Functional Expense Allocation Ratios to Predict Financial Condition at Public Higher Education Institutions

Abstract

The higher education industry has faced increased competition in recent years from new institutions and learning platforms entering the marketplace. Public higher education institutions, in particular, have been forced to develop strategic plans due to limited state funding in recent years. These colleges and universities face the challenge of allocating their limited financial resources in a manner that will optimize financial strength and ensure long-term sustainability. Institutions classify their operating expenses into several different functional expense categories, including instruction, academic support, student services and operations and maintenance of plant. This paper analyzed the relationship between allocation ratios of functional expenses and an institution’s financial condition. Multiple regression analysis was performed to determine how fluctuations in financial allocation ratios impact an institution’s financial condition. The research could aide higher education institutions in strategically allocating resources to improve their financial position.