HESA

Higher Education Strategy Associates

Tag Archives: Revenue

November 28

Canadian Enrollment Data, 2014-15

Statistics Canada published the 2014-15 enrollment data last week and I thought I would give you a bit of an overview.  The data is based on snapshots of enrollment taken in the fall, so we’re talking a 24-month lag here (most other OECD countries can do this in 12-18 months), but this is Statscan so just be glad you’re getting any data at all.

The headline news is that enrollment in 2014-15 was up – barely – from 2.048 million to 2.055 million students (i.e. by 7,000 students), which puts enrollment at an all-time high. As a percentage of the Canadian population, students are thus now 5.8% of the Canadian population.  Just to put that into perspective: that’s roughly the population of Saskatchewan and Nova Scotia combined.  if students were a province, they would be the country’s fifth-largest.  Students make up roughly the same proportion of the population that works in education, law, social services and government services occupations combined, or roughly 5.5 times the number of individuals employed in natural resource occupations.

Figure 1: Enrollment by Level and Intensity, 1994-95 and 2004-05

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But while enrollment increased at both universities and colleges, there are some interesting dynamics if you poke around a bit under the hood.  The main one is that part-time enrollment fell substantially for the second year in a row at universities and third at colleges.  Full-time and part-time enrollments are going in completely different directions at the moment.

Figure 2: Changes in Full- and Part-time student enrollments, 2010-11 to 2014-15 (2010-11 = 100)

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The other really interesting trend in enrollments has to do with international students.  Over the past five years, total full-time enrollment at colleges and universities has increased by 126,000.  48% of that increase is accounted for by international enrollments.  Or, to put that another way: domestic student enrollment has increased by about 5%, but international student enrollment has increased by 56%.  These figures are shown below in figure 3.  Apologies for lines not being distinct, but that’s a factor of the trends being almost identical in both the college and university sectors.

Figure 3: Changes in Domestic and International Full- time enrollments, 2010-11 to 2014-15 (2010-11 = 100)

ottsyd-20161128-3

That last graph is especially important when you think about institutional finances.  Assuming (at a high level of generality) that tuition income from international students is about three times what it is for domestic students, that implies that over 75% of the increase in tuition revenue over the period 2010-11 to 2014-15 comes from international students.   I’ll try to get into more detail on this at some point before Christmas, but by my back-of-the-envelope reckoning that makes international student fees responsible for almost exactly 50% of total increase in operating funds over those five years.

Let that sink in for a bit.  Fifty percent.

There are a lot of implications to that number.

January 21

Marginal Costs, Marginal Revenue

Businesses have a pretty good way of knowing when to offer more or less of a good.  It’s encapsulated in the equation MC = MR, and shown in the graphic below.

profit-maximisation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Briefly, in the production of any good, unit-costs fall to start with as the benefits of economies of scale start to rise.  Eventually, however, if production is expanded far enough you get diseconomies of scale, and the marginal cost begins to rise.  Where the marginal cost of producing one more unit of a good rises above the marginal revenue one receives from selling it (in the above diagram, Q1), that’s the point where you start losing money, and hence where you stop producing the good.

(This gets more complicated for products like software or apps where the marginal cost of production is pretty close to zero, but we’ll leave that aside for the moment.)

Anyway, when it comes to delivering educational programs, you’d ideally like to think you’re not doing so at a loss (otherwise, you eventually have a bit of a problem paying employees).  You want each program to more or less, over time, come close to paying for itself.  It’s not the end of the world if they don’t, cross-subsidization of programs is a kind of core function of a university after all; but it would be nice if they did.  In other words, you really want each program to have a production function where the condition MC=MR is fulfilled.

But here’s the problem.  Marginal revenue’s relatively easy to understand: it’s pretty close to average revenue, after all, though it gets a bit more complicated in places where government grants are not provided on a formula basis, and there’s some trickiness when you start calculating domestic fees vs. international fees, etc.  But the number of universities that genuinely understand marginal cost at a program level is pretty small.

Marginal costs in universities are a bit lumpy.  Let’s say you have a class of twenty-five students and a professor already paid to teach it.  The marginal cost of the twenty-sixth student is essentially zero – so grab that student!  Free money!  Maybe the twenty-seventh student, too.  But after awhile, costs do start to build.  Maybe on the 30th student there’s a collective bargaining provision that says the professor gets a TA, or assistance in marking.  Whoops!  Big spike in marginal costs.  Then where you get to forty, the class overfills and you need to split the course into two, get a new classroom, and a new instructor, too.  The marginal cost of that forty-first student is astronomical.  But the forty-second is once again almost costless. And so on, and so on.

Now obviously, no one should measure marginal costs quite this way; in practice, it would make more sense to work out averages across a large numbers of classes, and work to a rule of thumb at the level of a department or a faculty.  The problem is very few universities even do that (my impression is that some colleges have a somewhat better record here, but the situation varies widely).  Partly, it’s because of a legitimate difficulty in understanding direct and indirect costs: how should things like light, heat, and the costs of student services, admissions, etc., be apportioned – and then there is the incredible annoyance of working out how to deal with things like cross-listed courses.  But mostly, I would argue, it’s because no one wants to know these numbers.  No one wants to make decisions based on the truth.  Easier to make decisions in the dark, and when something goes wrong, blame it on the Dean (or the Provost, or whoever).

Institutions that do not understand their own production functions are unlikely to be making optimal decisions about either admissions or hiring.  In an age of slow revenue growth, more institutions need to get a grip on these numbers, and use them in their planning.

May 08

The Economic Growth Imperative

A quick note: the OTTSYD will be on brief hiatus next week, as I’ll be in Japan and won’t have regular access to my computer.  Not to worry, though, we’ll pick back up on the 18th.

Anyways: I was asked recently what I thought was the most important challenge for post-secondary education in Canada at the moment.  Resisting (barely) the flip answer “money”, I eventually settled on the allied concept of “learning how to promote economic growth and prosperity”.

Now, I know this theme is anathema to many in universities, who prefer to think of institutions as places to promote the pursuit of truth, beauty, etc.  Without wishing to dispute the importance of these goals, the pursuit of economic growth is simply a matter of self-interest.  Universities and colleges are not getting more money from tuition any time soon, largely because the perception of costs has drifted a long way from the actual net costs.  And as we saw earlier this week, there’s no new money coming from government this year, or any time in the near future.  The culprits?  A mix of adverse demographic trends and persistent slow economic growth.

Universities and colleges can’t do much about demographic change – they could be slightly less zealous about condom distribution during O-week, I suppose, but the pay-off is pretty long-term – but they can probably do something about economic growth.   In theory, PSE institutions can help themselves by working-out how to catalyze prosperity.  The problem is that universities, in particular, may not actually want to make the necessary changes to make this happen.

Let’s start by agreeing that we don’t actually know what specific higher education policies would maximize prosperity.  There’s this assumption that whatever we do now must be improving things, so let’s just continue on with only incremental changes.  But we actually have no idea if we’re teaching the right mix of skills, or competencies, or degrees to maximize growth.  We don’t know whether institutions can do more for growth by focusing on a few highly-qualified personnel (mostly PhDs), or by providing better education to a mass of students unlikely to go past the Bachelor’s level.  We don’t know what amount or types of experiential learning might be optimal. And while obviously it would be better all around if we understood these things, one still has to ask the question: if we knew the answer, would our institutions actually change as a result?  Or would internal resistance to things like more co-op, or a greater focus on undergraduate education (or whatever) stop them from doing the “right” thing?

It’s a similar case with research.  Say we had a better idea about how different types of research impacted short-, medium- and long-term growth, and we could say with some precision that re-jigging the system to be more/less focused on basic research, or more less/focused on (say) Life Sciences would likely result in larger economic payouts.  We don’t have any such idea of course – you’d think someone would have cracked some of this by now, but they haven’t – but if they had, would anyone whose research specialty/style not among the “correct” categories voluntarily change their research programs to help promote economic prosperity?  My guess is they’d sooner spend a lot of time contesting the economic research.

So there’s a choice here for institutions: continue doing what they are doing and worry about declining resources, or change things up to focus more on economic dynamism, and reaping rewards of higher income?  This is a discussion worth having sooner rather than later.

May 03

Chasing a Buck

There are a lot of institutions facing a demographic challenge over the next few years. Outside the GTA and the B.C. lower mainland, the youth population is in decline, and that means institutions in these regions are either going to have to start increasing their yields or find some new markets to exploit.

(Or, I suppose, cut their budgets a bit, but that seems to be a last resort.)

Though I can’t claim to have a lot of granular detail on the issue, I’m getting the sense a) that most institutions have decided to go for new markets, and b) that the ratio of frantic, flailing activity to serious strategy and planning in this area is alarmingly high.

The two obvious candidates for attracting new money are “older students” and “foreign students.” Going after “older students,” interestingly enough, now seems to be entirely a digital affair; it is assumed that this demographic has little interest in hauling itself to campus and should be addressed primarily via online programs. But – and this is the crucial bit – what is it exactly you should put online? The same courses you were offering before? Or totally new courses? It’s a critical question, but it doesn’t seem to be one a lot of people are asking – the automatic assumption seems to be that offering the same courses with a new delivery mechanism will do the trick. I’m not convinced this will end well, especially given the costs of translating old content into a new format.

Another option, of course, is to aggressively court foreign students. You can charge them more, of course, which is a bonus. But they also cost more to educate and they cost a lot more to find and recruit. That sounds simple, but a lot of schools haven’t figured out that second part; I know of at least two in Western Canada that are losing money hand over fist on international students because they don’t systematically stack up costs against revenues.

In both cases, the issue is marginal net revenue: there is no reason to do something for the sake of chasing revenue if the costs are too high. More to the point, it’s comparative marginal net revenue that matters. Why spend any time or energy recruiting foreign students if you can make more per student via the digital option (or vice-versa)?

Ultimately, institutions need to be more strategic about deciding which avenues to exploit in order to chase a buck. The temptation to just “do something” is very real, but needs to be resisted. Deciding on the right balance between different types of revenue-generating activity needs to be done with a lot more deliberation than is often given at present.