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    Funding the Future: How to Navigate the Costs of Digital Transformation in Higher Education

    Find out how to navigate the direct, indirect and hidden costs involved in higher education digital transformation
    Last updated:
    July 26, 2023

    Technology has rooted itself in most aspects of university life – from learning and pedagogy in the classroom to the infrastructure associated with student recruitment and enrollment. As technology continues to evolve and diversify, and as budgetary pressures come to the fore, it has never been more important for universities to understand how to calculate the true cost of their digital technologies.

    Throughout this blog article, we’ll provide valuable insights into how to assess the monetary and non-monetary implications of your technology investments, enabling you to make more informed decisions about your institution’s future.

    Step 1: Know the components of technology cost

    Every IT specialist knows that the costs associated with a technology go beyond the initial expenditure. To gain a full understanding of the financial implications of investment, you need to calculate the direct, indirect, hidden and opportunity costs.

    Direct costs

    The direct cost is the most obvious one, and this includes any hardware, software, licences and subscriptions you need to get your new technology up and running. Of course, direct costs can vary depending on the pricing model and vendor you choose. That’s why comparing options to secure the best deal is so crucial.

    Indirect costs

    When assessing affordability against your technology budget don’t forget to factor in all the indirect costs the new system could incur. Indirect costs include things like employee training, support services and system maintenance and upgrade services. These can be viewed as the ‘secondary’ costs that can quickly add up.

    Hidden costs

    Don’t forget about the hidden costs either. Hidden costs can come in the form of unexpected system upgrades and any bespoke development work that goes into getting your new infrastructure working for your institution. These are the kind of costs that can cause you to go over budget if you’re not careful.

    Opportunity cost

    Opportunity cost works slightly differently but is no less important. It relates to the money and opportunities you miss out on by choosing one solution over another, or by not investing in a solution. For instance, dedicating a large sum to a bespoke solution might hinder your ability to invest in digital transformation projects.

    Step 2: Evaluate existing technology infrastructure

    Evaluating your existing technology infrastructure is another vital step in the cost calculation process. Understanding exactly what you already have by way of technology will help prevent you from investing in solutions that don't end up being cost-effective because they duplicate existing functionalities.

    It is likely that you will be integrating your new technologies with at least some aspects of your existing infrastructure. By understanding what you already have, you can identify any compatibility roadblocks in advance and plan for a more seamless integration with fewer disruptions, workarounds and hidden costs.

    It is also important to gain an insight into the lifecycle of existing technology, including the costs associated with upgrades, renewals and terminations.

    If you use third-party vendors or Software-as-a-Service (SaaS) providers now is the time to evaluate their performance and capabilities. Understanding their strengths and limitations in the early stages of your digital transformation initiative can help you make more informed decisions about contract renewals or terminations.

    Why not make evaluating your technology landscape and its cost-effectiveness a regular, ongoing practice within your institution? Analyzing the value each technology delivers and identifying areas that require improvement or replacement can help you avoid hidden costs and unnecessary expenses.

    Step 3: Understand the university's technology needs

    To create and implement a strategy that is effective both in the short and long-term you must be able to define your university's needs (and, of course, identify solutions that can meet them). Ultimately, the technology you choose must have the functionality and scope required to drive your university’s mission forward.

    However, while the technology itself – i.e. the direct costs – will take centre stage in conversations around finances, be careful not to overlook the ‘human’ factors at play. Sidelining or even ignoring indirect costs such as those involved in training can lead to significant financial implications down the line. Here’s what to consider:

    • Training costs – Training students, staff and other stakeholders requires funding and will likely constitute a large part of your budget. To maximise efficiency and value, training sessions should be well-planned, and (if necessary) utilize the expertise of external training professionals.
    • User satisfaction – Gauging your employees’ satisfaction levels with your existing IT can help ensure that your new solutions add value to your institution. Actively seeking feedback from staff during and after the implementation process will help you get the most out of your investment.
    • Change management – Change management comes into play during the transition from old to new. Managing change effectively will go a long way to minimize disruption and ensure a smooth adoption after implementation.

    The key stages of change management include:

    • Change assessment and planning
    • Communication and stakeholder engagement
    • Change leadership
    • Training and skill development
    • Change execution and monitoring
    • Resistance management

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    Step 4: Compare vertical-specific vs generic solutions

    The evolution of SaaS and enterprise solutions has brought about new considerations for cost calculation in universities. Vertical-specific solutions are technologies designed for use in a specific sector, such as higher education. General solutions, on the other hand, are for use across a variety of sectors.

    Enterprise vertical-specific solutions

    Although enterprise higher ed-specific software solutions tend to come with a higher upfront price tag, they are often considered worth the cost because they are designed specifically for use in higher education contexts. Optimized functionality can streamline processes and promote long-term value across various departments.

    A vertical-specific solution for higher education may include features such as:

    • Personalized URLs for applications
    • Automated workflows and payment plans
    • Personalized content generation
    • Student portals
    • Customizable forms
    • Data analytics and reporting

    Generic solutions

    Generic solutions may come with lower upfront costs, but they often fail to meet the needs of today’s higher education institutions because they lack the functionality required to personalize the student experience. Ultimately, it is important to understand a solutions’ long-term affordability and value when making a decision.

    Step 5: Utilize a cost calculation model

    You may want to create a cost calculation model to help you determine the financial implications of your new digital solution or transformation strategy. You have two main options: a total cost of ownership (TCO) model or an alternative model.

    TCO considers all costs, direct, indirect and hidden, and offers a full view of the technology costs over the solution’s lifetime. Other models, such as the Return on Investment (ROI) model, might better suit specific scenarios. For instance, it’s particularly beneficial when assessing an investment's potential returns or benefits.

    The bottom line

    Navigating the true cost of technology is important: it enables decision makers to understand the impact of their choices and how well they align with the institution’s wider objectives. Now is the time to start examining your institution's existing technology costs, and the costs involved in future digital transformation projects.

    Yes, digital transformation always requires investment. But aside from the short-term financial implications, view it as an investment in your institution's future, and the futures of the various students who choose to study with you.

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