Supplemental Financial Information
HBS funds its operations with cash from three primary sources: MBA tuition and fees; earned income from Harvard Business Publishing (HBP), Executive Education, and HBS Online; and philanthropic revenues (including current use gifts and distribution from the endowment).
In fiscal 2021, the School's total revenues decreased by $56 million, or 7 percent, to $805 million from $861 million in the prior year. The decrease primarily reflected the impact of COVID-19 on the MBA Program and Executive Education. With physical distancing guidelines and international travel restrictions in effect, Executive Education pivoted to an all-virtual program portfolio from its traditional residential program model. The top-line decrease was partly offset by HBP and HBS Online, which generated record revenue in fiscal 2021.
Revenue (in millions)
- 34% Publishing
- 30% Endowment Distribution & Current
- 14% MBA Tuition & Fees
- 10% Executive Education Tuition
- 9% HBS Online
- 3% Housing, Rents, & Other
MBA Tuition & Fees
Student tuition and fee revenue from the MBA program decreased 17 percent to $113 million from $136 million in fiscal 2020, as a number of students chose to take advantage of the School's deferral and leave policies during the pandemic. To put the data in context, enrollment in fiscal 2021 was 1,530 students, 17 percent lower than the prior year's enrollment of 1,847 students. The latter number is in line with the School's average enrollment between fiscal 2016 and fiscal 2020.
First-year MBA tuition in fiscal 2021 was $73,440, flat with fiscal 2020. Combined tuition and fees for fiscal 2021 were at the lower end of the seven peer schools tracked by HBS and amounted to 14 percent of the School's total revenues.
Harvard Business Publishing
Four of HBP's five market-facing groups—Harvard Business Review, Higher Education, Advertising, and Press—delivered year-over-year revenue growth in fiscal 2021. As a result, total Publishing revenue increased 5 percent from fiscal 2020 to $274 million.
HBP international revenue continued its steady growth, increasing 8 percent and representing approximately 40 percent of the group's total annual sales in fiscal 2021.
As one of the world's most respected business journals, Harvard Business Review continued to capitalize on the increasing appetite for digital content on the key themes of the day. The exploration of topics such as promoting racial equity in the workplace, managing during the pandemic, and the role of sustainability in the boardroom helped drive site traffic and user engagement across multiple channels. As a result, HBR group sales increased 10 percent year-over-year, while circulation grew 3 percent over the same period to a record 349,000.
In addition, Harvard Business Review continued to gain momentum from the tiered subscription offer, introduced in fiscal 2019, that enables readers to choose between a digital, digital and print, or premium subscription. The offer helped attract a record monthly average of nearly 12 million visitors to the HBR.org website, an increase of 18 percent from the prior year.
Higher Education sales of course materials for participant-centered learning in business education were up 8 percent from fiscal 2020. With mastery of hybrid teaching now a critical skill, the group continued to expand its thought leadership through webinars and online resources such as Inspiring Minds. This editorial section of the HBP website features motivational lessons and practical insights on a range of topics.
Revenue from Corporate Learning declined 7 percent from the prior year. As a result of COVID-19, many corporate clients delayed the launch of contracted programs, although activity began to rebound at the end of the fiscal year.
Revenue from Press, which has historically been dependent on sales at airports, bookstores, and other retail locations, improved 4 percent from the prior year. The growth was related partly to increased licensing activity for foreign and audio rights.
Total HBP revenue amounted to 34 percent of the School's total revenues in fiscal 2021, four percentage points higher than in fiscal 2020.
Executive Education tuition decreased by $65 million to $81 million in fiscal 2021 from $146 million in the prior year, reflecting the transition to a fully virtual set of programs throughout the year due to COVID-19.
The group rapidly innovated, designed, and delivered 70 virtual Comprehensive Leadership Programs and Topic-Focused Programs for more than 4,400 global participants. Total participation across all Executive Education programs reached 13,101 in fiscal 2021, a 20 percent increase over the prior year. The group also delivered virtual custom programs in a range of industries, piloting new delivery models that accommodated the needs of clients to reach large-scale audiences.
Total Executive Education tuition revenue accounted for 10 percent of the School's total revenues in fiscal 2021, compared with 17 percent of total revenues in fiscal 2020.
In fiscal 2021, HBS Online generated an operating surplus on a 31 percent increase in revenue, which grew to $76 million from $58 million in fiscal 2020.
The growth of HBS Online since its creation has been remarkable, spurred by the demand for a high-quality online business education as a tool for career and personal advancement. Expanding its course portfolio with timely new offerings, HBS Online launched Strategy Execution, a course designed to equip aspiring managers with relevant tools, skills, and frameworks.
As a new benchmark of its growth, HBS Online in fiscal 2021 reached a record 40,000 participants across the portfolio. This included 41 percent women and 53 percent international students.
Total HBS Online revenue amounted to 9 percent of the School's total revenues in fiscal 2021, compared with 7 percent for the prior year.
Cash Received From Gifts (in millions)
Gifts & Endowment
Cash From Operations (in millions)
Philanthropic revenue has long been vital to sustaining the School's annual operations. In fiscal 2021, total revenue from the School's three philanthropic sources—distribution from the endowment, unrestricted current use gifts, and restricted current use gifts—increased to $244 million from $233 million in fiscal 2020. This revenue amounted to 30 percent of the School's total revenues, compared with 27 percent a year earlier. For the University as a whole, philanthropic revenue amounted to 49 percent of total operating revenues for fiscal 2021.
The School's annual endowment distribution for fiscal 2021 increased 6 percent from the prior year to $184 million, amounting to 23 percent of total revenue. In any given year, the change in the endowment distribution is governed by three factors: a specified rate increase set by the University, which in fiscal 2021 was 2.5 percent; cash transfers by the School to the endowment reserve; and new gifts to the endowment, which currently consists of more than 1,000 discrete funds established over the years by individual donors, corporations, and reunion classes. The School budgets the use of endowment distributions to support operations in accordance with the donors' intentions and the terms of each gift.
Unrestricted Reserves (in millions)
Harvard is obligated to preserve the purchasing power of the endowment by spending only a small fraction of its value each year. Spending more than that over time, for whatever reason, would privilege the present over the future in a manner inconsistent with an endowment's fundamental purpose of maintaining intergenerational equity.
The University executes on this obligation in determining each year's endowment payout rate—that is, the percentage of the endowment's fair market value withdrawn and distributed annually for operations and for one-time or time-limited strategic purposes. This rate applies to HBS and to all schools at Harvard.
Endowment Distribution (in millions)
Endowment Distribution Components
- 34% Professorships
- 24% Financial Aid
- 16% Unrestricted
- 8% Other
- 7% Special Initiatives
- 6% Research
- 5% Building Operations
Consistent with the long-term goal of preserving the value of the endowment in real terms (after inflation) and generating a predictable stream of available income, the University's targeted annual payout range is 5.0 to 5.5 percent of market value. The payout rate for fiscal 2021 met that target at 5.2 percent, consistent with the prior year.
The utilization of a payout formula means that the annual payout rate is generally lower following years of relatively high investment returns, and higher following years of lower investment returns. Adjustments can be made in succeeding years, keeping in mind the long-term payout goals of balancing budgetary stability with the preservation of the endowment's purchasing power. Each year the Harvard Corporation approves the final distribution amount.
Funds within the HBS endowment, along with those of the other Harvard schools, are managed by Harvard Management Company (HMC), a nonprofit, wholly-owned subsidiary of the University. HMC has managed the Harvard endowment portfolio since 1974. Its mission is to ensure the University has the financial resources to confidently maintain and expand its leadership in education and research for future generations.
HMC's investment portfolio is evolving. Repositioning of the portfolio's liquid assets— public equities and hedge funds—is well underway. Given the nature of HMC's illiquid investments—private equity, real estate, and natural resources—restructuring this portion of the portfolio will span multiple years.
The return on endowment assets for fiscal 2021, net of investment expenses and fees, was 33.6 percent, compared with 7.3 percent and 6.5 percent endowment returns, respectively, for the two prior fiscal years.
The value of the University endowment grew to $53.2 billion in fiscal 2021—an increase of 27 percent from $41.9 billion a year earlier. This value reflects investment returns, net of expenses and fees, as well as cash gifts to the endowment received during the year, net of the University's annual distributions and decapitalizations.
The fiscal 2021 year-end market value of the HBS endowment was $5.3 billion as of June 30, 2021, compared with $4.1 billion a year earlier. This growth reflected the return on the University endowment, less the School's annual distribution and decapitalizations, offset by endowment gifts received by HBS during the year.
HBS received gifts from more than 10,500 donors in fiscal 2021, including MBA, Doctoral, and Executive Education program alumni, as well as friends of the School. Approximately 20 percent of the School's MBA alumni gave to HBS in fiscal 2021.
Total cash received from gifts in fiscal 2021, including new endowment gifts and gifts for capital construction projects, payments on prior years' pledges, and restricted and unrestricted current use giving, was $149 million, compared with $121 million in the prior year. Cash giving to the endowment increased to $80 million, from $56 million in fiscal 2020. Cash giving for construction projects totaled $8 million, compared with $5 million in the prior year.
Current use giving—both restricted and unrestricted—provides crucial funding for innovation across the School. Because current use gifts can be spent immediately, they have a significant impact on cash from operations and, therefore, the School's ability to capitalize on emerging strategic opportunities. For example, current use giving has enabled the School to enhance the Harvard Innovation Labs ecosystem, expand the reach of HBS Online, and broaden the faculty's ambitious research agenda.
Growing unrestricted current use giving to a sustainable annual level of $40 million was one of the major goals of The Campaign for Harvard Business School, which concluded in fiscal 2018. In fiscal 2021, revenue from these flexible current use gifts totaled $41 million. This represented an increase of 11 percent from $37 million a year earlier, surpassing expectations in light of the pandemic-related economic disruption. Going forward, sustaining the HBS community's remarkable commitment to unrestricted current use giving will be instrumental in achieving the mission of the School.
Endowment (in millions)
- FY 21 $5,265
- FY 20 4,092
- FY 19 3,985
- FY 18 3,787
- FY 17 3,472
Restricted current use giving typically varies from year to year in line with the School's changing fundraising priorities and strategic needs. In fiscal 2021, revenue from these restricted gifts decreased 17 percent from a year earlier to $19 million.
Housing, Rents, Interest Income & Other
With fewer students on campus in fiscal 2021, total revenue from the Housing, Rents & Other category decreased by $5 million from the prior year to $16 million. Reflecting decreasing interest rates during fiscal 2021, the School reported interest income of $1 million, a decrease of $4 million from fiscal 2020. Total housing, rents, interest income & other revenue amounted to 2 percent of the School's total revenues in fiscal 2021, down one percentage point year-over-year.
Executive Education, HBP, and HBS Online 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.
Expenses (in millions)
- 50% Salaries & Benefits
- 10% Publishing & Printing
- 9% Other
- 8% Space & Occupancy
- 7% Fellowships
- 6% Professional Services
- 6% Depreciation
- 3% University Assessments
- 2% Supplies & Equipment
- 0% Debt Service
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 $126 million in fiscal 2021, comprising 16 percent of the School's operating budget.
Although HBS characterizes costs charged to HBP, HBS Online, and Executive Education as operating expenses, in a profit-seeking enterprise they would in large part be considered 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.
Total operating expenses for fiscal 2021 were $779 million, a decrease of $52 million, or 6 percent, from $831 million for fiscal 2020. The decrease was primarily attributable to a reduction in program activity as a result of COVID-19.
Salaries & Benefits
Compensation for faculty and administrative staff is the largest expense at HBS. The School's salaries and benefits expense for fiscal 2021 increased 3 percent to $386 million, from $375 million in fiscal 2020. This represented 50 percent of the School's total operating costs, compared with 45 percent in the prior year. The increase was driven by investments to grow the HBS faculty. The change in salaries and benefits also was influenced by the resumption of the bonus program and, to a lesser extent, a voluntary early retirement program for staff with a minimum of 10 years of University service.
Expanding the size and diversity of the faculty is a strategic priority for the School. This enhances the strength of our MBA and Doctoral Programs, drives the growth of HBP, Executive Education, and HBS Online, and expands our ability to conduct cutting-edge research. Fiscal 2021 was a strong year for faculty recruiting and promotions. In all, 13 candidates accepted Assistant Professor positions, and another 6 faculty members received promotions to associate or tenured positions. The total number of faculty, as measured in full-time equivalent (FTE), can rise or fall in any given year reflecting retirements, departures, and fluctuations in recruiting activity. Net of retirements and departures, the size of the HBS faculty increased to 256 FTEs in fiscal 2021, from 244 FTEs a year earlier.
The School's administrative staff grew to a budgeted 1,871 FTEs in fiscal 2021, from 1,839 in the prior year. To capitalize on new opportunities, the School invested to expand the faculty, further enhance HBP, and increase Information Technology staffing to accommodate the growth in hybrid learning.
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.
Total Fellowships expense for fiscal 2021, including assistance for MBA students, Doctoral candidates, and a limited number of Executive Education participants, decreased by $4 million, or 7 percent, from fiscal 2020 to $53 million. The decrease in fellowship expense was strictly a function of the decline in student enrollment, not the size of the fellowships. Fellowships amounted to 7 percent of the School's total operating costs in fiscal 2021, consistent with the prior year.
Helping students navigate a difficult job market hampered by COVID-19, HBS expanded its Rock Summer Fellows program from an average of 100 students to 350 students. The program affords MBA students between their first and second years the opportunity to explore entrepreneurial paths, both as founders and as those interested in joining early-stage startups.
Approximately half of the School's MBA students currently receive fellowships, which cover an average of more than 50 percent of a student's total tuition. About 27 percent of total tuition—more than $30 million—was awarded as fellowships in fiscal 2021.
Average fellowship support per student totaled nearly $43,000 in fiscal 2021 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 $69,000 for the class of 2017 to more than $81,000 for the class of 2022.
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 $5.5 million in fiscal 2021.
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. 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.
Publishing and printing expenses for fiscal 2021 decreased by $3 million, or 4 percent, from the prior year to $78 million. This result reflected a combination of factors, including the School's initiative to reduce printing expenses. Printing and publishing amounted to 10 percent total operating costs, consistent with the prior year.
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, HBS Online, and the School's global offices, as well as residence costs for Executive Education program participants.
With fiscal 2021 enrollment down due to the pandemic, the School's space and occupancy expenses for fiscal 2021 declined by $7 million, or 10 percent, from the prior year to $64 million. Space and occupancy expense accounted for 8 percent of the School's total operating costs in fiscal 2021, down one percentage point from the prior year.
A large portion of the School's professional services expense is related to spending that a for-profit business would categorize as cost of goods sold.
For fiscal year 2021, professional services expenses decreased $13 million, or 22 percent, from the prior year to $46 million. The decline was primarily attributable to the decrease in on-campus activity. A portion of the variance stemmed from the recategorization of Executive Education faculty payments from the professional services line item to the salaries & benefits line item beginning in fiscal 2021. Professional services expenses amounted to 6 percent of total operating costs, down from 7 percent in fiscal 2020.
IT spending represented nearly 11 percent of the School's total operating expenses in fiscal 2021. Controlling IT costs is an important financial priority for the School, and toward that end HBS has begun to shift toward 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 & Other Expenses
Supplies and equipment expenses for fiscal 2021 decreased by $2 million, or 17 percent, from the prior year to $10 million, or 1 percent of the School's total operating costs. In the other expenses category, fiscal 2021 spending was $73 million, down 28 percent from the prior year. This amounted to 9 percent of the School's total operating costs in both fiscal years.
As with other line items on the income statement, the reduction in on-campus activity due to COVID-19 resulted in significant savings in the other expenses line. The largest expense decreases occurred in areas such as advertising, contingent labor, and technical services.
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 2021.
HBS paid down $7 million in building debt in fiscal 2021, consistent with the prior year. The School's year-end fiscal 2021 building debt-to-asset ratio decreased to 0.5 percent from 0.8 percent in the prior year. Other University debt decreased by $2 million to $79 million.
The School's debt service expense consists of interest payments to the University and is covered by using cash from operations. Fiscal 2021 debt service expense was $2 million, down by $1 million from the prior year. As in fiscal 2020, this expense was mainly associated with borrowings to finance prior years' campus expansion. Consistent with the four prior years, the interest portion of the School's debt service amounted to less than 1 percent of total operating costs in fiscal 2021.
The University Assessments expense 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. The School's expense in fiscal 2021 for these assessments declined $5 million from the prior year to $21 million, amounting to 3 percent of total operating costs. The decrease was driven by the University's one-time waiver of the Academic Initiatives Fund in light of the uncertain extent and duration of the pandemic.
The School computes depreciation using the straight-line method over the estimated useful lives of the assets. The depreciation expense for fiscal 2021 increased by $1 million, or 2 percent, from the prior year to $46 million. The School's depreciation expense for fiscal 2021 amounted to 6 percent of total operating costs, compared with 5 percent a year earlier.
Cash Before Capital Activites
Cash from operations totaled $26 million in fiscal 2021, compared with $30 million in fiscal 2020. In a year marked by uncertainty and disruption, the School's ability to achieve results that outperformed expectations reflected fiscal discipline, prudent expense reductions, and higher-than-anticipated revenue from HBP and HBS Online.
Net Capital Expenses
Given the uncertain financial outlook heading into fiscal 2021, capital spending was limited to mission-critical projects. As a result, total capital expenses for fiscal 2021 decreased to $22 million from $43 million in the prior year.
The most significant project was the School's effort to create hybrid classrooms at a cost of $7.6 million. This represents a long-term investment that can be leveraged to support hybrid learning in many contexts.
The School's net capital expenses for fiscal 2021 totaled $30 million, consistent with the prior year.
Changes in Debt & Other
The School's debt and other cash activities decreased by $5 million in fiscal 2021, compared with a decrease of $1 million in the prior year.
Because gifts, internally generated cash, and unrestricted reserves have been available and sufficient to finance capital activities, fiscal 2021 marked the School's 13th consecutive year with no new borrowings. Debt principal payments were $7 million in fiscal 2021, consistent with the prior year.
Capitalization of endowment income—or cash used to purchase endowment units— was a $6 million use of cash in fiscal 2021, up $3 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 $1 million source of cash in fiscal 2021, compared with a $2 million source of cash in fiscal 2020.
Ending Balance, Unrestricted Reserves
Approximately 53 percent of the School's revenues in fiscal 2021 came from HBP, Executive Education, and HBS Online—business units that are highly sensitive to the economy. Consequently, maintaining an ample balance of unrestricted reserves outside of the endowment is crucial to 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 2021 with an unrestricted current use reserves balance of $211 million, compared with $174 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.