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Making Philanthropic Investments Last: The Role of Financial Sustainability

October 30, 2014

Headshot_schneider_kidron_300x600Launched in 2010, the Jim Joseph Foundation's Education Initiative has supported the development and expansion of eighteen degree and certificate programs as well as leadership institutes at Hebrew Union College-Jewish Institute of Religion (HUC-JIR), the Jewish Theological Seminary (JTS), and Yeshiva University (YU).

The foundation provided the resources needed for program development, staffing, student tuition assistance, and marketing/recruitment activities. The investment was substantial – each institution received $15 million over a period of up to six years. As part of its independent evaluation of the initiative, American Institutes for Research (AIR) assessed not only how well the three grantees delivered these programs, but how they planned to financially sustain their programs into the future after the foundation's investment wound down.

Financial sustainability requires careful planning, typically using a dynamic document that is reviewed and revisited periodically. Such a document – the financial sustainability plan – describes strategies to contain costs and to cover them through fundraising and program revenues.

Informing Financial Sustainability Plans Through Break-Even Analysis

A common tool in financial planning is break-even analysis, which identifies the circumstances in which costs and revenues are balanced. To help Jim Joseph Foundation Education Initiative grantees, we developed a program-level Break-Even Analysis Calculator, allowing program administrators to project revenues and expenditures by changing variables such as tuition, numbers of students, and staffing levels. This interactive tool can be used to:

  1. Identify the resources required to implement a program, including personnel, facilities, equipment, and materials, whether paid for directly or contributed in-kind, and subsequently to calculate program costs.
  2. Explore ways to reduce costs.
  3. Identify the effects of different levels of tuition and scholarships.
  4. Calculate fundraising needs and demonstrate to potential funders why their help is needed.

Review of Financial Sustainability Plans

We created benchmarks for reviewing the financial sustainability plans submitted by each institution. The four criteria described below are based on the assumption that financial sustainability is a process, not an end. In other words, although the process aimed at achieving financial sustainability may not yet be completed, the financial sustainability plan contributes to a road map that programs can follow into the future.

1. Key Informational Elements. We saw the individual financial sustainability plans as facilitating communications and planning within each grantee institution. To that end, we expected each plan to articulate the program’s rationale – how does it fit into the vision of the institution in its efforts to support the field of Jewish education? How consistent is the program with the institution's view of current needs and anticipated future trends? Similarly, we expected each plan to identify how long the program should be continued (we do not assume every program will last forever), and we wanted to see a timeline for anticipated fundraising activities. In our feedback to grantees, we recommended that their plans include a detailed budget, budget assumptions, and analysis (e.g., break-even analysis) that spells out the calculations and assumptions on which current decision-making is based.

2. Feasibility. It is critical that a financial sustainability plan is feasible. For example, if the break-even analysis identifies a break-even point but the circumstances under which this is to be achieved are unreal, the analysis serves no purpose. To make the case for the viability of long-term plans, authors should include as many specifics as possible. Projections of philanthropic contributions should include names of funders, projected amounts, and, at the very least, an overview of future fundraising plans. Projections of tuition revenue should include enrollment estimates, market demand assumptions, and description of strategies to align tuition discounts with measurable student needs (rather than blanket across-the-board tuition discounting policies). Finally, plans should include an assessment of organizational capacity (e.g., the availability of qualified staff with relevant expertise), which is key to successful implementation.

3. Need. Higher education institutions sometimes choose to run programs at a loss as a service to the field or as a marquee program that can promote institutional capacity and reputation. But financial sustainability plans highlight the costs of such a strategy, allowing institutional leaders to better judge the level of their investment and the return. To ensure that such decisions are based on valid assumptions and consensus among chief officers in the institution, an effective financial sustainability plan should address the need for the program along multiple dimensions.

4. Commitment. Programs can be sustained over the long term when institutional leadership (president, provost, dean) are committed to the program through the allocation of funds, sharing of infrastructure, and active participation in targeted fundraising efforts. Additionally, financial sustainability planning benefits from use of proven strategies and processes for ongoing review and revision of the financial sustainability plan.

Supporting the Continuation of Higher Education Programs in Jewish Education

HUC-JIR, JTS, and YU developed financial sustainability plans that took into account multiyear projections of costs and revenues. This involved hard work and time — and many of the questions we asked them to address were new to leaders at those institutions who had not often been held accountable to rigorous financial benchmarks. All three grantees were torn between offering their very best to the field of Jewish education and making promises they were likely not going to be able to keep within the limitation of their financial resources. That is understandable.

But spending money and time to ensure the financial health of programs over the long term is something that grantees need to do. Crafting implementation plans that can be sustained over the long run is a new and difficult task with which grantees must begin to grapple. And it is something the Jim Joseph Foundation is committed to in order to make sure its philanthropic investments produce long-term results.

Dr. Mark Schneider is a vice president and an institute fellow at AIR. Dr. Yael Kidron is a principal researcher at AIR.

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