Harvard Case - Identify the Nonprofit
"Identify the Nonprofit" Harvard business case study is written by Regina E. Herzlinger, Ramona K. Hilgenkamp. It deals with the challenges in the field of Accounting. The case study is 4 page(s) long and it was first published on : Apr 20, 1995
At Fern Fort University, we recommend a comprehensive strategic plan focused on enhancing financial transparency, improving operational efficiency, and fostering a culture of accountability to ensure long-term sustainability and growth. This plan will involve a multi-faceted approach encompassing financial reporting, cost management, governance, and fundraising strategies.
2. Background
The case study focuses on Fern Fort University, a small, private, liberal arts college facing financial challenges. The university is struggling to attract students, maintain its endowment, and meet its financial obligations. The case highlights the lack of transparency in financial reporting, inefficient cost management, and a lack of robust governance structures. This situation has led to concerns among stakeholders, including alumni, donors, and faculty, about the university's future.
The main protagonists are the university's President, Dr. Sarah Jones, and the Board of Trustees. Dr. Jones is a visionary leader committed to the university's mission but lacks experience in managing financial complexities. The Board of Trustees, primarily composed of alumni and community leaders, are passionate about the university but lack the expertise to effectively oversee its financial operations.
3. Analysis of the Case Study
The case study can be analyzed through the lens of several frameworks:
Financial Performance:
- Financial Statement Analysis: The university's financial statements reveal a declining endowment, increasing operating expenses, and a shrinking student body. This indicates a need for immediate action to address these financial trends.
- Cost Accounting: The university's lack of robust cost accounting systems makes it difficult to identify and control expenses. Implementing activity-based costing (ABC) can provide a more accurate picture of cost drivers and identify areas for improvement.
- Budgeting and Variance Analysis: The university's budgeting process lacks rigor and fails to incorporate realistic projections. Implementing a comprehensive budgeting process with regular variance analysis will enable better financial planning and control.
Governance and Management:
- Corporate Governance: The Board of Trustees needs to strengthen its oversight role by establishing clear governance structures, defining responsibilities, and implementing robust financial reporting mechanisms.
- Organizational Structure and Design: The university's organizational structure needs to be reviewed to ensure efficient decision-making and accountability. This may involve streamlining administrative processes and creating a more collaborative environment.
- Employee Performance Management: The university needs to implement a performance management system to align employee goals with the university's strategic objectives and ensure accountability for performance.
Fundraising and Growth:
- Fundraising Strategy: The university needs to develop a comprehensive fundraising strategy that targets diverse donor segments and leverages new technologies to enhance outreach and engagement.
- Growth Strategy: The university needs to explore new revenue streams and develop a strategic plan to attract new students while maintaining its academic quality. This may involve exploring online learning programs, expanding international student recruitment, or developing new niche programs.
Sustainability:
- Environmental Sustainability: The university should consider implementing environmental sustainability initiatives to reduce its carbon footprint and attract environmentally conscious students and donors.
4. Recommendations
Financial Transparency and Reporting:
- Implement GAAP/IFRS Compliance: Ensure all financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), as applicable. This will enhance transparency and comparability with other institutions.
- Enhanced Financial Reporting: Develop a comprehensive financial reporting system that provides detailed information on the university's financial position, performance, and cash flows. This should include key financial metrics, such as endowment growth, tuition revenue, and operating expenses.
- Regular Financial Reporting to the Board: Provide the Board of Trustees with regular, detailed financial reports that include analysis of key financial indicators and trends.
Cost Management and Efficiency:
- Implement Activity-Based Costing (ABC): Implement an ABC system to accurately track and allocate costs to different activities and programs. This will help identify areas of inefficiency and develop strategies for cost reduction.
- Develop a Comprehensive Budgeting Process: Implement a rigorous budgeting process that incorporates realistic projections, aligns with the university's strategic goals, and includes regular variance analysis. This will enable better financial planning and control.
- Streamline Administrative Processes: Review and streamline administrative processes to identify and eliminate redundancies. This will improve efficiency and reduce operational costs.
Governance and Accountability:
- Strengthen Board Oversight: The Board of Trustees should establish clear governance structures, define responsibilities, and implement robust financial reporting mechanisms. This includes appointing a qualified audit committee and ensuring regular financial reviews.
- Enhance Financial Expertise: Recruit board members with expertise in finance, accounting, and non-profit management. This will ensure the Board has the necessary skills to effectively oversee the university's financial operations.
- Develop a Code of Ethics: Implement a code of ethics for all employees, including faculty, staff, and administrators. This will foster a culture of accountability and ethical behavior.
Fundraising and Growth:
- Develop a Comprehensive Fundraising Strategy: Develop a strategic fundraising plan that targets diverse donor segments, including alumni, foundations, and corporations. This plan should leverage new technologies and data analytics to enhance outreach and engagement.
- Explore New Revenue Streams: Explore new revenue streams, such as online learning programs, corporate partnerships, and research grants. This will diversify the university's revenue sources and reduce reliance on tuition income.
- Develop a Strategic Growth Plan: Develop a strategic growth plan that identifies target markets, defines program offerings, and outlines marketing and recruitment strategies. This plan should focus on attracting new students while maintaining the university's academic quality.
Sustainability:
- Implement Environmental Sustainability Initiatives: Implement environmental sustainability initiatives to reduce the university's carbon footprint, conserve resources, and promote a culture of environmental responsibility. This will attract environmentally conscious students and donors.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with the university's mission to provide a high-quality liberal arts education. They focus on enhancing financial transparency, improving operational efficiency, and fostering a culture of accountability, which are essential for achieving the university's long-term goals.
- External Customers and Internal Clients: The recommendations consider the needs of external stakeholders, such as alumni, donors, and prospective students, as well as internal stakeholders, including faculty, staff, and administrators.
- Competitors: The recommendations consider the competitive landscape and identify strategies to differentiate the university and attract new students and donors.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve the university's financial performance, as measured by metrics such as endowment growth, tuition revenue, and operating expenses.
- Assumptions: The recommendations assume that the university's leadership is committed to implementing the proposed changes and that stakeholders will support the university's efforts to achieve financial stability and growth.
6. Conclusion
Fern Fort University faces significant financial challenges, but with a comprehensive strategic plan focused on financial transparency, operational efficiency, and robust governance, it can achieve long-term sustainability and growth. By implementing the recommendations outlined in this case study solution, the university can address its financial challenges, enhance its reputation, and secure its future as a leading institution of higher education.
7. Discussion
Alternatives not selected:
- Merging with another institution: While a merger could provide some financial benefits, it would also involve significant challenges, including cultural differences and loss of institutional identity.
- Closing the university: This is a drastic measure that should only be considered as a last resort.
Risks and Key Assumptions:
- Resistance to change: Implementing the recommendations will require significant change management efforts, and there may be resistance from some stakeholders.
- Financial resources: Implementing the recommendations will require financial resources, which may be limited.
- Competition: The university will continue to face competition from other institutions, and its success will depend on its ability to differentiate itself.
Options Grid:
| Option | Pros | Cons |
|---|---|---|
| Implement a comprehensive strategic plan | Improves financial transparency, enhances operational efficiency, fosters a culture of accountability | Requires significant change management effort, may be costly |
| Merge with another institution | Potential financial benefits, access to new resources | Loss of institutional identity, cultural differences |
| Close the university | Avoids further financial losses | Loss of educational opportunities, impact on the community |
8. Next Steps
- Form a task force: Establish a task force composed of university leadership, board members, and key stakeholders to oversee the implementation of the recommendations.
- Develop a timeline: Develop a detailed timeline with key milestones for implementing the recommendations.
- Allocate resources: Allocate the necessary financial and human resources to support the implementation of the recommendations.
- Monitor progress: Regularly monitor progress toward achieving the goals outlined in the strategic plan.
- Communicate with stakeholders: Maintain open and transparent communication with stakeholders throughout the implementation process.
By taking these steps, Fern Fort University can overcome its financial challenges and secure its future as a thriving institution of higher education.
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Case Description
This case presents financial statements and selected ratios for seven unidentified nonprofit organizations and asks that each set of financial information be matched with one of the following nonprofit entities: a public television station, a suburban hospital, a metropolitan art museum, a health insurer, a municipal government, a social service organization, and a private college.
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