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Ensuring Financial Stability of HBCUs In the 21st Century

Ensuring Financial Stability of HBCUs In the 21st Century
By Dr. Walter A. Brown and Darryl E. Allen

To prepare for financial stability in the 21st century, administrators at historically Black colleges and universities must identify critical issues that will have financial implications in providing quality education to African American students. Some of those issues involve changing demographics, technology requirements and cost.

According to the U.S. Census Bureau, in the upcoming years there will be increased diversity of the population with lower earnings potential mainly due to immigration. As the immigrant population gets more clout, they will demand more from the education or social services budgets. In either case the needs of most HBCUs will be affected.

Under emerging technology needs, it is virtually impossible for HBCUs to have the staff and funds available to rapidly respond to changing technologies. However, prospective students are going to demand the latest in technologies because the job market will pass them by if they lack skills in this area.

What are possible solutions to ensure financial stability for HBCUs?

Administrators should first take a holistic view of their institutions’ financial environment, including an operational knowledge of financial functions — techniques, sources and uses of funds and budget formation/strategies suggested by groups such as the National Association of College and University Business Officers. This also includes knowledge of the economic conditions that could affect traditional revenue sources such as state payments, family disposable incomes, the cost of capital and job market forces. In planning revenue from tuition increases, the elasticity of demand and the financial impact should both be analyzed. These conditions should be measured against contributions from state governments, federal research grants and financial aid.

The holistic view also includes knowledge of competitive forces that affect new and existing academic programs. For example, many state legislatures in regard to funding allocations are holding their institutions accountable for specific annual goals such as enrollments, graduation rates, program development and diversity. The sources of funding should be matched prudently with annual and long-term expenditures. This would affect the use of endowment income and/or set in motion the need for aggressive development plans.

Second, HBCU administrators must incorporate strategic planning initiatives and long-range planning that will include both internal and external environmental factors. According to A. J. Thompson and A. Strickland in Strategic Management (1995), administrators have to perform five traditional tasks to initiate the strategic planning process.

  • Produce a clear vision and mission for the institution.
  • Develop specific goals and objectives that will serve to guide the institution.
  • Divide objectives into two groups: strategic objectives, which consider the environmental factors, including competition and other market forces, and financial objectives based on enrollment target and budget concerns.
  • Reallocate resources to match the new order in priorities, an organizational structure the fits the needs, and reward and incentive systems for the stakeholders.
  • Consistently evaluate, plan and make adjustments for internal changes and external opportunities in the marketplace.

Finally, HBCU administrators must adopt cost-containment strategies. Strategic planning, cost-containment and overall financial management are identified with most successful businesses and institutions. If administrators are not comfortable making decisions in this area, they must change their attitude if they are to survive in the 21st century.

— Dr. Walter A. Brown is an assistant professor in the higher education administration program at George Washington University. Darryl E. Allen is a doctoral student in the university’s graduate school of business and public administration.

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