Three General Operating functions provide operational support to the entire university – Central Administration, Computing & Communications, and Physical Plant. They are vital functions, and the university could not operate without them, but they are not core-mission activities.

Growth in the level of Operational Support costs consumes funding that would otherwise go to the functions more closely related to the core mission – Instruction & Non-Sponsored Research, Non-Credit Instruction, the Library, and Student Services.

It is also a primary driver of the need for higher student fees.

However, this is much more than an efficiency issue. It’s an issue that threatens sustainability.

In 2019 the average Top 25 university spent over $196 million on Operational Support, with a range from $108 million at the lowest-cost school to $556 million at the highest.

 

4 A) OPERATIONAL SUPPORT COSTS – EFFICIENCY RANKINGS

4A

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The Summary Rankings are derived from the detailed rankings in the first four of the tables below. Additional analyses are included but do not form part of the Summary Ranking.

4 B) OPERATIONAL SUPPORT COSTS – EXPENDITURE RANKINGS AND FINANCIAL IMPACT

These tables show the 2001 and latest spending levels, the latest expenditure, and the dollar impact of spending level variances (the amount by which the university is over-spending or under-spending, compared with past levels or current peer group levels).

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The Support Cost Efficiency Indicator is crucially important for two main reasons.

Firstly, Operational Support has the capability to divert substantial volumes of funding away from the core-mission areas. The trio of Operational Support functions consumes 26.4% of General Operating funds at the average Top 25 university; for perspective, Instruction & Non-Sponsored Research consumes 57.3%. Almost inevitably, when the share of G.O. funding consumed by the Support functions goes up, the share allocated to Instruction goes down. This inverse variable can be very damaging to educational quality, as illustrated by the following:

  • The school with the highest cost level consumes 34.4% of its G.O. funding in the Operational Support area; it channels only 52.4% of its G.O. funding to Instruction (23rd in the Top 25) and 7.5% to Student Services (18th).
  • In contrast, the school with the lowest cost level uses 19.3% of its G.O. funding for Operational Support, and channels 62.3% of its G.O. funding to Instruction (5th in the Top 25) and 11.0% to Student Services (11th).

Secondly, a high level of Operational Support costs (especially the Central Administration component, which is more administrative than operational) represents a direct threat to sustainability.

The inherent danger of these costs rests in the principle of fixed and variable costing. In most organizations that rely on income to pay the bills, some costs vary based on activity levels, while others remain relatively stable. Universities are no exception. The key General Operating variable is enrollment, and funding for Instruction should increase or decline in some proportion to that. Activity levels in the Support areas should not be impacted to anything like the same degree. A 25% increase in enrollment does not necessitate a 25% increase in central administrative staffing, or increase the cost of cleaning and maintaining space by 25%, or add 25% to the cost of computing services.

The threat to sustainability emerges if costs that should remain relatively stable are permitted to escalate at the same rate as costs in the variable areas, because they are far more difficult to reduce if activity levels (and incomes) decline.

The following numbers are therefore extremely disturbing:

  • The average (inflation-adjusted) cost of Operational Support across the Top 25 has increased from $102 million in 2001 to $197 million in 2019 – an  increase of 92% (Table 4.1). Over the same period, spending on Instruction has increased by 83% (Table 2.5).
  • In 2019 the average Top 25 university spent 26.8 cents on Operational Support Costs for every dollar it spent on ALL of its academic activities (Instruction & Non-Sponsored Research, Non-Credit Instruction, the Library, and Sponsored Research) – up from 24.3 cents in 2001; the highest school spent 44.2 cents, the lowest 17.5 cents. Operational Support Costs are above 2001 levels at 60% of the Top 25 universities.(Table 4.9)

Essentially, most of the universities have done the exact opposite of what they should have done. During a prolonged period of increasing enrollment, they haven’t kept cost growth in the relatively stable areas below the growth in the variable cost areas; they have actually allowed it to escalate at a higher rate. This has created needless pressure for student fee increases and further classroom cuts.

There is added danger in the ever-upward trend line for Operational Support Costs. Almost every year it sets a new national standard of overspending, creating a false sense of security for schools performing better than the average. The reality is that most universities in the Top 25 are performing at a problematic level, but some are already deep inside dangerous and unsustainable territory.

This is the most dangerous version of the “Normalization of Deviance” concept referenced on the ABOUT page, and it has the capability of being highly destructive. It already has been.

The “day of reckoning” has been delayed because our universities have always found ways of keeping the income flowing at higher levels (through higher student fees and increased enrollment, especially international enrollment), and through “issue avoidance” behaviours such as ongoing cutbacks in the classroom.

For a number of years this has been a “ticking time bomb” at the centre of many of Canada’s leading universities. It should have been defused with stronger vigilance back in 2009, when the provinces started turning down the funding tap, but it wasn’t. Now, with the looming impact of COVID to absorb, and major threats to international fee income, the ticking has grown much louder.

This issue must be rectified, or the damage will be extreme and lasting.