Adapting to changing student numbers – is flexing your budget the answer for UK universities?

Author: Stephanie Shepherd, with contribution from Brian Turnbull

As another academic year begins, UK universities are confronted with increasing uncertainty around student numbers. Whether enrolment figures have turned out higher, lower, or in line with expectations, the financial implications for institutions are profound. As student recruitment becomes more volatile, universities are asking: Is flexing the budget each year the right solution, or does it pose additional risks?

This piece explores the benefits and potential pitfalls of flexible budgeting, the good and bad scenarios that may arise, and short-term solutions to manage financial uncertainty.

Has student recruitment met expectations?

The question of whether student numbers align with expectations is becoming ever more critical for universities .

The factors influencing enrolment are numerous; the impact of Brexit on EU student recruitment, heightened competition for international applicants, changes to VISAs regarding dependants, and demographic changes in the UK’s school-leaving population, to name a few.

Additionally, trends driven by popular media add another layer of complexity. These media-driven trends can lead to unpredictable spikes in enrolment for niche programmes, forcing institutions to rapidly scale resources to meet the demand. While this presents immediate financial opportunities, universities must be cautious about over-investing in areas that may not sustain long-term interest. If student demand drops as quickly as it rises, institutions are left with underutilised resources, which flexible budgeting alone may not fully mitigate.

• Higher-than-expected enrolments present opportunities for increased revenue but can stretch resources thin, requiring rapid adjustments in staffing, accommodation, and services.
• Lower-than-expected numbers threaten to leave institutions with budget shortfalls, particularly for those that rely heavily on tuition fees to fund operations, potentially leading to reduced services, cancelled programmes, or staff cuts.
• Meeting expected targets provides relative stability but still requires constant vigilance. Even when numbers are in line with projections, unexpected shifts in student behaviour, policy changes, or economic shocks can suddenly alter an institution’s financial position.

Is flexing the budget the right solution?

Budget flexibility - adjusting the institution’s financial plan each year to match actual student numbers - is often proposed as a solution to the volatility in recruitment. But is this approach sufficient on its own?

Let’s examine the potential outcomes and whether flexing the budget can truly provide stability.

Flexible budgeting: The benefits

• Quick Adaptation to Student Numbers. A flexible budget allows universities to adapt in real-time to student recruitment outcomes. If enrolment is higher than expected, institutions can quickly allocate additional resources to support the influx, such as hiring more staff on shorter or fixed-term contracts (e.g., hourly paid or agency staff), as other recruitment may not be as quick. However, this type of resource could carry the risk of impacting the quality of education and services provided.
• Cost Efficiency in Lean Years. When student numbers fall short, flexing the budget helps to avoid unnecessary expenditure. By reducing spending in non-critical areas or deferring investments, universities can control costs and prevent financial strain from escalating. This ensures that institutions can manage lean years without drastic measures that would impact core academic activities.
• Better Risk Management. With a flexible budgeting process, universities can model best-case and worst-case scenarios, preparing contingency plans for different levels of enrolment. This proactive approach enables institutions to allocate resources more strategically and reduce the risks associated with unexpected surpluses or deficits.

Flexible budgeting: The risks

• Short-term Thinking and Reactionary Measures. One of the risks of focusing too heavily on flexing the budget is that it encourages short-term thinking. Universities may cut costs in critical areas, such as research or faculty development to manage an immediate financial shortfall, but such decisions can weaken the institution’s long-term growth potential. A too-reactionary approach could mean sacrificing strategic initiatives that are crucial for future success.
• Operational Instability. Frequent budget adjustments can lead to operational instability. If staffing levels, academic offerings, or student services are constantly in flux based on yearly student numbers, it can create uncertainty for both faculty and students. The result is a less consistent experience, potentially harming the institution’s reputation and student satisfaction.
• Missed Investment Opportunities. Flexing the budget too aggressively can mean deferring investments in key areas like digital transformation, infrastructure, or research facilities. While managing short-term volatility is essential, neglecting long-term investments could put institutions at a competitive disadvantage in the future.

Short-term solutions: Balancing flexibility with stability

While budget flexibility is a useful tool, it shouldn’t be the sole strategy for managing fluctuating student numbers. A balanced approach that incorporates both short-term adjustments and long-term planning is essential. Here are some short-term solutions to complement flexible budgeting:

• Scenario-Based Financial Modelling. Institutions should develop multiple budget scenarios, best-case, worst-case, and most-likely outcomes, based on different enrolment numbers. By preparing for a range of possibilities, universities can flex their budgets without over-committing to a single course of action. This approach ensures that short-term adjustments don’t jeopardise long-term priorities.
• Incremental Adjustments Rather Than Drastic Cuts. Instead of making sweeping changes, institutions should consider incremental adjustments that allow for gradual adaptation to changing student numbers. This might involve reallocating existing resources, freezing non-essential hiring, or introducing temporary cost-saving measures rather than large-scale cuts to staff or programmes.
• Temporary Cost-Saving Initiatives. Universities can introduce short-term, flexible cost-saving initiatives such as adjusting the proportion of adjunct or sessional lecturers during peak periods or postponing non-critical capital projects. These moves can help contain costs without disrupting core academic and student support functions.
• Data-Driven Recruitment Strategies. Improving recruitment forecasting through data analytics can help universities more accurately predict enrolment trends and enable more precise budget planning. By leveraging data on student demand, application rates, and demographic trends, institutions can refine their recruitment strategies and reduce the likelihood of unexpected enrolment fluctuations.

How Etio can help your university navigate financial uncertainty

Given the complexity of managing fluctuating student numbers and budget pressures, universities can benefit from partnering with experts like Etio. With over 20 years of experience in financial benchmarking and strategic planning in Higher Education, Etio provides tailored insights that help institutions manage both short-term volatility and long-term growth.

Etio’s financial expertise can support your university through:

• Comprehensive Financial Benchmarking: We provide data-driven financial benchmarking insight that guides universities in terms of “size-and-shape” analysis and cost optimisation, enabling evidence-based decision-making to be undertaken when flexing budgets or implementing cost-saving measures.
• Scenario Modelling for Flexibility and Stability: We assist institutions by modelling expenditure and resource profiles based on different recruitment outcomes. By understanding the potential risks and rewards of various budgetary scenarios, universities can flex budgets without sacrificing long-term goals.
• Strategic Resource Allocation: We provide guidance on resource allocation, ensuring that institutions can react to fluctuating student numbers while still investing in key strategic initiatives. Our expertise helps universities balance short-term operational needs with sustainable, long-term growth.

Flexing budgets - part of the solution, but not the whole answer

Flexing the budget each year is a powerful tool for managing the unpredictability of student recruitment, but it should be part of a broader strategy. Universities must find a balance between short-term flexibility and long-term sustainability, ensuring that they are prepared for both immediate challenges and future opportunities. By implementing scenario-based planning, maintaining strategic investments, and leveraging expert advice from Etio, institutions can navigate the complex financial landscape and build a resilient future.