Jon's comment on the previous post pretty much anticipated this post. The prior post concentrated on graphical matters. However, the biggest issue with that chart is the choice of metrics. If the idea is to explore the potential adverse effect of a sharp decline in endowment investment performance, then it is not clear why one should be comparing the proportion of endowment funds and the proportion of operating revenues paid for by endowment funds. A missing element from these two series is the relative size of the budgets of these different departments.

The next chart shows the proportion of each school's operating costs accounted for by endowment funds together with the total size of its operating costs.

We can turn the ratio around and directly compute how much of the total amount of endowment funds distributed for operating costs is accounted for by each school. This is really the simplest metric that gets to the question.

There are really two possible worries: for the School of Arts and Sciences, who pays for just about $1 billion costs with endowment funds, any significant reduction in distribution will leave a gaping hole; for a department like Radcliffe that pays for over 80% of its operating budget out of endowment funds, obviously a reduction in distribution can cause problems but we are talking about a base of $18 million rather than $1 billion.

Reference: Harvard University Financial Report, 2008; Harvard Fact Book 2007

PS. The first source did not contain any data on operating budgets so the first set of graphs (now replaced) did not show what I intended to show. The new ones used the right data and had the right order of magnitude in terms of budgets ranging from millions to 1 billion. The 2008 data are not available as of yet.

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