Financial viability: costing teaching modules at a South African university
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Date
2019-01
Authors
Serfontein, Carla
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Free State
Abstract
Universities are facing a rapidly changing environment. The Fourth Industrial Revolution (4IR) is not only changing the skills needed to ensure employability, but also the mode of delivery, which threatens the very survival of traditional universities. Online education is becoming increasingly popular with the real potential of undermining the business model of traditional universities focusing on on-campus and face-to-face delivery of tuition. Universities in developing countries often face additional problems. On the local front, universities are confronted with several challenges such as declining subsidies from government and large numbers of previously disadvantaged youth who are poor, with substandard secondary education, but in desperate need of affordable tertiary education that will ensure employability. In contrast, over the last ten years, South African universities have responded with tuition fees increasing well above the inflation rate of the country to combat their relatively declining subsidies from government. Universities in South Africa have seen the climax of the impact of these challenges during the #FeesMustFall protests that shook universities countrywide. These student protests in South Africa reached a peak after the 2015 announcement by Blade Nzimande, the then South African Minister of Higher Education, of a proposed hike in tuition fees of between 10% and 12%. The counter-reaction of the protesting students was a call for free higher education. These protests reiterated the financing challenges universities are facing. The current trajectory of tuition fee increases implies that university education is becoming progressively more unaffordable for the majority of South African students. Add the increasing pressure on an already financially constraint government to finance poor students’ tertiary education (NSFAS), and you are confronted with a very concerning dilemma to ensure the sustainability of South African universities. Traditional universities will have to make urgent and serious decisions regarding their existing business model for them to remain financially sustainable and relevant in the future. The affordability crisis previously explained necessitates university administrators to make certain decisions. The main focus of management accounting is to provide relevant and accurate financial information for better decision-making. Informed decisions about future activities of any organisation, especially in the modern business environment, cannot be made without the required data and accurate information. The provision of cost information to assist in the decision-making function of an organisation is an important requirement of management accounting in the digital age. Modules (a module is typically one of the courses that is presented to complete a degree) are the teaching building blocks of degrees and student enrolments, as well as the cost drivers of departments and faculties. The primary objective of this study is to determine the financial viability of teaching modules presented at a South African university using management accounting and cost allocation techniques that could assist the administrators of the university in offering affordable tertiary education to students. The study comprised both a literature review and empirical research. The purpose of the literature review was a) to describe the changing environment of and the challenges faced by universities; b) to explore the application of management and cost accounting principles for decision making in service organisations with specific reference to universities; and c) to explain why different cost information is required to achieve different outcomes. The main aim of the empirical research was to determine the financial viability of teaching modules presented at a South African university using management accounting and cost allocation techniques. The results of this study were utilised to discuss the different ways in which the calculation of the cost per teaching module could benefit a university, such as using the breakeven analysis as a benchmark to indicate viability. The empirical study was conducted following a quantitative design with an exploratory case purpose (one traditional South African university), using a sample of 3 497 modules presented to 276 627 students (enrolments). The direct cost of the teaching modules of the related university was determined using the methodology as set out in chapter 4. It is rather easier to cost a product than it is to cost a service and teaching modules are regarded as a service. One of the challenges faced in calculating the cost of a teaching module was that teaching income at a university depends predominantly on the number of students enrolled for a module or degree and is thus a variable income, while the cost of teaching the module is predominantly a fixed or a period cost, since it consists mainly of salaries. This creates the classic management accounting problem of costing services in an organisation without a clear input/output relationship, which complicates the costing of a service severely. What made it even more difficult to cost modules at a university was the diverse nature of modules in terms of number of enrolments, different NQF levels, different funding weights and a varying number of credits, as well as no relationship between income and the number of modules presented. In addition, the skewness of the data with many modules having few enrolments, with only a few modules having a large number of enrolments added to the complexity. After taking all these complexities into account, the calculated cost, as well as the actual tuition and subsidy income of these modules, was used to determine the number of enrolments required per module to ensure that each module covers at least its direct costs (breakeven). It was established that the breakeven enrolments for undergraduate modules were 30 enrolments, with 21 modules at NQF level 8 and almost 14 at NQF level 9. This leads to the observation that 52,5% of the modules with the least number of enrolments presented at the responding university do not even cover their direct costs amounting to a direct loss of R174,9 million, while only 6,3% of the modules make a direct profit of R386,5 million. Another observation was that postgraduate modules, regardless of their higher income per enrolment, were less profitable than undergraduate modules. The results of the described calculations were applied to perform various statistical analyses to finally determine the main drivers of the direct profit of a teaching module. The statistical analyses performed clearly indicated that the number of students enrolled in a module is the strongest driver of the direct profit of that module. This finding reiterates the value of determining the breakeven number of enrolments and forming the strategic direction of the related university around the number of students enrolled in a module. From both a human and financial perspective, any process of strategically deciding what to do must also include what not to do any longer. The findings and conclusions from this study can assist decision-makers at universities in aligning their strategy to optimise the direct profit of teaching modules. Adjusting the strategy of a university could further lead to possible decreases in tuition fees as well as the teaching load of academics, which could ultimately lead to more research outputs. The empirical results have already been presented to top management, the deans and the management committees of all the faculties, confirming the relevance and the contribution of the study.
Description
Keywords
Dissertation (M.Acc. (Accounting))--University of the Free State, 2019, Cost and management accounting, Direct costs, Indirect costs, Overhead allocation, Cost objective, Decision-making, Traditional university, Service organisation, Module, Enrolment, Fourth industrial revolution, Financial sustainability