ACCOUNTING FOR SUCCESS

Achieving Desired Outcomes

Using Cost Center Analysis

Ed L. Schrader, PhD

Cost Center Accounting? Assign revenues & expenses to operational units, then Manage the Institution…

• Similar Accounting Methods:• Responsibility center management• Margin based budgeting• Activity center costing•

• What is the purpose? (Develop Sustainable Enterprise!)• Encourage mission-based strategic decision making • Identify opportunities for increasing revenues and controlling costs• Develop consistent, constant allocation of costs and revenues• Calculate actual operating cash margins for each cost center

Major University Centers

• Revenue Centers – sources of revenue• Tuition and fees• Auxiliary Activities• Annual gifts, grants, and endowment/investment growth

• Cost Centers – institutional expense centers • Instructional costs• Administrative services • Student support services • Asset consumption (depreciation and actual consumption)

Major University Centers continued

• Profit Centers – Programs offering positive margins• Controllable costs minus controllable expenses• Positive tuition margins or income by program or activity • Break down to the Degree or Program level!

• Investment Centers• Endowment gains • ROI through capital improvements• Long range investment in new programs and activities

Typical University Revenue Center Analyses

• Example 1 – Revenue Center:Growth in gross tuition and fees• Opportunities / measurements

• Growth in enrollment and credit hours• Strategic increases in tuition rates• New programs to meet market needs

• Example 2 – Revenue Center:Growth gifts and grants• Opportunities / measurements

• Growth rate for unrestricted gifts through annual giving greater than the growth rate of operating expenses

• Developing programs supported by grant opportunities

• Increased campaign giving to “attractive” programs/needs

A Typical University Cost Center Analysis

Example 1- Cost Center:

Managing Growth in Instructional Expenses

• Opportunities / measurements• Growth rate in instructional expenses

must be less than or equal to growth rate in net tuition

• Improve efficiencies through utilization of technologies

• Develop per capita cost and valuation of instructional activities

Example 1 continued:

• Strategic planning and budgeting• Risk management of insurable threats

to key revenue drivers• Support program costs in relation

enrollments and scope of programs

Operating Profit/Loss by Instructional Platform

Women's College

EWC Online Academy Summer Programs

Auxiliary

($6,000,000)

($4,000,000)

($2,000,000)

$0

$2,000,000

$4,000,000

$6,000,000

10 Year Platform Performance: Includes Instructional and Allocated Indirect Costs

Net Cash tuition and expenses-Gross Example for Fiscal Year 2010-2011

Cost Center Analysis: Summary Chart of Total Income and Expenses

 Women's College EWC

Online College Academy

Summer Programs

Auxiliary Services Total

INCOME $19,154,299 $12,261,770 $13,348,645 $33,114 $299,437 $1,095,340 $46,192,606

EXPENSES $23,674,136 $11,565,694 $7,998,468 $36,626 $245,134 $932,374 $44,452,433

DIFFERENCE -$4,519,837 $696,076 $5,350,177 -$3,512 $54,303 $162,966 $1,740,173

Note: In actual application, the institution should break each delivery platform into Departmental or Program revenue and expense.

So what are desired outcomes?

• Balance annual budgets• Identify and grow Institutional leaders of entrepreneurial thinking, leaders of

efficiencies and effectiveness, leaders of planning and budgeting• Control costs associated with university activities • Maximize and invest margins associated with profitable university programs• Understand the investment necessary to continue mission-fulfilling programs

and activities• Understand assets available for growth or institutional sustainability• Enable continuation of private education’s advancing the greater good of

society!

What is needed to execute this concept?• Understanding of opportunities for program growth • Exploration of diversification options• Commitment to institutional mission• Institutional commitment to strategic planning and assessment • Accurate data – commitment to data integrity• Attention to the general ledger and assignment of expenses• Attention to expense management…RIF is possible! • Collegial and collaborative discussions about “sacred cows and new cows!”

• Willingness to invest in growth areas and reduce support in programs with shrinking enrollment

• COMMITMENT TO RUN THE INSTITUTION AS A BUSINESS!

Campuses Throughout Georgia and Online

Evaluation code: eschrader