Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Annual Report 2020
  • Annual Report Archive
  • From the Dean
  • Financials
  • Downloads
    • Full Report
    • Financial Statements
  • …→
  • Harvard Business School→
  • Annual Report 2020→
  • Financials
    • Financials
    • From the Chief Financial Officer
    • Financial Highlights
    • Statement of Activity & Cash Flows
    • Consolidated Balance Sheet
    • Supplemental Financial Information
    →

Financials

Financials

  • From the Chief Financial Officer
  • Financial Highlights
  • Statement of Activity & Cash Flows
  • Consolidated Balance Sheet
  • Supplemental Financial Information

Supplemental Financial Information II

Supplemental Financial Information II

  • From the Chief Financial Officer
  • Financial Highlights
  • Statement of Activity & Cash Flows
  • Consolidated Balance Sheet
  • Supplemental Financial Information
1ms
page 2 of 2

Expenses

Executive Education, HBP, and HBSO operating costs, as well as the School’s faculty research costs, cut across multiple expense line items in the Statement of Activity and Cash Flows on page 37.

Faculty research expenses include a portion of faculty salaries and benefits expense, as well as direct costs for faculty support staff and travel, and for the School’s network of global offices. Additionally, HBS allocates a portion of the costs associated with library resources, campus facilities, technology, and administration to this category. Faculty research expenses totaled $131 million in fiscal 2020, comprising nearly 16 percent of the School’s operating budget.

Although HBS characterizes costs charged to HBP, HBSO, and Executive Education as operating expenses, in a profit-seeking enterprise they would in large part be considered as cost of goods sold. These expenses include direct costs for staff compensation, specialized outside professional services in information technology (IT) and other functional areas, marketing costs, and residence expenses for executive program participants.

The School’s total operating expenses for fiscal 2020 were $831 million, up by $10 million, or 1 percent, from $821 million for fiscal 2019. The increase in operating expenses was attributable in part to the net increase of 11 full-time equivalent faculty positions in fiscal 2020 and investments in building the staff. Operating expenses also helped to fund fellowships for students enrolled in the joint degree doctoral programs offered in collaboration with Harvard’s Graduate School of Arts and Sciences (GSAS).

Salaries & Benefits

Compensation for faculty and administrative staff is the largest expense at HBS. The School’s salaries and benefits expense for fiscal 2020 increased 4.5 percent to $375 million, from $359 million in fiscal 2019. This represented 45 percent of the School’s total operating costs, compared with 44 percent in the prior year.

Building the HBS faculty is a key strategic priority for the School. The total number of faculty, as measured in FTEs, can rise or fall in any given year, reflecting retirements, departures, and fluctuations in recruiting activity. In fiscal 2020, 10 new assistant professors were hired, and 10 faculty members were promoted to associate or full professor. Net of retirements and departures, the size of the HBS faculty increased to 244 FTEs in fiscal 2020, from 233 FTEs a year earlier.

The School’s staff grew to a budgeted 1,839 FTEs in fiscal 2020, from 1,761 in the prior year. To pursue growth opportunities and key initiatives, the School added new staff in HBP, HBSO, and the MBA Program, as well as at the Harvard i-lab and to support faculty research.

Fellowships

The School categorizes fellowships, or financial aid, as an expense line item on the Statement of Activity and Cash Flows. Making education at HBS affordable to a broad cross section of applicants, regardless of their financial circumstances, is a longstanding goal of the School.

The prospect of entering or returning to the workforce with high levels of education debt can deter strong MBA candidates from applying to HBS and restrict their career choices upon graduation. This is particularly true for younger students, women, those from outside the United States, and students whose early career paths have not enabled them to reduce their undergraduate loans.

Consequently, the School strives to assist students in minimizing their debt at graduation by ensuring that fellowship support keeps pace with tuition and fees. Extending a long-term record of annual increases in financial aid, total Fellowships expense for fiscal 2020, including assistance for MBA students, doctoral students, and a limited number of Executive Education participants, increased by $6 million, or 12 percent, from fiscal 2019 to $57 million. Fellowships amounted to 7 percent of the School’s total operating costs in fiscal 2020, compared with 6 percent a year earlier.

Responding to the challenging job market caused by COVID-19, in fiscal 2020 HBS expanded its Summer Fellows Program from 250 students to 750 students. The program supplements salaries for MBA students working in entrepreneurial organizations, social enterprises, and other non-traditional sectors.

Approximately half of the School’s MBA students currently receive fellowships, which cover an average of more than 50 percent of a student’s tuition. About 26 percent of tuition—more than $35 million—was awarded as fellowships in fiscal 2020.

Average fellowship support per student totaled more than $42,000 in fiscal 2020 and was up slightly from the prior year. Over the past five fiscal years, the School’s average two-year MBA fellowship award has grown from nearly $65,000 for the class of 2016 to more than $80,000 for the class of 2021 as tuition was held flat.

Funding for fellowships comes from restricted endowment and current use giving by HBS alumni and friends. These funds are supplemented by unrestricted funds as necessary, which totaled $5 million in fiscal 2020.

Publishing & Printing

This expense category includes a portion of HBP’s production costs plus a small amount of spending related to the School’s printed materials and publications. The production costs include, for example, Harvard Business Review’s printing expense, which increased in fiscal 2020. They also include strategic investments in digital infrastructure and content designed to extend the group’s record of consistent growth at a time of significant change in the way people consume information.

The School’s publishing and printing expenses for fiscal 2020 increased by $4 million, or 5 percent, from the prior year, to $81 million. This amounted to 10 percent of the School’s total operating costs, compared with 9 percent in fiscal 2019.

Space & Occupancy

The HBS campus includes 36 buildings encompassing more than 1.9 million square feet of occupied space. Space and occupancy expenses include costs related to maintaining and operating the School’s buildings and campus infrastructure. Additionally, facilities improvement and renovation costs that do not qualify as capital expenses are generally included in this category.

Also included are expenses related to dining facilities and other campus services, costs associated with leased space for HBP, HBSO, and the School’s global offices, as well as residence costs for Executive Education program participants.

The School’s space and occupancy expenses for fiscal 2020 declined by $1 million, or 1.4 percent, from the prior year to $71 million. Space and occupancy expenses accounted for 9 percent of the School’s total operating costs in fiscal 2020, consistent with the prior year.

Professional Services

A large portion of the School’s professional services expense category is related to spending that a for-profit business would categorize as cost of goods sold—including growth-focused investments at HBP and HBSO, and compensation for faculty who teach Executive Education programs.

Professional services expenses for fiscal 2020 decreased $13 million, or 18 percent, from the prior year to $59 million. As a result, expenses in this category amounted to 7 percent of total operating costs, down from 9 percent in fiscal 2019. A significant part of the decrease reflects the decision to pause Executive Education programs during the pandemic, resulting in a savings in salaries and related professional services expenses.

These savings were partly offset by an increased investment in IT, which continues to be an increasingly fundamental part of the School’s operations. In response to COVID-19, the IT organization developed, implemented, and supported numerous technology solutions for both hybrid and remote teaching, learning, and working throughout the School.

In addition, the School’s IT and operations departments completed the design, build-out, and launch of two new HBS Live Online Classrooms on campus, and implemented a new application that will allow visually impaired faculty to select and call on students using mobile, wearable, and in-room classroom technologies.

IT spending represented nearly 12 percent of the School’s total operating expenses in fiscal 2020. Controlling IT costs is an important financial priority for the School, and HBS has begun to shift toward less expensive software-as-a-service platforms rather than custom-developed applications. The School also is moving toward greater use of third-party IT service providers and transitioning IT applications to the cloud.

Supplies & Equipment and Other Expenses

Supplies and equipment expenses for fiscal 2020 decreased by $1 million, or 8 percent from the prior year to $12 million, or 1 percent of the School’s total operating costs. In the Other Expenses category, fiscal 2020 spending was $102 million, consistent with the prior year. This amounted to 12 percent of the School’s total operating costs in both fiscal years. What’s not immediately evident from looking at the Other Expenses line is savings in areas such as travel and catering—activities that decreased in the final months of the fiscal year as a result of COVID-19. Those savings were offset by growth in the first nine months of the year.

Debt Service

HBS finances major capital projects with a mix of three sources of funding: gifts, unrestricted reserves of internally generated cash, and the strategic use of debt financed through the University.

The HBS balance sheet historically has been only modestly leveraged, and debt leverage remained low in fiscal 2020. Klarman Hall—the School’s most recent large building construction project—was substantially completed in fiscal 2018.

Total capital expenses for fiscal 2020 increased to $43 million, from $38 million in the prior year. The most significant project was the build-out of two HBS Live Online Classrooms on campus, at a cost of $12 million. As in fiscal 2019, these investments were primarily funded by internally generated cash, and there were no new borrowings.

HBS paid down $7 million in building debt in fiscal 2020, compared with $9 million a year earlier. The School’s year-end fiscal 2020 building debt-to-asset ratio decreased to 0.8 percent, from 0.9 percent in the prior year. Other University debt increased by $50 million, related to the Financial Accounting Standards Board’s implementation of a new lease accounting standard. The remaining debt mainly consists of repayment obligations to the University for mortgage loans made by HBS as a faculty recruiting incentive, which remained unchanged from fiscal 2019.

The School’s debt service expense consists of interest payments to the University and is covered by using cash from operations. Fiscal 2020 debt service expense was $3 million, flat with the prior year. As in fiscal 2019, this expense was mainly associated with borrowings to finance prior years’ campus expansion. Consistent with the three prior years, the interest portion of the School’s debt service amounted to less than 1 percent of total operating costs in fiscal 2020.

University Assessments

The University Assessments expense category encompasses services provided to HBS by Harvard University, including payroll and benefits administration, processing of accounts receivable and payable, and legal services. The amount charged to HBS in any given year is primarily calculated as a percentage of the School’s total expenses. As expected, the School’s expense in fiscal 2020 for these assessments remained flat from the prior year at $26 million, amounting to 3 percent of total operating costs.

Depreciation

The School computes depreciation using the straight-line method over the estimated useful lives of the assets. Depreciation expense for fiscal 2020 decreased by $1 million, or 2.2 percent, from the prior year to $45 million. The School’s depreciation expense for fiscal 2020 amounted to 5 percent of total operating costs, compared with 6 percent a year earlier.

Cash Before Capital Activities

The School’s cash from operations decreased in fiscal 2020 by $74 million from the prior year to $30 million, primarily reflecting the significant impact of COVID-19 on the School’s Executive Education group. The pandemic also prompted the cancellation of the FIELD Global Immersion course for first-year students, all of whom received refunds. As part of the transition to concluding the spring semester in a remote learning mode, the School provided funds to cover printing and participation in online classes to all students.

Net Capital Expenses

After many years of major capital activity on campus, in fiscal 2019 the School transitioned to a smaller capital budget aimed at sustainability, maintenance, and renewal. This focus continued in fiscal 2020. Total capital investment increased 13 percent to $43 million, from $38 million a year earlier.

The most significant project was the build-out of two HBS Live Online Classrooms, which were completed in March 2020 at a cost of $12 million. They will be used primarily for Executive Education courses.

The School’s net capital expenses for fiscal 2020 decreased to $30 million from $35 million a year earlier.

Changes in Debt & Other

The School’s debt and other cash activities decreased by $1 million in fiscal 2020, compared with a decrease of $104 million in the prior year. After several years of transferring unrestricted cash to the HBS endowment, the School elected to hold its fiscal 2020 surplus in cash reserves. This decision was made to prepare for the potential of an operating deficit, given continued uncertainty about the duration and severity of COVID-19.

Because gifts, internally generated cash, and unrestricted reserves have been available and sufficient to finance capital activities, fiscal 2020 marked the School’s twelfth consecutive year with no new borrowings. Debt principal payments decreased by $2 million from the prior year to $7 million.

Capitalization of endowment income—or cash used to purchase endowment units—was a $3 million use of cash in fiscal 2020, up $1 million from the prior year. In compliance with federal and state legal requirements, the School’s objective is to spend as much of the endowment distribution as possible in any given year, according to the terms of each gift. Funds unspent as a result of gift restrictions are generally reinvested in the endowment.

In compliance with the law, HBS accesses the investment appreciation within existing endowment accounts when the terms of the gift require funds to be withdrawn at a rate higher than the University’s payout rate in any given year. Decapitalization of endowment income—or cash drawn from endowment appreciation—was a $2 million source of cash in fiscal 2020, consistent with the prior year.

Ending Balance, Unrestricted Reserves

Approximately 54 percent of the School’s revenues in fiscal 2020 came from HBP, Executive Education, and HBSO—areas that are highly sensitive to fluctuations in the economy. Consequently, maintaining an ample balance of unrestricted reserves outside of the endowment is crucial in providing HBS with sufficient liquidity to finance ongoing campus renewal and expansion projects, and to capitalize on emerging strategic opportunities through economic cycles over the long term.

Continuing its focus on generating strong cash from operating activities, HBS concluded fiscal 2020 with an unrestricted current use reserves balance of $174 million, compared with $129 million a year earlier. This level is substantially above the $100 million in unrestricted reserves established by HBS as the School’s long-term liquidity management target.

* In pursuit of greater comparability across the Harvard schools, the University has asked all the schools to report their net results in accordance with generally accepted accounting principles (GAAP) in the United States. In addition to results for fiscal 2020, the School’s results for fiscal years 2018 and 2019 are presented in accordance with GAAP within the Statement of Activity and Cash Flows.

graphic

Expenses

Chart showing expenses of each fiscal year

  • Fiscal Year 2016 704 million
  • Fiscal Year 2017 731 million
  • Fiscal Year 2018 766 million
  • Fiscal Year 2019 821 million
  • Fiscal Year 2020 831 million
  • Salaries and Benefits: 45%
  • Other: 12%
  • Publishing and Printing: 10%
  • Professional Services: 9%
  • Space and occupancy: 7%
  • Fellowships: 7%
  • Depreciation: 5%
  • University Assessments: 3%
  • Supplies and Equipment: 2%
  • Debt Service: 0%
ǁ
Campus Map
Harvard Business School
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College