical plant, attrition, financial aid, tuition, net tuition revenue, faculty, fundraising, and staffing—was created with trustees in mind, but is also used more broadly with a variety of school stakeholders.That same year, the board and school leadership team at The Gunston School (MD) used this model and its key data measures as a foundation for developing and refining a comprehensive (and extremely useful) annual presentation of school data. Our goal was to create an accessible and user-friendly data tool for school leadership and trustees. After a few years of using our original dashboard, however, we determined that it was insufficiently outward-facing. By only focusing on the internal microeconomic factors affecting the school and ignoring outside forces like demographics, the dashboard offered limited utility for decision-making and evaluating school performance. In the same way that a driver is likely to wreck a car if they are staring at the car’s dashboard without looking at the road and weather conditions in front of them, we felt that our school dashboard needed to consider external trends, starting with demographics.
So to improve and expand our dashboard, we turned to the NAIS Demographic Center and selected and carefully analyzed key data including current and future trends in total population, school-aged population, median household income, K–12 spending per student, and the percentage of students enrolled in private schools. By doing this, we can more effectively evaluate our internal results in admission, retention, and financial aid. In Gunston’s case, we’ve seen steady, multiyear growth in enrollment, but we also enjoy strong demographic tailwinds, so raw enrollment growth numbers only paint a partial picture. When we measure our growth against the demographics, we are still doing well, but we also realize that we should be growing, given fortunate outside factors.
After using this microeconomic- and demographic-focused dashboard for eight years, we decided that we needed to include and assess an even broader perspective. In consultation with William Lee, chief economist of the Milken Institute, a nonprofit think tank that provides scalable solutions to global challenges, we have expanded our dashboard by incorporating macroeconomic data to calibrate our decision-making further. We now monitor dynamics in the key realms of inflation, employment, housing, peer industry trends, interest and exchange rates, the stock market, and consumer confidence. By adding this macroeconomic perspective, we have created a “dashboard triangle” that better conveys the nuanced relationship between external economic and demographic forces and their relation to our internal trends and performance. (See “Gunston Dashboard Triangle” below.)
Our current dashboard—which admittedly looks more like the complex control panel of a space shuttle than the minimalist console of a Volvo sedan—now sits at the heart of the school’s strategic planning process, annual decision-making, and self-evaluation. For instance, by carefully mapping the multiyear relationships between inquiries, applications, enrollment yield, financial aid, and attrition, we have been able to project future net tuition trends with a high degree of accuracy.
Adding a Macro Lens
For schools that want to create a macroeconomic dashboard, it is essential to note that every school’s macroeconomic environment involves unique regional considerations. Gunston is located in the exurbs of the Washington, DC–Baltimore region, so we are affected by the economics of the defense, biomedical, and information technology industries, as well as the agricultural sector—all of which have an impact on regional inflation, wage, and housing trends. Also, 10% of our student population hail from South Korea and China.We originally built our macrodashboard using FRED (Federal Reserve Economic Data), a user-friendly economic research database sponsored by the Federal Reserve Bank of St. Louis that allows us to incorporate data from diverse sources such as the Federal Reserve, the U.S. Department of Labor and Bureau of Labor Statistics, the Bureau of Economic Analysis, Dow Jones, and the University of Michigan. To capture the most relevant trend lines, we pull and present the data in a 10-year annualized perspective in almost all cases. Here’s what Gunston’s macrodashboard captures and tracks.
Inflation. As I noted in “Pushing the Limits on Pricing,” a Summer 2017 Independent School magazine article, Gunston seeks to index its tuition growth closely to inflation, so the overall inflation rate is a key data point for decision-making on our tuition price. For this, we use the core Personal Consumption Expenditure, which measures the prices paid by consumers for goods and services without the volatility of movements in food and energy prices. As Lee notes, “This measure moves closer to underlying inflation trends more relevant for determining service prices like tuition.” Over the past five years, inflation has ranged between 1.3% and 1.9%. Based on our DASL research, most schools are raising tuition at a rate that considerably exceeds the inflation rate. We believe these outsized tuition increases are unsustainable and may prompt parents to search for more affordable alternatives.
We also use the consumer price index for tuition, an inflation measure that tracks school tuition, fees, and related childcare costs. Over the past 10 years, the rate has dropped dramatically—from nearly 6% to just over 2%. This trend suggests that the era of schools raising tuition above the rate of inflation may be coming to a close.
Employment and wage rates. Recruitment and retention of talented professionals contribute to the long-term health of schools. With wages being our most significant expense, schools must follow national and regional employment and wage trends. At Gunston, we track the civilian unemployment rate against the unemployment rate for education and health services professions as well as the “quit rate,” which is the rate at which employees leave their jobs voluntarily.
“The unemployment rate is important as a measure for how easily new teachers might be recruited in a given economic cycle,” Lee says. “However, schools also need to closely monitor the quit rate, as this reflects the willingness of current teachers to pursue opportunities that are more financially competitive—both inside and outside the education sector. A sharp rise in the quit rate is often a precursor to wage pressure, and schools need to plan accordingly.”
Ideally, schools should set a Goldilocks-like wage growth rate that allows for competitive salaries that can be supported by sustainable school income flows. Inflation, employment, and wage rates are often not well-synchronized, complicating real-time decision-making. For example, conflicting data has recently emerged surrounding wage growth for all workers, for those with a college degree, and those in the field of education. By considering multiple data points, however, schools have a better chance of making more precise and relevant salary decisions.
Housing. At Gunston, we pay close attention to real estate prices, recognizing their impact on our ability to attract and retain great educators. Many areas of the country are facing severe housing shortages, so it’s important to evaluate if employees can live affordably in proximity to the school. Since 2012, housing prices in the United States have risen well above broader trends in inflation and wages. “The recent decline in long-term interest rates will help make housing more affordable,” Lee says, “but prices for smaller starter-level homes remain elevated in areas where demand is high.”
Peer industry trends. We also track inflation rates in four industries that directly influence independent school economics: food and beverage, health care, energy, and higher education. By tracking larger trends in food and beverage inflation we can make projections about campus foodservice costs.
Health care costs now consume nearly 18 cents of every dollar, and the annual per capita health spending in the United States has reached about $8,000. Health care inflation can be double trouble for independent schools. It affects the disposable dollars of families who might otherwise use these funds for education, and it consumes school budget resources that might be otherwise allocated to programs and salaries. And while health insurance inflation shows signs of decreasing, it still grows at a pace well above wages, tuition rates, and overall inflation. Absent a major shift in American health care policy, health care costs will greatly influence every school’s budget (revenues and expenses), and should remain an essential element of any school’s macroeconomic dashboard.
As a school that draws students from 45 minutes away, Gunston keeps track of energy prices. We do this to understand our campus energy costs, to negotiate with our school’s transportation providers, and to evaluate the economic burden of commuting on our families. As a broad measure, our dashboard uses the consumer price index for gasoline.
The final industry we track is higher education. Early in my independent school tenure, I frequently heard the refrain, “Well, if I have to choose between spending on independent school and college, we are going to prioritize college.” Over the past 10 years, however, the dramatic slowing of higher education price inflation coupled with growing allocations of financial aid in higher education indicates that families may have additional resources to invest in their child’s elementary and secondary education.
Interest rates, exchange rates, and the stock market. In his book Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles, Joseph Ellis writes, “Right or wrong, it has been universally accepted that one of the most powerful determinants of economic growth or stasis is Federal Reserve Board action with regard to interest rates. … It is a key determinant of certain types of consumer demand.”
With this in mind, Lee recommends that schools track the prime rate, which is what major banks charge creditworthy institutions like independent schools. “Monitoring the prime rate helps schools make good decisions about managing short-term bank debt,” Lee says. “As a leading indicator for the future direction of long-term interest rates, it also presages turning points for strategically funding capital projects such as expanding or improving facilities.” At Gunston, we modestly expanded and refinanced our school’s debt burden to make a major facilities enhancement in 2012. As our enrollment revenue grows at a pace that exceeds changes in our debt service, recent interest rate trends suggest this is a good time for revisiting our debt structure and capital expansion plans.
Meanwhile, for schools with international student populations, it is important to closely track the exchange rate between the dollar and relevant currencies (for Gunston, these are the Chinese yuan and the South Korean won). Fluctuations in these rates can have a dramatic impact on the cost of school for families who convert their local currency into dollars to pay tuition. Indeed, the recent trade tensions between China and the United States have sent Asian currencies plummeting and may have an impact on international enrollment demand. For a school with a $25,000 tuition, the past year’s fluctuation equates to a nearly $4,000 cost hike for international families in Asia.
While we take a cautious approach to our use of stock market data for decision-making, we incorporate a five-year view of the S&P 500 into our dashboard as a measure of macro-philanthropic sentiment. At the same time, we keep in mind the paraphrased contrarian wisdom of the great investor Leon Cooperman, who said, “When people say things have never been better, I get nervous; when people say things have never been worse, that’s when I know it’s time to invest!”
Consumer confidence. When we started seeing enrollment at Gunston pick up in 2013, I said to the director of admission, “Even though the economy is still in rough shape, remember that an independent school education is not a one-year purchase, but a four-year purchase (or 12-plus, for PK–12 schools). Families’ willingness to enroll is a measure of where people feel they will be in four years, not next year.”
The final measure in our macrodashboard comes from the famed University of Michigan Consumer Sentiment Index. These regularly administered surveys are subjective measures of how consumers view their current and near-future economic status, and they provide a useful snapshot for how applicant families might see their economic prospects. Our dashboard incorporates look-ahead consumer sentiment, and with the recent downward spike in future sentiment—people feeling less secure about their future finances—schools should take note.
The Macrodashboard Effect
Based on the information and insight we’ve gained after assembling the macroeconomic piece of our dashboard, we’ve made several resource-maximizing decisions over the past few years. Based on a 35% drop in gas prices one year—a factor that increased disposable income for families—we trimmed select financial aid awards. We’ve negotiated for better bargains with our transportation and food service providers. We’ve frozen the growth of international service fees in years where the dollar is especially strong. With regional housing still affordable, we decided to knock down an unoccupied unit of run-down campus property rather than undertake an expensive renovation. With rates at historic lows, we borrowed to purchase a parcel of waterfront property adjacent to our campus for future growth in facilities and programming. We’ve adjusted our budget to raise wages above the rate of our tuition growth. And, we set a more aggressive annual fund goal in light of a sustained strong stock market.Meanwhile for the upcoming year, although our demographic trends remain strong, we are battening down the hatches. The downward spike in consumer confidence, which is likely triggered by concerns about a meaningful trade war, is resetting our microeconomic expectations for enrollment (domestic and international), tuition, financial aid, and philanthropy. While this forecast may not be correct, our dashboard triangle allows us to move forward cautiously with inward and outward lenses.