We have developed over the years a transformative academic program review process we call PRO. It has four interrelated processes.

1. A Mission-centeredness Review that identifies the programs that meet the college's mission and those that don't. Mission-centeredness is measured through carefully crafted surveys of the institution's primary constituencies; its students, faculty, staff, alumni and trustees. These groups understand the true mission of the institution and inherently recognize what programs are vital to achieving both the stated and implied mission of the college.
2. A Quality Review that identifies those programs that are of high quality and those that aren't. Quantitative indicators vary by institution, but acceptance rates, retention rates, graduation rates and placement rates are often among the major quality indicators everywhere. Qualitative measures include surveys of key constituencies regarding their opinion of program quality.
3. A Market Demand Review that compares, through survey research, demand for current and prospective programs among existing and potential student populations.
4. An Institution-wide Responsibility Center Review that identifies the divisions or schools that generate cash and those that use it. It allocates fairly to each revenue-generating department revenue and direct and indirect costs, showing the way to making thoughtful resource allocation decisions.

The most important result of a full academic program review is that presidents have the opportunity to lead transformational change at their institutions and keep their jobs! Other equally important results are the definition of ranges of programs ranked in three tiers from extremely successful ones that provide a surplus of resources to the institution, are highly mission-centered, are of high quality, and experience solid market demand to a few that not only lose money, but do not support the college's mission, are of questionable quality and have little market support.

Replacing the losses from non-mission-essential, low quality programs that have weak market demand (the bottom few programs) with enhanced enrollments and additional revenues from the top tier programs can cause a dramatic shift in institution financial performance; $500,000 or more for small institutions and millions for larger ones.

Of the factors affecting academic program reviews, competition is the most important driver. Competition in this decade will create simultaneous pressures to reduce price, control costs and adjust program mix. So, institutions need to carefully manage costs; add new revenue programs or revenue sources at least every other year; and weed out poorly performing programs regularly. To respond to the competitive environment, nothing is more important than knowing what programs you should be offering, what programs you should not be, and acting on that information.

Accreditors are increasingly reviewing college efforts towards assessing academic programs as an important element of reaccreditation, as you all know. They are particularly interested in objective measures of student learning outcomes and usually do not require a more comprehensive review, but are impressed with more.

Boards of Trustees want a full program assessment, but don't usually know how to ask for it. I've heard this complaint from many Trustees. I'm sure you have too, "My College is always starting new programs, but I've never seen it stop one!" The closest current board practices come to a full program assessment is cycled Academic Program Reviews, which typically result in long narrative reports with recommendations for remediation where weaknesses are identified. It's unusual for any significant action to be taken, and more unusual for program closures to result. The bottom line is: Current board practices fall short of a full academic program evaluation, but most boards would desire a full program evaluation process if they knew how to get it done.

Most of our faculties want sound assessment of curricular goals and student performance, but our faculties are usually uncomfortable with reviews of their judgments about academic programs. They find financial performance reviews dangerous on their own and are deeply concerned with the idea of closing poor performing programs. Transformative Academic Program reviews account for this sensitivity by engaging faculty intensively with the rest of the institution in a comprehensive review that is required by the board.

A Transformational Academic Program Review requires the cooperation of many constituencies (particularly faculty) and can't be conducted in a locked room in the basement of the administrative office building. To be conducted effectively and to engender broad institutional support, these reviews require involvement by a broad cross-section of the institution in developing the analysis and considering the ramifications of the results of that analysis: The programs that require more support, those that require less, and yes, those that should be closed.

• First, the Board should require the Academic Program Review by formal vote. This often is followed by a generative institutional discussion, including the board.
• The President should then carefully select a broadly representative cross-functional work group (composed of a majority of faculty leaders) to conduct the analysis.
• The consultants will help the President select the work group and prepare a careful charge with firm outcome expectations and time-lines.
• Basic research to support the deliberations of the work group should be conducted by the consultants and the college's institutional research office BEFORE the work group begins its formal deliberations.
• The work group should develop a detailed work plan to conduct its study and submit it to the president for approval.
• The work group should then conduct its deliberations and hold 4 open campus meetings to present its work plan, to share its basic research and to discuss its recommendations as they develop. At these open campus meetings, facilitated by the consultant, the work group should honestly seek feedback and deal directly with issues raised.
• After making final edits resulting form the fourth OCM, the work group's final report should be presented to the president and accepted.
• The president should present the work group's report and his or her recommended actions to the board for approval; actions should include the conduct of necessary internal governance reviews on a board required time-line.

The optimum time frame to conduct and academic program review is as follows:

Early spring semester
• Board Decision

Mid to late spring
• President Appoints, Charges and Announces Work Group

Early summer
• Consultants Conduct Research

Late summer
• Work group convenes

Early September
• First Open Campus meeting

Throughout fall semester
• Deliberations, Three Open Campus Meetings, Final Report

As I said earlier, in a highly competitive environment like the one in which we will live this decade, nothing is more important than knowing what programs you should be offering, what programs you should not be, and acting on that information. Stevens Strategy's PRO, Programs and Resource Optimization process, provides presidents and boards the necessary information and the broad institutional support they need to act responsibly.

We would be delighted to know your thoughts on this important process.

UPMIFA, the Uniform Prudent Management of Institutional Funds Act of 2006, has been adopted by 33 states. The purpose of UPMIFA is to provide nonprofit organizations with greater freedom in managing their endowment portfolios and spending from the endowment subject to an "overall standard of prudence". The primary advantage of UPMIFA is that it permits spending from underwater funds, which are investments that have fallen below the original value when they were set up. In the past, endowment spending was constrained by the rule that spending was not permitted when the fund fell below its historic dollar value.

Some colleges see UPMIFA as a miracle tool to either reduce the impact of the declining value of investments or to avoid a low Department of Education (DOE) financial responsibility score. In the first case, a college could ameliorate declines by reclassifying investments so that they could take larger draws from the endowment. In the second case, the reclassification of investments meant that they could increase the value of one or more DOE ratios, thus improving their overall score keeping off the list of financially weak colleges published by DOE. Some senior administrators believe that being on that list will reduce the attractiveness of the college to lenders or other stakeholders.

However, UPMIFA is not a simple process of lopping off some percent from restricted endowment funds and transferring those moneys to another less restrictive fund. Colleges and universities must be very prudent about transferring funds from a restricted endowment funds by following a set of precisely defined rules, which are listed below:

1. UPMIFA transfers are subject to FAS 117-1 (Financial Accounting Standards), which requires institutions to provide the following disclosures:
   • The Board's interpretation of the law regarding the organization's net asset allocation;
   • Endowment spending policies;
   • Investment policies:
     • Return objectives and risks
     • Relationship of the objectives to spending policies
     • Strategies for achieving objectives
   • Endowment composition by net asset classification;
   • Endowment report on additions and deductions by net asset class;
   • Formal disclosure of any underwater funds.
   • The Board's fiduciary duty remains that "when considering the purposes and duration of the fund the institution will give priority to the donor's original intent that the fund be maintained permanently".
2. Endowment assets cannot be unrestricted until appropriated for expenditure.
3. Absent donor restrictions on gains on the fund, the original donor restrictions are assumed to gains. Therefore, if the fund is restricted so also are the gains.
4. Reclassification procedures:
   • Reclassification is done on a fund-by-fund basis by identifying the amount that is:
     • Permanently restricted;
     • Temporarily restricted, which is subject to a time limit that funds and appreciation are restricted until appropriated for expenditure.
   • Reclassification is restricted to the amount of appreciation of the funds (net long-term increase in value) that is declared as appropriated for expenditure. (This requires a very careful and precise list by fund of original gift values and appreciations.);
   • Reclassification in consort with FAS 117-1 should include a statement to "maintain the donor's original gift permanently".
5. UPMIFA requires that any modification of fund restrictions should:
   • Notify the Attorney General sixty (60) days in advance for minor changes; or
   • Make a cy pres petition to the courts for larger or newer funds.

Senior administrators cannot simply take a fixed amount from restricted endowments and transfer the funds to temporarily restricted funds. The plan must follow the strictures of the law; otherwise the plan could be voided and audits may have to be restated. Before any action is taken with an UPMIFA plan, the president, trustees, and chief financial officer must consult with the auditors and legal counsel for the institution. They should also seek advice from other reliable sources on how to implement the strictures of the plan.

The UPMIFA plan should be thoroughly documented by: a) citing the law, b) listing Board policies, c) giving the reason for making the reclassifications, d) listing specific endowment funds and the amounts to be reclassified, and e) including any statements from the auditor or other sources indicating that they have reviewed and are in agreement with the plan.

Questions for our readers:

1. Are you planning to use UPMIFA in your financial strategy? If so, what is driving your interest in UPMIFA?
2. Does your institution have "underwater" funds? What has been your strategy to deal with this situation?
3. Do you have a strategic plan to rebuild funds lost to the endowment?

Note 1: The author and Stevens Strategy do not claim that this commentary on UPMIFA fully explains all aspects of UPMIFA. They do not take responsibility for any decisions that are taken based upon the preceding commentary. As noted in the commentary, any institution that intends on developing a reclassification plan under UPMIFA should consult with their auditors, legal counsel, and other authorities on the subject.

Note 2: Information for this blog was derived from Moody's Investment Service in a special report published in Spring/Summer 2009 and a second report published in April 2009.