EVA meets AVA: a new spin on an old business tool--Economic Value Added--makes it ideal for the academy. (Viewpoint).

Isn't it funny how a Little market downturn causes some industries to begin practicing disciplines that are a common part of our world in higher education? An article I read recently in a marketplace IT magazine discussed project implementation, and how its impact on organizations was being handled during our nation's current economic trough. Where the business world only has seasons of economically induced prudence, we in higher education are forced to live with that reality every year due to enrollment fluctuations and competition for state and federal endowments. The article mentioned how some companies are trying to use tools like "economic value added" (EVA) to determine if a project is really worth the investment of suddenly precious resources. In recent discussions with peers, I am often impressed by their commitment to prudently spending every dollar as if it is their own--and how different that attitude is from the common mindsets of my past experiences in other marketplaces. Being new to the world of higher education, I think the business world could learn a tot about careful money management from we who practice it every day (versus only during economic downturns).

At Judson College, we are always trying to find new ways to adapt and fund the latest computer technologies and audiovisual tools in our classrooms, and still stay fiscally above water. With an annual enrollment of just over 1,000, the funds needed to purchase and support the latest "smart teaching tools" are sometimes in short supply, or being used elsewhere. On our campus, necessity frequently breeds invention; the challenge to meet the expectations of today's new digital generation has caused us to create new tools from old ones in the search for ways to make our budget stretch a little bit farther. That creativity led me to review fiscal tools like EVA, after I read the article about it in the IT magazine. I wanted to see if "economic value added" could be modified to work in our environment. Although a stretch in some areas, EVA gave us a new way to took at projects and expenses in a manner that challenged old conventions and strategies. With a little tweaking and redefinition of terms, "academic value added"--or AVA--was born.

But let's go back to EVA for a moment. "Economic value added" was first defined in 1990 by the global financial consulting firm Stern Stewart & Co. as the net operating profit minus an appropriate charge for the opportunity cost of all capital invested in an enterprise. EVA is an estimate of true economic profit, or the amount by which earnings exceed or fall short of the required minimum rate of return that shareholders and tenders could get by investing in other securities of comparable risk. For non-bean-counters (like many of us), it is a measurement of whether or not a project or expense is realty worth the budget funds you are about to spend, and a determination to see if the money could have been spent better elsewhere. In its original state, EVA measures areas like capital expended, profit margin, cost, and return on capital. These are all areas that have direct application to the departments on our campus, but they're not normally discussed because they're considered "marketplace." To describe the same areas, at Judson we use higher-education-safe terms such as stewardship, learner outcomes expected, and the probability of enrollment increases. So, although EVA was intuitive to the finance team, we needed to reformat it in a way that made it understandable across disciplines--and also removed the stigma of being just another incomprehensible finance tool that had no application in academia. When we renamed it "academic value added," and tweaked it to match the thought processes of the faculty and administrative staffs, I was surprised to find a tool that helped me find both common ground among stakeholders and a vocabulary that was acceptable to all of the non-business people involved.

The basic thesis of the original tool was also reformatted; it can now be used to evaluate whether or not the deliverables of a project or expense will result in the fulfillment of a predefined learner outcome or strategic goat of the cortege. AVA is actually a tool kit or suite of sorts, with a series of worksheets and spreadsheets that help quantify:

* Total cost of o project or expense (TCO that covers both hard and soft costs to a given department or team).

* Deliverable that is expected, its deadlines, and its potential positive or negative impacts on the campus (determined in a way that is sensitive to the academic calendar and our cash-flow issues).

* Learner outcomes or strategic goals that the project helps address or complete (and how it does so).

* A comparison to other campus initiatives and their ability to positively impact the same goals.

Where normal project management is useful to draw parameters around a project in terms of cost, time, and the required tasks, AVA helps complete the process by presenting the information in a way that speaks directly to the departments evaluating the results. Gantt and PERT charts are good tools for people who speak project management, but they can be confusing to those who do not commonly use them. What's more, project management tools are not always applicable to the world of higher education because of the terminology, resource, and scheduling assumptions they are based on, and their marketplace focus. But since AVA is based on learner outcomes and requires that all campus initiatives are accounted for, it is a truer representation of the real cost of a project or expense in terminology common to the college world.

The basic components of the AVA tool were used when Judson began evaluating critical projects such as wireless initiatives, the introduction of public access workstations for Internet and e-mail access, and the continuation of an expensive maintenance contract required by an Internet filtering package. In each case, the tool provided a higher-ed-centric analysis of the positive and negative issues involved, the total cost to the students and support staffs, and a determination of the initiative's position among the priorities of campus strategic goals and mission statement. The evaluations were not always what were expected (or desired), but the facts were clear and the end result was generally a better fit for the college at that point in time or fiscal year. Importantly, the decisions were based on facts, not on the whim of a specific manager or some "expert's" perception of market trends.

An additional benefit was that the data actually had a shelf life that made it useful the next time the project or expense was evaluated. Judson is now creating a database of projects and expense evaluations that can either be used to jump-start future projects, or as backup if questions are raised about an old project or expense. More benefits: The long-term usefulness of the data helped justify the additional time that already overworked employees had to devote to gathering and researching data to feed the tool kit. And the experience gained from using it helps users feel more comfortable with its results, and the overall process of performing the evaluation.

Should you use the AVA tool set? The decision really lies in a foundational understanding and ownership of a long-term focus versus a short-term firing-fighting mindset. If your campus is only able to move forward when there is a "real emergency," then you won't have the time or support needed to use AVA properly. And in some cases, using AVA may be overkill for a short-term project or expense or if the necessary expertise is already available to intuitively make the decision based on previous experience. It has also been our experience that some segments of the campus, or certain individuals, may not be able to overcome their basic prejudice regarding the use of business tools in an academic setting. (When this has happened, I have been careful not to mention that I was using the tool: or, I would use it only as backup for my portion of the decision.) Fortunately, there are always plenty of opportunities to reintroduce AVA to resisters, as a reputation for making prudent and well-thought-out decisions begins to build. We in higher education may have different goals than those of the business world, but we still need to be just as strategic about how we spend our precious resources if we are going to continue meeting our goals as completely as possible.

John C. Mrazek is the director of Technology Services at Judson College in Elgin, Il.