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Business Model

In its mix of income sources, Harvard Business School is unlike other parts of Harvard University and unique in American higher education. More than 50 percent of the School's revenue is generated by Harvard Business School Publishing (HBSP) and Executive Education. Because these businesses operate in competitive, customer-driven markets, the School's income stream is unusually subject to the influence of near-term economic conditions.

The HBS business model is further differentiated by the School's policy of supporting faculty research with internally generated funds, rather than grants from government agencies or other third parties. This policy creates an academic environment in which faculty are free to pursue the research opportunities that they believe have the greatest potential to create knowledge and advance the practice of management, and liberates them from the administrative duties associated with sponsored research grants.

bar chart highlighting $84 million in Research Investment in FY 2006

Over the past five years, faculty research investment has consumed an average of 25 percent of the School's total operating budget. Research spending includes a significant portion of faculty compensation, as well as direct costs for research support staff, fieldwork, and IT services. Also included in faculty research expenses are allocated costs for Baker Library resources, campus facilities, technology, and administration. HBSP and Executive Education disseminate the knowledge that results from the faculty's research in corporate and academic markets around the world. In a self-sustaining cycle, HBS reinvests the internally generated revenue from its executive programs, periodicals, books, cases, and eLearning materials to support the faculty's work in creating intellectual capital. Surpluses generated by these businesses also support the School's MBA and Doctoral programs.

Revenues

Funding for the School's operations is derived from four primary sources:

  • MBA Program tuition and fees. Revenue from the School's core academic program increased to $73 million in fiscal 2006, from $68 million in fiscal 2005.
  • Executive Education tuition and fees. Total revenue, comprising tuition and fees from open-enrollment and custom executive programs, grew to $81 million in fiscal 2006, from $76 million in fiscal 2005.
  • Publishing revenue. In fiscal 2006, revenue from sales of periodicals, books, cases, and eLearning products by HBSP increased to $119 million, from $106 million the previous year.
  • Endowment distribution and unrestricted current-use gifts. The annual distribution from the School's endowment and revenue from current-use giving accounted for $83 million in funding in fiscal 2006, compared with $70 million last year. Driven by strong investment returns, the HBS endowment has become an increasingly important source of funding for the School's operations. Over the past five years, the annual distribution from the endowment has grown from 17 percent to 19 percent of the School's total revenues.

The School's total revenues have increased at a compound average rate of 5.6 percent annually for the past five fiscal years. In fiscal 2006, total revenues increased $37 million, or 11.2 percent, to $368 million, from $331 million last year. Continuing the recent trend, market-driven growth in HBSP sales and Executive Education tuition generated over half of this year's revenue increase. A strong flow of unrestricted gifts and larger distributions of income from the School's endowment also contributed to the year-over-year revenue growth. In addition, growth in MBA tuition and fee income was slightly in excess of the underlying rate of inflation for the higher education sector.

MBA Tuition and Fees

MBA Program tuition and fees increased to $73 million in fiscal 2006, from $68 million last year. MBA tuition and fees amounted to 19.8 percent of the School's total revenues in fiscal 2006, compared with 20.5 percent a year earlier. After remaining level for the past three years at approximately 900 students per class, total MBA enrollment for fiscal 2006 increased to 1,822 students. This increase was due to a higher admissions yield for the Class of 2007 and a lower attrition rate for the Class of 2006. The fiscal 2006 growth in MBA revenue also resulted from a 5.3 percent tuition increase. This reflected inflation in program delivery costs, as well as incremental costs for the innovation necessary to continue enriching the HBS educational experience. First-year MBA tuition in fiscal 2006 was $37,500 — near the midpoint among the 10 comparable schools tracked by the School — compared with $35,600 last year.

Executive Education

Executive Education programs generated $81 million in tuition revenue in fiscal 2006, up 6.6 percent from $76 million last year. Executive Education income represented 22 percent of the School's total revenues in fiscal 2006, compared with 23 percent in fiscal 2005.

Executive Education fulfills two objectives at HBS. The first is to strengthen the leadership capacity of individuals who can make a difference in their organizations and in their communities. The second is to provide the School's faculty with opportunities to explore the key business challenges faced by practicing managers today. The knowledge thus gained by the faculty enhances the quality of MBA education and improves business practice on a global scale. Executive Education is working to accomplish these objectives across an increasingly diverse range of geographies and industries.

Fiscal 2006 was a transitional year for Executive Education, as significant staff and funding resources were focused on driving future business growth. The School made a large investment in marketing to support an aggressive launch of the new portfolio of Comprehensive Leadership Programs for fiscal 2007. At the same time, the unit continued its global expansion, enrolling a larger number of international participants and increasing the number of offshore programs in its emerging markets portfolio.

Executive Education continued to see growth in applications and enrollment in fiscal 2006. Applications rose to nearly 10,750 — up approximately 1 percent from fiscal 2005. Total enrollment increased by approximately 100 to nearly 8,240. As in the prior year, growth in fiscal 2006 occurred primarily in the School's core open-enrollment programs. Open-enrollment revenue grew to $61 million, from $56 million in fiscal 2005. Revenue from custom programs was $20 million — level with the previous peak reached in fiscal 2005.

Publishing

Revenue from the School's publishing operation increased 12.3 percent in fiscal 2006 to $119 million, from $106 million last year. HBSP generated nearly 33 percent of the School's total revenues in fiscal 2006, approximately the same proportion as in fiscal 2005.

HBSP leverages the knowledge created by the School's faculty and other thought leaders to improve the practice of management worldwide. To increase the School's presence and penetration in the global business and higher education markets, HBSP continually enhances its relevance with new offerings — not only traditional products such as the Harvard Business Review, books, cases, and reprints, but also an expanding catalog of eLearning materials. The School's publishing operation also works to build affiliations and relationships with strong international partners, marketing HBS Press-branded publications, books, and multimedia products around the world.

Fiscal 2006 was another outstanding year for HBS Press book sales, as revenue grew 27 percent, including 36 percent growth in sales of backlist titles. It was another strong year for the School's flagship publication, the Harvard Business Review, where growth in advertising revenue again outpaced the industry. In the corporate learning sector, an expanded and reconfigured corporate sales force; the introduction of an eLearning product for new managers, Stepping Up to Management; and the creation of integrated programs of HBSP content drawn from across the various publishing platforms contributed to revenue growth in excess of 25 percent. In addition, HBS case revenue grew for the fifth consecutive year.

pie chart. Publishing Revenues FY 2006. HBR:44%, Cases: 19%, HBS Press 17%, eLearning: 11%, Newsletters: 5%, Other: 4%

Gifts and Endowment

The annual distribution of income from the School's endowment, together with revenue from unrestricted current-use gifts, accounted for $83 million in funding in fiscal 2006, or 22.6 percent of the School's total revenues. This compares with $70 million in fiscal 2005, or 21.1 percent of total revenues. The proceeds from the endowment increased by 14.5 percent to $71 million in fiscal 2006, from $62 million last year. Unrestricted current-use gifts, which provide crucial support for the School's operations, grew to $11.7 million in fiscal 2006, from $8.3 million in fiscal 2005.

The growth in endowment distributions was made possible by the University's extraordinary investment returns and an increase in the annual endowment distribution rate, as well as growth in the size of the endowment resulting from alumni giving to the Campaign for Harvard Business School, which concluded in fiscal 2006. In fiscal 2006, fundraising at the School focused on encouraging unrestricted giving as a means of supporting innovation. The HBS community responded generously. A significant portion of the increase in unrestricted giving in fiscal 2006 was due to several MBA classes making gifts of this type, rather than the restricted funds traditionally given as class gifts.

bar chart highlighting $71 million in Endowment Distribution in FY 2006 pie chart. Endowment Components FY 2006. Professorship: 42%, Fellowships: 25%, Research: 8%, Special Initiatives: 7%, Building Operations: 6%, Unrestricted: 6%, Other: 6%;

Endowment distributions have represented between 17 and 19 percent of the School's total revenues in each of the past five fiscal years. After the fiscal 2006 distribution, the School's endowment totaled $2.3 billion at year-end, up $275 million, or 13 percent, from June 30, 2005. The increase in the market value of the endowment for fiscal 2006 reflects $31 million in endowment gifts received by HBS during the year, as well as endowment principal appreciation of $244 million. Total investment return was +16.7 percent in fiscal 2006, net of all expenses and fees, compared with +19.2 percent for the prior fiscal year. The School's strategy for managing its gifts and endowment is discussed on pages 47 through 49 of this report.

Expenses

HBS spends and invests strategically in order to achieve its organizational mission. The School's recent incremental spending has primarily occurred in five areas where HBS has significantly expanded the scale and scope of its operations.

During the past five fiscal years:

  • MBA fellowship spending has increased dramatically. The generosity of the School's alumni and friends has resulted in strong growth in endowed financial aid funds. As a result, spending for MBA financial aid has risen at a compound annual rate of 14.4 percent.
  • The number of faculty has grown at a compound annual rate of 2.7 percent. To offset a period of generational turnover in the School's faculty and intense competition for outstanding candidates, HBS has recruited aggressively and sought creative ways to modestly expand the size of the faculty, as measured in full-time equivalents (FTEs). In order to further strengthen its position in the market for academic talent, the School has enhanced faculty compensation at the same time.
  • Annual investment in faculty research has increased at a compound annual rate of 5.3 percent. Due to the School's Global Initiative and new research and educational initiatives on campus, the faculty has dramatically increased the scope of their fieldwork around the world. HBS has added locations in Japan, Europe, and India to its network of regional research centers. At Soldiers Field, the School has established the Arthur Rock Center for Entrepreneurship, enhanced its Doctoral Programs, and expanded activity within Baker Library and in the fields of social enterprise, leadership, corporate governance, and healthcare. The School has assisted the faculty's work in these areas with increased administrative staff and support services.
  • HBSP and Executive Education have expanded their product offerings and entered new markets, delivering substantially larger annual revenue contributions to the School. Although combined expenses for the two units have risen at a compound annual rate of 2.6 percent, their compound annual growth in revenue contribution was 4.1 percent. By successfully controlling their fixed costs, both businesses have delivered solid margins on incremental revenue.These margins have been reinvested to fund the School's teaching and research activities.
  • HBS has constructed more than 91,000 square feet of occupied space, enlarging the size of the campus by 6.4 percent, while renovating about 373,000 square feet of space. Reflecting this facilities expansion and increased utility and energy costs, space and occupancy expenses have risen at a compound annual rate of 5.6 percent.

In committing to a long-term strategy of educating leaders and creating knowledge for an entrepreneurial, technology-driven, global economy, HBS accepted the challenge of managing a larger enterprise while generating modest annual operating surpluses. The relatively high underlying rate of inflation in the higher education sector has made this task a challenging one. Nonetheless, the School's efforts to enhance operational efficiency, closely manage administrative staff levels, and tightly control campus facilities expenses have been successful.

Although the operational scope of the School has grown significantly since fiscal 2001, total expenses have increased at a rate of only 5 percent, compounded annually. Fiscal 2006 was a year of unusually aggressive strategic expansion in the School's market-sensitive businesses. Total operating expenses increased at more than twice the five-year compounded rate, rising by $38 million, or 12.4 percent, from fiscal 2005 to a total of $345 million.

HBSP and Executive Education accounted for $16.7 million of the increase, while together generating more than $18 million in year-over-year revenue growth. Reflecting a larger number of faculty FTEs and higher benefits rates, faculty compensation increased by $6.1 million from fiscal 2005. Utilities and facility expense increased by $4 million, primarily as a result of higher energy costs. The increase in total expenses for fiscal 2006 also reflected $2 million in additional MBA financial aid.

Compensation for faculty and staff is the largest area of expense for HBS. In line with the expanding scope of the School's teaching and research, the size of the faculty has grown by more than 14 percent since fiscal 2001. In any given year, however, the total number of faculty FTEs can increase or decrease due to retirements, departures, and normal fluctuations in recruiting activity. After declining slightly in fiscal 2004 and 2005, faculty FTEs increased from 201 in fiscal 2005 to 215 in fiscal 2006. This reflected a year of successful tenure track faculty recruiting, as well as short-term appointments. Anticipated faculty retirements and departures should result in a modest decline in faculty FTEs for fiscal 2007.

Because so much of the School's revenue stream is sensitive to economic conditions, HBS exercises a great deal of caution in determining administrative staff levels. Despite the ongoing growth in the scale of its operations, the School has maintained a tight rein on administrative hiring. Staff hiring has largely been focused on the School's revenue-generating HBSP and Executive Education operations, aligned with the market-driven requirements of these business units.

After decreasing slightly from fiscal 2002 through fiscal 2004, administrative staff FTEs have increased for the past two years, with the majority of new hiring centered in HBSP and Executive Education. In fiscal 2006, the School's administrative staff grew by 33 FTEs (including 22 at HBSP and 1 at Executive Education), who were primarily added to support sales and corporate relations initiatives. The School concluded fiscal 2006 with a total of 1,077 administrative FTEs, compared with 1,044 at the end of last year.

Employee salaries and benefits expenses have grown at a compound annual rate of 7.4 percent for the past five years. In fiscal 2006, these costs grew by $14 million, or 9 percent, from the prior year, to $167 million, and represented nearly 50 percent of total operating expenses. Unlike the four prior years, during which rising healthcare and pension benefits were the major cost drivers, growth in faculty FTEs and salaries, as well as additional administrative staff FTEs and cost-of-living increases, were the primary reasons for the fiscal 2006 increase in employee compensation expense. Salaries and benefits for faculty and their research associates represent nearly 40 percent of the School's employee compensation costs in fiscal 2006, or approximately 20 percent of total expenses.

Excluding salaries and benefits, the School's operating costs for the past five years have grown at a compound annual rate of 3.1 percent. This includes the strategic increase in fellowships, or financial aid, which HBS categorizes as an expense. The School's objective is to increase financial aid support for MBA and doctoral students at a rate that exceeds the rise in tuition and fees. The prospect of entering the workforce with high levels of debt can deter strong candidates from applying to HBS and restrict their career choices upon graduation. This is particularly true for students with fewer years in the workplace, those from outside the United States, and students whose early career paths have not enabled them to reduce their undergraduate loans.

bar chart highlighting $14.7 million in MBA Financial Aid Spending in FY 2006

Generous giving by HBS alumni and friends has enabled the School to significantly increase MBA fellowship spending. Financial aid awards for the incoming MBA class have risen at a compound annual rate of 14.4 percent during the past five years. Total financial aid expense, including fellowships for doctoral candidates as well as MBA students, compounded annually, has grown 11.6 percent.

The average MBA fellowship award grew from $9,001 in fiscal 2002 to $15,647 in fiscal 2006. Total fellowship spending for fiscal 2006 increased by $2 million, or 11.8 percent, from last year to a record $19 million. Despite this growth, the average MBA loan balance at graduation in fiscal 2006 was $83,310, compared with $81,100 in fiscal 2005. HBS continues to seek ways to assist MBA students in alleviating this burden, and thus broaden their career opportunities in the private and public sectors.

bar chart highlighting $19 million in Fellowship Spending in FY 2006

Excluding employee compensation and fellowships, the School's operating expenses for the past five years have increased at a compound annual rate of 2.3 percent. This includes costs incurred by HBSP in disseminating the knowledge created by the faculty to the marketplace. The margins HBSP generates through this activity provide incremental funding for the School's teaching and research. The School's printing and publishing expenses include HBSP's cost of goods sold and operations and marketing expenses, along with all costs for the School's other publications.

Publishing and printing expenses include HBSP's production costs as well as a small amount of spending to produce printed materials across the rest of the School. These expenses remained essentially flat from fiscal 2002 through fiscal 2005, mainly due to lower costs for printing and paper, marketing, and author royalties at HBSP. Expenses for publishing and printing increased to $42 million this year, from $35 million in fiscal 2005. Fiscal 2006 was a year of higher operating costs for HBSP, primarily reflecting increases in FTEs and marketing expenses during a year of strong top-line growth, as well as inflation in printing and paper costs.

HBS is responsible for managing its own campus; facilities maintenance and construction are not centralized University responsibilities as they are at many other schools. The School's campus currently includes 33 buildings encompassing more than 1.5 million square feet. Space and occupancy costs include expenses related to maintaining and operating these buildings and associated campus infrastructure. In addition, facilities improvement and renovation costs that do not qualify as capital expenses are categorized as space and occupancy costs. Also included are expenses related to dining facilities and other campus services, as well as costs associated with leased space that houses HBSP's operations.

The School's space and occupancy expenses have increased faster than the general rate of inflation during the past five years. This has largely resulted from higher energy, utility, and security costs, as well as new construction that added nearly 100,000 square feet to the occupied space on campus.

After rising significantly in fiscal 2001 to $29 million, largely reflecting new operating costs for Spangler Center, which opened that year, space and occupancy expenses remained essentially level for the next three years at $30 million to $31 million. The restoration and expansion of Baker Library removed much of that major facility from service during that time, which moderated growth in operating expenses. Space and occupancy expense increased to $35 million in fiscal 2005, largely due to an accounting reclassification. In fiscal 2006, space and occupancy expense rose to $38 million, primarily reflecting an unexpectedly large increase in utility rates and energy prices, as well as operating costs for the expanded Baker Library, which opened during the year.

Expenses for supplies and equipment remained level at $15 million for fiscal 2006, reflecting the School's ongoing cost control programs in this area.

Other expenses grew to $28 million in fiscal 2006, from $22 million last year. The increase was primarily related to Executive Education marketing, outreach activities across the School, and higher travel and IT operations costs.

Professional services expenses increased to $22 million in fiscal 2006, from $16 million in fiscal 2005. The increase mainly reflected the larger number of faculty appointed on a short-term basis, whose compensation expenses are paid to their home institutions. Greater use of outside technology and marketing support services also contributed to the increase.

Expenses for University assessments are calculated as a percent of the School's total expenses on a two-year lagged basis. These assessments cover essential services provided to HBS by the University, including payroll and benefits administration, processing of accounts receivable and payable, and legal services. For fiscal 2006, University assessments expense remained level with the prior year at $10 million.

Debt service, which consists of interest payments to the University on building and other University debt, has remained essentially level for the past five years. New borrowings for campus renewal and construction have been offset by debt principal repayments made possible by alumni gifts, as well as a general decline in the interest rate paid by the School to the University. This rate is determined annually by the University, and is based on the University's weighted average debt rate.

Cash from Operations

The School's ability to generate operating revenue is largely a function of activity in HBSP and Executive Education, and investment returns on the endowment. Each of these sources of income is deeply influenced by cyclical economic trends. Unrestricted current-use gifts also contribute significantly to operating revenue, and giving of this nature can vary from year to year. Nonetheless, HBS plans its operations on a long-term, strategic basis.

As a result, cash from operations tends to be one of the School's more variable financial metrics. Cash from operations remained stable during the three years following the economic slowdown in 2001. Reflecting the economic recovery that gained strength in 2003 and the Campaign for Harvard Business School, operating cash flow nearly doubled in fiscal 2004 to $15 million, increased 60 percent to $24 million in fiscal 2005, and remained nearly level at $23 million in fiscal 2006.

Use of Endowment Principal and Appreciation

HBS regularly funds key initiatives with principal and related capital appreciation of gifts made in prior years intended for these purposes. These funds vary from year to year depending on the type of gifts available, the purposes for which these gifts were given, the status of the School's initiatives related to these purposes, and the available appreciation. Use of endowment principal and appreciation remained essentially level in fiscal 2006, at $14 million, compared with $13 million last year.

Cash Available for Capital Activities

HBS must generate sufficient cash flow to cover capital expenses and any related debt service over the long term. Cash generated before capital activities closely tracks operating cash flow. After remaining stable from fiscal 2001 through fiscal 2003, cash before capital activities grew to $37 million in fiscal 2005 and remained level at $37 million in fiscal 2006. Although cash flow has fallen short of net capital expenses in recent years, and we expect this to continue for the foreseeable future, HBS will ensure through its financial planning that the School has sufficient resources to service its debt and execute on its long-term capital plan.

Capital Expenses

A five-year period of unprecedented capital investment in the HBS campus wound down in fiscal 2006, and capital expenses declined to $49 million, from a record $79 million at the peak in fiscal 2005. The restoration and expansion of Baker Library was substantially completed by the end of fiscal 2005, and in fiscal 2006 the School neared the completion of its long-term projects to renew classroom space in Aldrich Hall and residential facilities at Hamilton Hall.

Capital spending for fiscal 2006 also included investments in a number of smaller projects, including the renovation of Sherman Hall — renamed Wyss House — which houses the School's Doctoral Programs. In addition, HBS made the fourth payment of a multiyear commitment to support the School's role in the University's development in Allston.

The $49 million in fiscal 2006 capital expenses was funded with $12 million in gifts for capital projects and substantially all of the School's $38 million in new borrowings. The new debt includes debt taken in fiscal 2006 replacing other funding from fiscal 2005 (related to the $26 million in other activity). The new borrowings were used for renovations of Aldrich Hall and Hamilton Hall. In fiscal 2005, sources of funding for capital expenditures included gift payments for specific capital projects totaling $49 million, new borrowings of $7 million, internally generated cash, and reserves.

bar chart highlighting $108 million in Total Debt Outstanding in FY 2006

Debt

HBS uses debt strategically as a means of optimizing its capital structure. The School borrows only on qualified capital projects, carefully considering the interest rate environment and expectations for the performance of the Harvard endowment. The School's policy is to borrow when market conditions make accepting the incremental debt service obligation preferable to using endowment principal and appreciation.

The School's debt level rose from $83 million in fiscal 2001 to a record $91 million at the end of fiscal 2002, reflecting financing requirements for the newly launched campus construction and renewal program. For the next three years, continued strength in cash from operations, coupled with gifts to the Campaign, enabled HBS to reduce its reliance on debt for funding campus renovations.New borrowings declined from $15 million in fiscal 2002 to $7 million in fiscal 2003 and remained at essentially this level through fiscal 2005.

Given the current interest rate environment and anticipated returns from the School's endowment, in fiscal 2006 HBS decided to increase borrowings over the next few years to finance scheduled residence hall renovations and other major capital projects. Consequently, new borrowings for fiscal 2006 increased to $38 million, from $7 million in fiscal 2005, and building debt rose to $108 million, from $74 million in fiscal 2005. Reflecting the modest level of capital investment planned for the near term, new borrowings are expected to decline in fiscal 2007.

The School's fiscal 2006 balance sheet includes "Other Debt Owed to University" for the first time. The $25 million year-end balance for this item primarily reflects repayment obligations to the University for mortgage loans made by the School as a faculty recruiting incentive. In prior years, these obligations were netted against "Receivables, Loans, and Other Assets."

The University functions as a banker for HBS, as well as for each of the other Harvard schools, allowing HBS to borrow on a triple-A-rated tax-exempt basis. The School's balance sheet remains modestly leveraged. Total debt has averaged only 3.4 percent of total assets for the past five years. The interest portion of the School's debt service amounted to 1.2 percent of total operating expenses in fiscal 2006, compared with 1.3 percent in fiscal 2005. At June 30, 2006, the School's building debt-to-asset ratio was 3.6 percent.

Liquid assets, consisting of cash and reserves, increased to $85 million at June 30, 2006, from $73 million a year earlier. For the five-year period ending in fiscal 2005, the School's liquid assets were confined to a range of $70 million to $78 million, covering current liabilities an average of 1.3 times for the period. The increase in fiscal 2006 reflected stronger cash from operations, lower capital expenses, and the higher level of new borrowings determined as part of the School's long-term financial plan. The ratio of liquid assets to current liabilities was 1.1 for fiscal 2006. As in prior years,however, the majority of the School's operating expenses were paid, as incurred, out of current cash flow.

Endowment

The market value of the HBS endowment grew to $2.3 billion, or approximately 8 percent of the total University endowment assets, as of June 30, 2006, from $2.1 billion at the end of fiscal 2005. The total return on the endowment was +16.7 percent, net of all expenses and fees, following a +19.2 percent return in fiscal 2005. Harvard Management Company continues to outperform the market. As measured by the Trust Universe Comparison Service (TUCS), a universe of institutional funds with assets greater than $1 billion, the performance of the University's endowment has exceeded its benchmark and the median return of other large institutional funds in each of the past five years, placing Harvard in the top 5 percent of all institutional funds.

bar chart highlighting $60 million in Unrestricted Reserves in FY 2006

Unrestricted Reserves

HBS relies on unrestricted reserves as a resource for responding to unforeseen opportunities and — as part of the mix with gifts, internally generated cash, and debt — to finance capital projects. Reflecting the School's ambitious campus construction and renewal activities, reserves generally declined at a measured rate from fiscal 2001 through fiscal 2005. In fiscal 2006, the School's year-end reserves balance grew by $8 million to $60 million. HBS is considering making further investments in the unrestricted endowment reserve established several years ago. The market value of this reserve was $55.7 million at June 30, 2006, compared with $49.6 million in fiscal 2005. As fiscal 2007 begins, HBS remains confident that its reserves are sufficient to provide funding for future capital projects and to leverage emerging opportunities to deliver on the School's mission of educating leaders.