Running head: PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT CO

Project Review for Higher Education Management Course

Kay L. Venteicher
University of Maryland University College
OMDE 606
October 11, 2015

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

Project Review for Higher Education Management Course

Based upon the scenario of Assignment 2: A Course in Higher Education Management
in OMDE 606, three notes are added to explain the calculations.
1. In the Excel document - List of Ingredients page, a comment has been added
to cell D34: Kay: Changed from 30 to 25 to correspond to Assignment 2 HEM Task
PDF document.
2. In the Excel document - List of Ingredients page, the comment in cell G34
has been deleted: "c3l: This is a semi-variable cost as the next one is also. Group size
25." The assumption is this was copied from Mock Assignment and not relevant to the
current assignment.
3. From the Assignment 2 HEM task PDF document, the second variable was
deleted since it changed the first variable under "Course Materials" for "Money is set
aside... from year five onwards." Under "Envisaged enrollment:" exact deletion of
second sentence as shown, "The course is expected to attract 180 students per year.
Money is earmarked to update the course in year 5 and to present the updated version
from year 6 onwards."
Project Review Questions
1a. Fixed costs are costs that does not change over the short-term and can be both capital or
operating. An example of fixed capital cost includes a purchase of a fixed asset such as tangible
items (e.g., building or computer server), intangible items (e.g., copyright, patent), and
investment to create business to meet long-term need. This item has a reusable value (not used
up) but may be depreciated or amortized (gradual charging as an expense) over a longer period.
An example of fixed operating cost that is recurrent includes payments made over incremental
periods (e.g., weekly, bi-weekly, monthly, or quarterly) such as rent, salary, insurance,
depreciation). Hlsmann (2008) states that operating costs can further subdivided between
operating costs which are recurrent or non-recurrent.
Fixed / Capital
Cell C9 Management (Dev) salary
Cell C10 Secretarial Spt (Dev) salary
Cell C13 Authoring Study Guide (Print)
Cell C14 Preparation of a Reader (Print)
Cell C15 Editing and Design (Print)
Cell C16 Copyright (Print)
Cell C18 Development of Content (DVD)
Cell C19 Instructional Designer (DVD)
Cell C20 Production (DVD)
Cell C21 Copyright (DVD)

Fixed / Operating
Cell C4 Mgmt (Crs Ovrhd) salary (Recur)
Cell C5 Sec Spt (Crs Ovrhd) salary (Recur)

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

Fixed / Capital (Contd)

Cell C23 Development of Assignments
Cell C28 Copyright Printed Material (Maint)
1b. Variable costs are costs that will change with the level of activity and can be capital or
operating. An example of a variable capital cost could be a rent payment when the payment goes
beyond the length of the rental contract (e.g., 5-year rental agreement when payments continue
into year 6). Variable operating can be maintenance type costs, student support activities, and
replication/distribution of course materials. As with fixed costs, variable operating costs can
further subdivided between recurrent or non-recurrent.
Variable / Capital
N/A

Variable / Operating
Cell C26 Author Stdy Gud (Maint) (Non-R)
Cell C27 Editing/Design (Maint) (Non-R)
Cell C33 Marking of Asgn (Recur)
Cell C34 Tutoring (Recur)
Cell C36 Prod Study Guides (Recur)
Cell C37 Prod/Repl of Reader (Recur)
Cell C38 Prod/Repl of DVD (Recur)
Cell C39 Pkg/Postage (Recur)

2. The calculation for Recurrent Fixed Costs for the course overheads (management and
secretarial support) is in the first tab of the Excel file under List of Ingredients, cell G6. The
recurrent fixed costs for this example are ongoing operating costs that continue for the duration
the course operates.
Recurrent Fixed Costs (R) = $41,100 (per annum)
3. The calculation for the aggregate Fixed Costs of Development (FD) in the first tab of the
Excel file under List of Ingredients, cell G24 for FD. The fixed costs of development for this
example include the development/management costs (development phase overheads) and the
development/production costs (development print, development DVDs, and development of
assignments).
Fixed Costs of Development (FD) = $128,750
The calculation for the aggregate Fixed Costs of Maintenance (FM) are in the first tab of the
Excel file under List of Ingredients, cell G29 for FM. The fixed costs of maintenance for this
example are the costs that occur during update of course materials.
Fixed Costs of Maintenance (FM) = $11,250
The Fixed Costs of Development and the Fixed Costs of Maintenance equal Total Fixed Costs
(F)in the first tab of the Excel file under List of Ingredients, cell G30 for F.
Total Fixed Costs (F) = FD + FM = $140,000

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

4. The calculation for the Variable Cost per Student (V) is in the first tab of the Excel file
under List of Ingredients, cell G40 for V. The variable cost per student for this example
includes the student support costs (marking of assignments and tutoring) and the
replication/distribution costs (production study guides, production/replication of reader and
DVDs, and packaging/postage).
Variable Cost per Student (V) = $403
5. The template of Rumble (1997) Table 6.1 demonstrates deprecation of capital. This is
recreated for the Higher Education Management course. Below are calculations of the
depreciation rate on a basis of the lifetime of the presentation of the project with a charge
represented in each year of presentation. The development amount is divided over the number of
years it will be presented and the value subtracted each year starting with the original amount.
The maintenance amount is treated in the same manner and divided over the years it will be
presented. The calculation of depreciation for the Fixed Costs of Development (FD) is in the
second tab of the Excel file under Calculation Template, cells B7:M7 and for the Fixed Costs
of Maintenance (FM) is in the second tab of the Excel file under Calculation Template, cells
B8:M8. The calculation for depreciation for the Total Fixed Costs (F) can be calculated by
adding FD and FM together and is in the second tab of the Excel file under Calculation
Template, cells B9:M9.
Total

Annual

Year
1

Year
2

Year
3

Year
4

Year
5

Year
6

Year
7

Year
8

FD depreciated (8
years)

128750

16094

16094

16094

16094

16094

16094

16094

16094

16094

FM depreciated
(4 years)

11250

2813

2813

2813

2813

2813

18906

18906

18906

18906

F depreciated

16094

16094

16094

16094

Total

140000

6. The template of Rumble (1997) Table 6.4 demonstrates the annualization of development and
maintenance costs. It reflects use of capital money for the opportunity costs of development and
maintenance of a course instead of investing it at the interest rate show in the annualization
calculations. This is recreated for the Higher Education Management course. Below is the
annualized Fixed Costs of Development (FD) over the eight years of presentation at 6.2%
interest and the Fixed Costs of Maintenance (FM) over four years at the same rate.

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

The calculation for the Fixed Costs of Development (FD) is in the second tab of the
Excel file under Calculation Template, cells B10:L10 and in the Annualization Box for FD.
Total
FD annualized
(8 yrs @ 6.2%)

Input
Input
Input

128750

Year
1

Year
2

Year
3

Year
4

Year
5

Year
6

Year
7

Year
8

20898

20898

20898

20898

20898

20898

20898

20898

20898

Annualization for FD
rate
years
amount

r
n
C
(1+r)
n

Result

Annual

(1+r)
a(r,n)
C*a(r,n)

6.2%
8
128750
1.0620

(Intermediate value)
Annualization factor
Annualized amount

1.6181
0.162
20898

The calculation for the Fixed Costs of Maintenance (FM) is in the second tab of the
Excel file under Calculation Template, cells B11:L11 and in the Annualization Box for FM.

FM annualized
(4 yrs @ 6.2%)

Input
Input
Input

Total

Annual

11250

3262

Year
2

Annualization for FM
rate
years
amount

r
n
C
(1+r)
n

Result

Year
1

(1+r)
a(r,n)
C*a(r,n)

(Intermediate value)
Annualization factor
Annualized amount

Year
3

Year
4

Year
5

Year
6

Year
7

Year
8

3262

3262

3262

3262

6.2%
4
11250
1.0620
1.2720
0.290
3262

7. Annualization offers the ability to take into account the potential interest lost or forgone when
considering the simple depreciation of the initial capital investment. By annualizing the amount,
simple depreciation does not underestimate the potential value of a possible capital investment.
The interest (determined by the rate) opportunity cost and annualized rate (constant value) total
the total annualized amount. In some cases, there is not an option available to utilize the capital
as an investment in an effort to take advantage of opportunity cost and gain interest on the
investment. The purpose of the annualization is to determine which the better option is, invest
the capital or use for another option for a specific project. The capital may be designated for
only a specific use. In this case, it would not make sense to annualize since it cannot be done.

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

8. The calculation for the equation of total costs (TC=F+VxN) using the annualized figure of
fixed costs and the total number of students expected over the lifetime of the course can be found
in Total Costs (TC) in the second tab of the Excel file under Calculation Template, cells
B13:L13 for F, B14:L14 for V, and B5:L5 for N in the formula TC = F+VxN in cells
B15:L15.
Total

Annual

Accumulated #
of Students (N)
F annualized
(Total)
Aggregate Unit
Costs (V)

403

TC=F+VxN

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

180

360

540

720

900

1080

1260

1440

509029

509029

509029

509029

509029

509029

509029

509029

403

403

403

403

403

403

403

403

581569

654109

726649

799189

871729

944269

1016809

1089349

9. Draw the respective graph of the total cost function.

TotalCosts($)
1200000

Costs($)

1000000

800000

600000

TC=F+VxN

TotalCost
(TC=F+VxN)

400000

200000

0
180

360

540

720

900

1080

NumberofStudents

1260

1440

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

10. The calculation for the equation of average costs (AC=F/N+V) using the annualized figure
of fixed costs and the total number of students expected over the lifetime of the course can be
found in Average Costs (AC) in the second tab of the Excel file under Calculation Template,
cells B13:L13 for F, B14:L14 for V, and B5:L5 for N in the formula AC=F/N+V in cell
sB16:L16.
Total

Annual

Accumulated #
of Students (N)
F annualized
(total)
Aggregate unit
costs (V)

403

AC=F/N+V

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

180

360

540

720

900

1080

1260

1440

509029

509029

509029

509029

509029

509029

509029

509029

403

403

403

403

403

403

403

403

3231

1817

1346

1110

969

874

807

756

11. Draw the respective graph of the average cost function.

AverageCosts

3500

AverageCostperStudent($)

3000

2500

2000

AC=F/N+V

Average Costper
Student(AC)

1500

1000

500

0
180

360

540

720

900

NumberofStudents

1080

1260

1440

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

12. The breakeven point is the point or student where the costs equal the income. The
calculation for the equation of total costs (TC=F+VxN) and the income equation Income =
Student Fees x Number of Students (I=SFxN). The breakeven point can be calculated using
N=F/(SF-V). The breakeven point can be found using the information from the second tab of the
Excel file under Calculation Template, cell E13 (F/F Annualized) / (cell E17 (SF/Income per
Student) cell E14 (V/Aggregate Unit Costs).
Total

Annual

Accumulated #
of Students (N)
F annualized
(Total)
Aggregate Unit
Costs (V)

403

TC=F+VxN

Total

Annual

Accumulated
# of Students
Income per
student
Income
Break Even
Point

1140

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

180

360

540

720

900

1080

1260

1440

509029

509029

509029

509029

509029

509029

509029

509029

403

403

403

403

403

403

403

403

581569

654109

726649

799189

871729

944269

1016809

1089349

Year 7

Year 8

Year 1

Year 2

Year 3

Year 4

180

360

540

720

900

1080

1260

1440

1140

1140

1140

1140

1140

1140

1140

1140

205200

410400

615600

820800

1026000

1231200

1436400

1641600

691

Year 5

Year 6

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

13. Represent the break-even point graphically (overlaying the graphs of TC and I).

CostsandIncome
1800000
1600000
Income

TotalCosts($)

1400000
1200000
1000000

TotalCost
(TC=F+VxN)

TC=F+VxN

800000

Income

600000
400000

BreakEven
Point=
691 Students

200000
0
180

360

540

720

900

1080 1260 1440

NumberofStudents

14. Rumble (1997) discusses how the TC and AC equations analyze the DE cost model and
shows that it offers a greater cost efficiency or economy of scale than traditional face-to-face
education models over the long term. This said, the short-term, initial startup costs experienced
by DE could look quite unfavorable. The greater fixed costs to start a course (high cost of
quality course development) and initial variable or aggregate unit costs of student support are
quite significant but over time decrease to less than traditional education models. Cost savings
can be accomplished in DE student support services such as assignment grading and/or tutoring
by tutors or adjunct staff instead with tenured staff. This adds to variable cost savings as the AC
progress over time (e.g., increased numbers of students). Rumble (1997) notes that as student
numbers rise and the variable costs decrease per student it creates a greater return. Once a DE
course continues past the initial period of development (startup) and continues to be offered, the
total cost and variable costs begin to decrease with the increased aggregate student numbers. In
traditional education models, an increase in classes and students would require additional brick
and mortar logistics (e.g., rent, maintenance, and utilities), possible education and administrative
staff (e.g., salaries, staff logistical support), all of which potentially increase total costs of
traditional education model. While DE benefits from the differences in economy of scale,
Rumble (1997) provides that this can only be experienced when enough students enroll in the DE
courses this is the where expansion considerations must be fully vetted to ensure possible
expansion does not diminish the cost-efficiency over traditional face-to-face education models.

PROJECT REVIEW OF HIGHER EDUCATION MANAGEMENT COUR

10

References
Rumble, G. (1997). The costs and economics of open and distance learning. London:
RoutledgeFalmer.
Hlsmann, T. (2008). From Baobab to Bonsai: Revisiting methodological issues in the costs and
economics of distance education and distributed e-learning. In W. J. Bramble, S. Panda,
(Eds.), Economics of distance and online learning (pp. 271-312). London: Kogan Page.