FINANCIAL MANAGEMENTFINANCIAL MANAGEMENTIN EDUCATIONIN EDUCATION

DefinitionsDefinitions

Capital/revenueCapital/revenueUsually refers to major durable items, such Usually refers to major durable items, such as buildings, land, large items of as buildings, land, large items of equipment, and often including major equipment, and often including major renovative or enhancement programsrenovative or enhancement programsThey are normally excluded from the They are normally excluded from the annual budgetannual budget

VirementVirementIt is the authorization to switch It is the authorization to switch expenditure from one budget heading to expenditure from one budget heading to another.another.

Cost centersCost centers The characteristics of a cost center are that it is The characteristics of a cost center are that it is

responsible for its own budget and that all responsible for its own budget and that all expenditures incurred by it are debited to itexpenditures incurred by it are debited to it

CostingCosting

It is the art of measuring the consumption of It is the art of measuring the consumption of resources in financial terms. resources in financial terms.

Opportunity costsOpportunity costs

Every expenditure and transfer of resources has Every expenditure and transfer of resources has its opportunity cost – the next-best alternative its opportunity cost – the next-best alternative use for these resourcesuse for these resources

Direct and indirect costDirect and indirect cost Direct costs are costs that can be easily Direct costs are costs that can be easily

identified with a cost centeridentified with a cost center Indirect costs are costs that cannot be Indirect costs are costs that cannot be

identified and have to be apportioned identified and have to be apportioned (sometimes called overheads)(sometimes called overheads)

The Three Es ofThe Three Es ofFinancial ManagementFinancial Management

EconomyEconomyIt can be defined as careful use of resources, It can be defined as careful use of resources, frugality, and good housekeepingfrugality, and good housekeepingExamples: Repair of equipment rather than a new Examples: Repair of equipment rather than a new purchase, effective arrangements for stock-taking purchase, effective arrangements for stock-taking and etc.and etc.

EfficiencyEfficiencyIt is the fullest possible attainment of specific It is the fullest possible attainment of specific objectives or standardsobjectives or standardsExamples: An air-conditioning system brings all Examples: An air-conditioning system brings all rooms to the desired temperature, a timetable rooms to the desired temperature, a timetable which deploys staff fully, and etcwhich deploys staff fully, and etc

Cost-efficiencyCost-efficiencyIt relates efficiency to its cost. X is more cost-It relates efficiency to its cost. X is more cost-efficient than Y because it achieves greater efficient than Y because it achieves greater efficiency at the same cost or same efficiency efficiency at the same cost or same efficiency at lower costat lower costExamples: A new air-conditioner which Examples: A new air-conditioner which provides the same cooling system more provides the same cooling system more economically, preventive maintenance of economically, preventive maintenance of buildings which avoids long-term buildings which avoids long-term maintenance costs, and purchase of slightly maintenance costs, and purchase of slightly more expensive equipment which stands up more expensive equipment which stands up better to wear, and etc. better to wear, and etc.

EffectivenessEffectivenessIt is the fullest possible attainment of the goals and It is the fullest possible attainment of the goals and objectives of the schoolobjectives of the schoolExamples: Improved performance, improved Examples: Improved performance, improved student attitudes and behavior, better parent and student attitudes and behavior, better parent and community relations and etccommunity relations and etc

Cost effectivenessCost effectivenessIt relates effectives to the cost incurredIt relates effectives to the cost incurredExamples: Expenditure on the promotion of schools Examples: Expenditure on the promotion of schools brings increased enrolment, peer tutoring improves brings increased enrolment, peer tutoring improves student performance with little extra cost, and etcstudent performance with little extra cost, and etc

The three Es can be in conflict, but how?The three Es can be in conflict, but how?

Cost Characteristics ofCost Characteristics ofSchoolsSchools

Most schools are non-profit organizations. Most schools are non-profit organizations. Therefore:Therefore:There is no single objective criterion to use There is no single objective criterion to use in measuring performancein measuring performanceThere is no way to estimate the There is no way to estimate the relationship between inputs and outputsrelationship between inputs and outputs

Schools are service organizations and Schools are service organizations and perform a social as well as an economic perform a social as well as an economic function. function. This makes measurement and costing of This makes measurement and costing of their output difficulttheir output difficult

School cost structures are very stable School cost structures are very stable (Schools are conservative institutions).(Schools are conservative institutions).

School unit costs tend to rise when School unit costs tend to rise when education becomes more technical and education becomes more technical and science-centered, when it deals with older science-centered, when it deals with older students, and when there is greater students, and when there is greater concern for qualityconcern for quality

Schools are very labor-intensiveSchools are very labor-intensive School calendars cause high costsSchool calendars cause high costs

School Financial Management ModelSchool Financial Management Model(Knight)(Knight)

Features of the modelFeatures of the model Finance triggers and controls the systemFinance triggers and controls the system An individual component, be it financial resources or human An individual component, be it financial resources or human

or physical resources, are only part of the system.or physical resources, are only part of the system.The further away from the initial financial input, the more The further away from the initial financial input, the more its direct impact is reducedits direct impact is reduced

The whole system is susceptible to good managementThe whole system is susceptible to good management Financial management has two faces: money management Financial management has two faces: money management

and cost managementand cost managementCost management not only dealing with identifying costs Cost management not only dealing with identifying costs and reducing them, but also covers time utilization, the and reducing them, but also covers time utilization, the educational process and its outputs, and alternative educational process and its outputs, and alternative educational strategies, and etceducational strategies, and etc