An Interview with Author Dr. Dean Smith
Dr. Dean Smith
For an interim on a 6- to 12-month assignment, how might your book be best put to use?
University Finances should serve as a trusted resource for interim administrators when they encounter financial topics that they may not have dealt with in their previous careers. Or that they may not have understood in depth. The book may sit on the shelf for a while, but when interims seek answers to specific financial questions, they will reach for this book, confident that it will provide the answers.
In particular, interim presidents and provosts must make financial decisions on a much shorter timeline than their permanent counterparts. Could you share an observation from your book that speaks to this reality?
Periods of budgetary stress, when expenditures exceed revenue, pose particular challenges for interim presidents or provosts. They must decide how to respond effectively in a short time period without creating a greater crisis for their permanent successors. In University Finances, I describe various ways of dealing with budget cuts, emphasizing the probable timelines for them to take effect. Raising additional revenue by increasing tuition, state appropriations, or endowment payout can be difficult to manage in the short term available to an interim. Likewise, downsizing programs is a difficult, time-consuming process that most probably cannot be effective in the time available to the interim. This leaves the interim with only a few options, such as hiring freezes, deferring building and grounds maintenance, reducing library acquisitions, and so forth. They can be accomplished quickly but are not sustainable in the long run.
For an interim newly on assignment, what financial indicator(s) do you believe is most important to identify, or might best describe the “health” of that particular division or institution?
The most recent financial statements provide the data needed to determine the division’s or institution’s financial health. Although the raw numbers provide basic information, the most useful information about profitability, liquidity, and solvency can be derived quickly from seven ratios calculated using these data. In University Finances, I present the formulas with sample calculations and guidelines for interpretation of these ratios.
In retrospect, what is the financial “best practice” that is most often overlooked by a president?
In my experience, the most overlooked financial best practice is transparency. Because of the inherent obscurity about the operating budget preparation, the restricted nature of financial reserves, and the allocation process, universities must strive to make its financial practices as transparent as possible. An aphorism attributed to the Dalai Lama expresses it aptly: “A lack of transparency results in distrust and a deep sense of insecurity.” Those words are true for faculty members, governing board members and state legislators.
With the steady rise in college closures, what is a financial best practice that you would give to a president? What strategies might you utilize to make sure this practice takes root?
I would encourage presidents to keep a close eye on institutional financial statements, with particular attention on the standard ratios derived from these statements that are used to analyze financial stability. As shown in University Finances, they are easy to calculate and interpret. Personal engagement in this aspect of university finances will provide foresight into potential financial pitfalls, such as insufficient assets to cover current or projected liabilities and excessive debt burden. To ensure this engagement, the president—not the chief financial officer—should present the results of these analyses to the governing board.