Accounting for Success
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Transcript of Accounting for Success
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