Endnotes and citations are available in the PDF and Scribd versions.
This report contains a correction.
Whether in a school district or corporate office, there are a number of less-than-flattering monikers for a chief financial officer, such as “number cruncher,” “bean counter,” “the green visor,” and “Dr. No.”
Traditionally, district and corporate leaders regarded chief financial officers, or CFOs, as chief accountants. They were the individuals tasked with ensuring financial compliance, settling the books, creating reports, and cutting costs. The CFO was inherently risk averse and internally focused; he or she was there to backstop the ambitious plans of others.
Certainly, those accountability functions are no less important now than they were in the past. However, many CFOs are responding to today’s more complex business and fiscal environments by changing their job descriptions. Whether it’s in a small health care firm, a Fortune 500 company, or a large nonprofit organization, CFOs are pushing more and more into the role of what is best described as a “strategic CFO”—a chief accountant and valued partner who brings analytic expertise to high-level strategic decisions.
Strategic CFOs provide chief executive officers and their leadership teams with actionable data and make explicit the choices and tradeoffs required in tight budgetary times. They partner with other executives to look at a company’s cost structure and investments across the board and help make sure that the budget reflects an organization’s priorities. Strategic CFOs understand the “why” behind financial decisions, can effectively communicate that to the public, and focus on building sustainability. Put simply, today’s CFOs look not just backward but forward as well.
The challenges facing our nation’s school systems demand a similar transformation in financial leadership. New, higher standards and teacher-evaluation systems increase schools’ accountability for significant improvement in student outcomes at a time when schools face tightening budgets. Furthermore, students are arriving at school with greater needs than ever before, and districts must prepare them for the increased demands of college and careers in the 21st century.
In short, business as usual is not going to get the job done. Districts must use their limited resources in dramatically different ways and transition from deep-rooted, historical structures to new models that prepare students for the globally competitive 21st century. In other words, districts need strategic CFOs who can help their leadership teams make those crucial resource decisions.
There is some evidence that this shift is already beginning. In July 2013, the authors partnered with the Association of School Business Officials International, or ASBO International, to conduct a survey of its membership and found that a large majority of respondents perceived their role as that of a strategic partner. However, the data also reveal that many districts may not support CFOs in that ambition, meaning that CFOs are not truly involved in all of the key decisions and that many entrenched barriers remain in their way.
Evidence gleaned from working with large urban districts shows that the academic side of the house typically makes key decisions that drive the bulk of resources and then drops these directives in the laps of the finance team to figure out how to pay for them. School district CFOs have a tougher challenge than do their business peers when it comes to surmounting deep-seated behaviors and role stereotypes in historically slow-moving bureaucracies. Furthermore, policymakers, SEAs, and education reformers can do far more to give school CFOs the training and capacity they need to succeed.
This report presents findings from our research, including survey responses, and offers recommendations on how best to develop the next generation of strategic CFOs. Among our findings:
- School CFOs are not always a key part of district management culture. When asked about various strategic decisions, 81 percent of CFOs said it was “very important” for CFOs to be involved in “capital allocation.” This makes sense. But only 35 percent of district CFOs said that it was “very important” to be involved in “decisions around allocating and prioritizing instructional resources,” and only 26 percent said that they were currently involved in that area. Since spending related to instruction represents between 60 percent and 70 percent of district operating budgets, this lack of CFO involvement represents a huge gap. Nearly half of respondents worked in business before assuming the school CFO role, so they presumably bring the skills of financial analysis and planning, but only 34 percent felt “very prepared” to be involved in decisions around instructional resources. Evaluating operational performance—such as cost per square foot—is relatively straightforward in a business context, but understanding how to link instructional input costs and outcomes is much more challenging.
- CFOs lack the time and staffing to do more in-depth analyses or planning or to quantify the impact of inflexible structures, which makes strategic resource use difficult. Of those surveyed, 76 percent felt that the lack of time or staffing significantly limited their ability to contribute more strategically. Moreover, 64 percent reported that inflexible structures such as class-size maximums created significant challenges to optimizing resource use. While class sizes are relatively transparent, experience shows that most CFOs do not quantify the significant, but more subtle, fiscal trade-offs embedded in policy choices and contract or categorical restrictions.
Given the needs of school systems today, districts cannot sustain their current approach. There is a need for a new brand of education CFO, one who watches dollars and offers high-level strategic expertise. This means moving away from a budget-manager approach and toward an approach that champions value—that is to say, ensuring a favorable return to students and teachers for the dollars invested.
School CFOs themselves can start the transition by measuring the use of people, time, and money across the district. That means helping their peers understand how historic choices and trade-offs have created current patterns of resource use that are not aligned with current district goals and strategy. Such an approach requires CFOs to develop relationships and credibility with peers on the academic side, build out their strategic analytic toolkit, and get out into the field. The strategic CFO shifts his or her focus from last year’s accounts and this year’s expenses to a multiyear, long-term horizon that builds sustainability.
To be sure, many school district CFOs have made this change. But for the most part, they are outliers, and far more needs to be done to change the culture of districts and build systems that support the strategic CFO. Admittedly, changing ingrained patterns of decision making can be difficult. Therefore, it is incumbent on superintendents to create new expectations for collaboration across finance and academics, demand solid analysis of current spending against key priorities, and integrate the budget and strategic planning timeline. In addition, superintendents can support the CFO in using a return-on-investment, or ROI, approach to the budget process. Under this type of approach, the leadership team looks at all of the district’s investments to identify where current resources are not working well for students and teachers in order to realign investment to high-priority, high-return areas.
These findings lead CAP to recommend that major education stakeholders—policymakers, state and federal education agencies, foundations, and nonprofit organizations—invest to support the development of strategic CFOs and the creation and provision of comparative data around resource use that would enable this role.
Our specific recommendations include the following:
- Create induction and other training programs for CFOs. To help better prepare them and increase their understanding of their role, CFOs should have induction programs that build instructional context and show how corporate finance tools and techniques can be strategically adapted to the educational setting. Such induction programs could be run by states or started by nonprofits or foundations.
- Build networks for continuous learning and mutual support for CFOs. Networks can be a powerful way to advance the field. In collaboration with the Aspen Institute, Education Resource Strategies, or ERS, facilitates the Urban CFO Network, which connects like-minded, forward-thinking peers to share frameworks, tools, and best practices. Similarly, the Council of the Great City Schools, or CGCS, promotes practice and cross-district data sharing through its annual CFO conferences and Managing for Results project, as well as through member technical assistance efforts.
- Increase transparency and establish decision-support dashboards. Financial reporting data built around accounting rules do not necessarily help districts and stakeholders understand how school resources are used to directly serve students. SEAs already capture data from districts on the deployment of people, time, and money for compliance and tracking purposes. SEAs should analyze and report that information back to districts in ways that help CFOs and the larger leadership team understand how they compare to their peers and which ways of organizing and investing tend to result in better outcomes.
- Implement programs that support increased fiscal equity and flexibility. Funding systems that allocate exact numbers of staff by type or chop up funding into many small, categorically restricted buckets limit how district leaders can use those funds to meet local needs. Can leaders be held accountable for changing student performance without being given the ability to innovate and creatively organize their resources to meet those needs? One solution is to implement weighted student funding, where resources are allocated as flexible dollars and follow students according to their need. California’s new Local Control Funding Formula takes this approach at the state level. This is a step in the right direction, but far more needs to be done.
We do not mean to suggest that school systems should become like businesses, with a laser focus on the bottom line. Education systems have their own cultures and goals, such as student success, equity, and parental satisfaction, which can be difficult to measure and compare. This is precisely why high-performing districts need a strategic CFO, an individual who brings to bear the whole strategic brain—both the academic and financial halves of the brain—to inform key decisions and to partner with their instructional peers to reallocate resources to high-performing, fiscally sustainable purposes.
Don Hovey was a partner at Education Resource Strategies from 2008 to 2014. Ulrich Boser is a Senior Fellow at the Center for American Progress.