What's Eating Your Cash? Getting Granular about Per-Student Costs

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Editor’s note: This blog is the second in a series on strategic planning for financial sustainability. The previous post covered how to handle rising costs and competition. We welcome your feedback if you've conducted a per-student cost analysis.

Independent schools are facing multiple pressures on their basic financial model. Average tuition has risen even faster than the increase in the top 20 percent of family incomes over the past three decades. As the private school cost model faces increasing pressures, strategic planning conversations are turning to maximizing student services and outcomes while managing costs, which is the focus of the rest of the “Under Pressure” series.
 
Before diving into solutions, the Edunomics Lab at Georgetown University proposes that schools examine their current spending patterns in per-student terms. This post focuses on how and why it is important to get granular on per-student costs. Per-student cost analysis totals up labor, materials, and facilities for different courses, programs, or services and divides that figure by the number of students who participate. What’s left is a cost per student that allows leaders to spot overpriced services, evaluate relative costs, explore lower-cost alternatives, and communicate spending priorities.
 
When per-student costs for one offering seem out of whack with others, often because of an escalating cost or decline in participation, schools can look to Edunomics’ productivity strategies to rethink options or find a way to provide a course or program in a different way. (We will detail the strategies in our next three posts.) Understanding per-student costs can also lead to strategic discussions about the school’s focus and goals for students. But getting the per-student cost analysis right is crucial to making such choices to ensure a sustainable and purposeful budget. 
 
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These cost computations are familiar calculations for researchers at the Edunomics Lab. Take for example the analysis of course costs they did on a set of schools in eastern Washington State. They totaled each teacher’s salary and benefits. Then, because teachers teach a given number of courses, they divided total compensation by the number of courses taught. In the private school context, teachers might have administrative responsibilities, like advising, that make up a portion of their job. For example, a teacher who earns $60,000 a year plus a $15,000 benefits package has total compensation of $75,000. If advising is 10 percent of her duties, the labor cost of advising is $7,500. If four courses make up the other 90 percent, each course costs $16,875.
 
The point of the researchers’ analysis was to determine the per-student cost of courses to look for excessive spending.
 
What they found was that electives cost an average of $512 per student (whereas math classes were only $328). Why? Teachers who taught electives had higher average salaries, and the electives had lower enrollment. At this point, the district could identify spending that didn’t necessarily match strategic priorities and explore options, from rethinking under-enrolled courses to reevaluating pay for teachers teaching only the smallest courses.
 
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Per-student costs can also be used to evaluate the prudence of big, long-term investments. For instance, one Seattle-area school planned a major investment to remodel its track and field facilities to host state competitions. As construction projects will, this project had a high price and a long lifespan: $4.3 million and 50 years. Edunomics staff converted these big numbers to per-student costs to better understand the magnitude of the expense. Even over 50 years, with an estimated team size of 40 runners, this project cost more than $2,000 per year per runner. At the time, the school was spending just $9,000 per student. Committing more than $2,000 per runner for the track facility seemed excessive, so the school scrapped the project and opted to continue practicing on the existing track.
 
With numbers like these in hand, schools can benchmark expenses and explore tradeoffs. In an example from the first post, a high school wanted to offer girls’ lacrosse. Between renting a field, tournament fees, and a coaching stipend, the in-house cost would be about $500 per student. To benchmark these costs, the school checked the fee for a local club lacrosse team — which was just $300. The school struck an agreement with the club, opted to provide lacrosse by paying students’ club fees, and saved $200 per student that the school could use for another initiative.
 
Lastly, per-student costs can be used to communicate more clearly about how a school makes spending choices. In one Seattle Catholic middle school, students participate in end-of-year capstone trips. The trips start local and small in fifth grade and culminate with a longer trip in eighth grade. The field trips in fifth, sixth, and seventh grade each cost under $400 per student, but the eighth-grade multi-city cross-country trip costs more than $3,000 per student. Taking stock of the price of different offerings (particularly for the eighth-grade trip) has prompted ongoing conversations about lower-cost trip alternatives, and about value versus cost. Without the hard numbers, these conversations lack the cost-analysis element that is critical for financial sustainability.
 
Per-student costs are also helpful in conversations about aides and class sizes. Edunomics has worked with schools where teachers request more aides. Imagine a school where four classrooms will split an aide who earns $28,000 a year. For the same cost, each teacher could have a $7,000 raise to cover the extra workload. Such numbers can help staff understand the tradeoff between more staffing and their own salary trajectories.
 
Some schools may still choose expensive things. A costly program can be a good option if there’s a dedicated revenue source (a dedicated funder, perhaps) or if the program is so core to the mission that the school’s leaders choose to spend a disproportionate amount of money on it.
 
But the point is this: Schools should inventory per-student costs so they can consider decisions with eyes wide open about what they are spending, what alternatives exist, and what’s worth the money.
 
Related NAIS Resources

Comments

marclevinson
11/13/2015 05:28 AM
Lucretia,
This is a great analysis and important information for our schools. So few of our schools have done this type of analysis in detail. I would add the importance of understanding marginal cost for an additional student as well. As many of our schools evaluate a net tuition revenue model, the marginal cost of the 'next' student is a critical piece of data to consider when making a decision to accept additional students with additional 'financial aid'.
Thank you for this work.
Marc Levinson
Executive Director, MISBO

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