DRIVER EDUCATION BUSINESS PLAN
Table of Contents
Background
Reason for Business Plan
Clarifications to Original Memo
Additional Information
Business Plan Format
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2
3
4
Business Description
Overview of the Industry
Description of the District’s Program
The District’s Positioning in the Market
Existing Competition
Pricing Strategy
Management of the Program
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5
6
6
7
7
Continuing with a District Run Program
Customer/Market Trends
Competition/Market Share
Pricing Strategies
Advertising and Promotion
Impact on Administration
Rationale for Continuing the Program
Rationale for Eliminating the Program
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8
8
11
11
11
11
Contacting with a 3rd Party
Definition
Developing RFP
Community Recreation and Enrichment
Pricing Strategies
Advertising and Promotion
Impact on Administration
Rationale for Contracting
Rationale Against Contracting
12
12
12
13
13
13
13
13
Allowing Renting by a 3rd Party
Communication with Potential Renters
Pricing Strategies
Advertising and Promotion
Impact on Administration
Rationale for Renting Space
Rationale Against Renting Space
14
14
14
14
14
15
Administrative Recommendation
Program Recommendations
Timing Issues
15
15
1
DRIVER EDUCATION BUSINESS PLAN
Background
Reason for Business Plan
On (Date), the Board of Education of (School District) discussed the funding cut of the State of
Michigan in support of the District’s Driver Education Program. The Board of Education
directed the Assistant Superintendent for Business and Finance to prepare two business plans.
The first business plan would address the feasibility of continuing to offer and administer the
Driver Education Program as a District program. The second business plan would address the
ramifications of allowing a third party to operating the program within the high school. Since
both Business Plans share the same information regarding history, market conditions, etc, I have
separated all the scenarios within this one Business Plan document.
Clarifications to Original Memo
On (Date), a memo was presented to the Board of Education that did not provide enough
information to determine what fee needed to be charged to the students to continue to run the
program as a District program. Also, the student fees collected for 2002-03 did not seem to add
up, based on the amount of students identified in the program, as well as the fee per student that
was charged.
2002-03 Fee – As the memo stated, the total cost for the program was $106,566 for the 2002-03
program year. Based on the 282 students in the program, the cost per student is calculated at
$378, which is clearly above the market rate of private programs. However, the memo stated that
we would only need to increase our fee to the private company going rate in order to be selfsupporting. I believe at one point in the analysis we were looking at only direct costs. Therefore,
if the District chose not to charge an indirect cost, the student fee would be reduced closer to the
going rate for private companies. I believe the direction at this point is to cover both direct and
indirect costs.
For 2004-05, the cost per student should likely be less than the $378. This is explained further in
the Pricing Strategy section.
Discrepancy of Student Fees and Revenues Reported – The student fees that were collected for
the 2002-03 program year totaled $58,631. This number is verified both in the District’s final
audited figures as well as in the Driver Education Report that was sent to the State of Michigan.
Taking the $58,631 and dividing by 282, results in a per-student charge of $208. In the further
researching of this issue, there are a number of reasons for the average fee of $208.
First of all, the driver education fee was $185 for the first two Segment I classes that occurred in
the fall of 2002 and the spring of 2003. For the final Segment I classes in June, the fee was raised
to $235.
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In addition, there were 11 students who received a credit. Therefore, they have already paid for
the program, but had to drop due to extenuating circumstances, i.e., they were in the $58,631
figure, but not the 282.
Also, we had 13 students that chose to take Segment II with the District. Therefore, they took
Segment I with another company. The $50 charge increased the overall student revenues, but the
students were not counted in the 282 number.
Finally, there were 7 students in the last reporting year that were dropped from Driver Education
due to disciplinary issues and they were not refunded their money. Moreover, there were 16
students that attended the entire program, but did not pass one or all of the sections. The reported
figure of 282 participants represent students that passed the entire course.
Additional Information
Segment I versus Segment II - Segment I includes passing a visual screening test, 24 hours of
classroom instruction, a three hour State written exam, and six hours of road instruction. Prior to
taking Segment II coursework, a student must drive a minimum of six months and 50 hours with
a parent/guardian. Segment II encompasses three, two hour classes in defensive driving.
The District has collected the full payment upon the registration for Segment I, even though the
student may not be taking Segment II for up to 15 months after completing Segment I.
For students that have taken only Segment II with the District, the charge has been $50.
Existing Liability for Segment II –Therefore, the District received dollars in 2002-03 or earlier
for Segment II classes that have not yet occurred. Specifically, according to the High School,
there are currently 163 students that have not yet taken Segment II with the District. It is possible
that this number is lower, if a student opted to take a Segment II class with another company and
did not request a refund.
Since a decision has not yet been made as to the fate of the Driver Education Program, the
application for the spring 2004 Segment 1 offering this program year, has been modified to
incorporate Segment 1 only. This means instead of charging the $235 for both Segment 1 and II,
we will charge $185 for Segment 1, with additional verbiage that a future Segment II may or
may not be offered by the District beyond June of 2004. Students will begin to sign up for this
session on (Date).
In terms of the 163 students, the High School anticipates that about 100 students will be taking
Segment II during the next three sessions offered in April, May, and June. In the event the
District discontinues the operation of the program, we will send a letter to the student in question
indicating the final Segment II offerings available, and offer a refund to the students that will not
take Segment II with us.
Business Plan Format
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The following Business Plan format is commonly used in the start up of a new business. I have
modified it to better apply to the not-for-profit program that we are currently running. As
discussed earlier, this plan is meant to discuss the feasibility of continuing to run the program as
we have in the past, with the intent to make the program self-supporting, or look at another party
running the program.
Business Description
Overview of the Industry
The first instruction to deal with driver education occurred in the 1920’s. The instruction was
incorporated into other subjects and taught as classroom-only coursework. The first course,
including both classroom and behind-the-wheel instruction was taught in 1933. By 1940, over 20
states had courses of study, and several hundred high schools had begun teaching driver
education. In 1949, the first National Conference on High School Driver Education was held. As
a result of this conference, recommendations were made covering all aspects of a driver
education program. Also, the following objectives of driver education were identified:
1)
2)
3)
4)
5)
Promoting the safe, efficient, and enjoyable use of equipment and environment
Developing a strong sense of personal and social responsibility for the common welfare
Developing pride in maintaining high standards of performance
Promoting effective habits of cooperation in meeting and solving common problems
Preparing people for useful vocations suited to their individual abilities
In the fall of 1955, Michigan became the first state to pass a driver education law and the first
state to establish a Highway Traffic Safety Center. This law required that:
1) All school districts make a driver education course available to all eligible students,
including those attending parochial or private schools and out-of-school youth
2) All students wishing to be licensed before their 18th birthday must satisfactorily complete
a high school driver education course
3) The Michigan Department of Education would promulgate rules and regulations to carry
out the act (The MDE established the requirements to teach driver education as holding a
teaching certificate and completion of a 2-semester hour credit course in driver
education)
4) Public schools be reimbursed up to $25 for every student completing the driver education
course
According to the Michigan Driver Safety Education Association (MDSEA), the rules and
regulations continued to be revised during the subsequent decades, with the State reimbursement
to local districts increasing from $30 in 1965 to $45 in 1981, and finally, to a reimbursement
level in the past few years of $70 - $85 per student.
A major change in regulations occurred in 1997 with the introduction of graduated licensing
requirements. These regulations resulted in the program being divided into segments (segment I
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and segment II), with mandated behind the wheel calendar time and hours with a parent/legal
guardian.
In April of 1998, new legislation was passed that allowed local school districts to charge students
for a portion of the driver education expenses, as long as matching dollars were provided by the
local school district. Also in 1998, for the first time school districts were allowed to discontinue
offering driver education programs to their students.
According to Greg Lantzy, Supervisor of the Public Transportation, Driver and Rider Safety
Program, private companies have existed since the beginning of driver education. The rules
governing both private and public programs are basically the same, although school districts
instructors must hold a Michigan teaching certificate, while private instructors must be licensed
by the Michigan Department of State. According to Mr. Lantzy, about 120,000 students take
driver education each year, either through a school district or private company.
As a result of the significant budget problems at the State level, Executive Order 2003-23 was
passed in January of 2004 which indicated that as of February 1, 2004, the driver education fund
will no longer be available to support driver education. r. Lantzy indicated that currently 79% of
school districts run a driver education program. This number will be decreasing as a result of this
Executive Order, although he did not speculate by how much.
Description of the District’s Program
(School District) has operated a driver education program since at least the 1960s, and probably
much earlier. The following chart depicts the number of students that completed the
requirements of our program:
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
291
209
270
258
292
271
255
301
358
274
218
249
272
271
282
???
The program, as it is currently configured, has two distinct segments. Segment I includes passing
a visual screening test, 24 hours of classroom instruction, a three hour State written exam, and
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six hours of road instruction. Prior to taking Segment II coursework, a student must drive a
minimum of six months and 50 hours with a parent/guardian. Segment II encompasses three two
hour classes in defensive driving.
The District’s Positioning in the Market
(School District) has been a leader in our geographical area in terms of Driver Education.
Currently, we believe we are perceived in the marketplace as a low-cost, good quality program.
We also have a market niche for early morning sessions.
In terms of location, we are centrally located in the community. We are close to drive to, and are
very convenient for students since they can come to class before or after school, without having
to drive somewhere else. In terms of our perception in the community, we have received
numerous positive comments by parents.
With the elimination of State and District funding, I believe we would continue to be perceived
as good quality, but in terms of cost we would go from low-cost to a relatively high cost
program, in order to be fully self-supporting.
Market Share of Public Schools
According to Greg Lantzy, approximately 120,000 students take driver education each year. Of
this amount, approximately 80,000 receive this education through local school districts. This
results in a market share for local school districts of about 67%, keeping in mind that about 20%
of school districts do not offer driver education. The following chart depicts the number of
students in school district programs who have passed Segment I over the past few years.
1996-97
1997-98
1998-99
1999-00
2000-01
98,039
81,225
75,174
78,839
78,112
Market Share of (School District)
We were not able to gather the data to precisely calculate the market share of the school district,
since the eligibility for driver education is based on age and students do not always take the
program as soon as they are eligible. Nonetheless, taking an average high school class of about
500 students, we can calculate an approximate market share of 56% of potentially eligible
student, which means the actual market share is higher. When asked independently, the High
School indicated that about 65% of our 9th graders take our program versus private providers.
Existing Competition
There are three main companies that we are in competition with. These companies are (Driving
School #1), (Driving School #2), and (Driving School #3).
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(Driving School #1 – Located in (City or Cities). Their fee is currently $305 for Segment I and
$40 for Segment II, for a total of $345.
(Driving School #2) – Located in (City or Cities). Their fee is currently $299 for Segment I and
$30 for Segment II, for a total of $329.
(Driving School #3) – Located in (City or Cities). Their fee is currently $319 for Segment I and
$39 for Segment II, for a total of $358.
Competitive Advantages
Based on the conversation with Mr. Lantzy, the difference in quality between public school
programs and private programs can be argued both ways. From a perception standpoint, he feels
that some parents place value on the requirement of a school district instructor to possess a
teaching certificate. In terms of programs, he has seen both good and bad public and private
programs.
The only advantage that appears to be consistently brought up with private companies is simply
the convenience for the student. Parents that were asked why they chose a private company for
driver education cited the scheduling conflict that occurred with the school program, and were
willing to pay the extra dollars.
Pricing Strategy
Prior to 1998, school districts were prohibited to charge student fees to enroll in driver education
programs. For fiscal year 1998-99, (School District) began charging a student fee of $158. This
fee was a reflection of the District matching the State funding level, with the remaining costs
being passed on to the students. The fee was subsequently raised to $185, and in June of 2003,
the fee was increased to the current level of $235 for both segments, and $50 for just Segment II.
With the elimination of the state funding and local contributions to the program, districts are now
free to charge students a fee based solely on a district’s discretion.
Management of the Program
The program is administered at the high school in the office of (Designated Employee), (Title).
The Secretary of the (Designated Employee above) is the primary clerical person responsible for
the program. All day to day responsibilities of the program are run out of this office. In addition,
reporting requirements of the program are supported by the District’s Business Office and the
associated payrolls and account payable functions of the program are also supported in the
Business Office.
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Option 1 – Continuing With a District Run Program
Customers/Market Trends
State Level - While it has not been verified through a demographic study of the State’s
population by age, it is assumed that we will continue to have approximately 120,000 students
annually enrolled in some type of driver education program.
Local Level – Based on the current demographics of the school district, the number of eligible
drivers will continue to increase annually in the 2% - 4% range.
Competition/Market Share
As discussed earlier, our current market share is about 65%. This will certainly be reduced as we
become less competitive in terms of our fee (assuming our fee is above market), and as a result,
become less competitive as our program would retract in terms of offerings.
There is no hard data for schools that offer year-round programs – the majority of schools offer
summer only – it is difficult to speculate on the loss of market share. For summer only districts, a
loss of 50% of students that would previously have enrolled in the district program is not
uncommon. To remain competitive, we would need to continue to offer programs year-round,
and at times that are convenient for students. If we are able to do this, I believe we would lose
between 25% - 40% of our students who would normally enroll in our program.
If the District chose to continue to supplement the program, either by assessing only direct costs
or continuing with historical support, the market share would likely remain about the same.
Pricing Strategies
There are three pricing strategies that we could pursue; below market price, at market price, and
above market price. To determine the pricing structures, we must first define the term “selfsupporting”.
Defining Self-Supporting – There are four main expenditure categories for the program,
instructor compensation, supplies and materials, vehicle expenses, and indirect cost.
Instructor Compensation – Instructors are paid the contractual rate of $26.06 per hour. This has
been the rate since 2002-03 and will likely remain the same for 2004-05. The only benefits paid
include Retirement and FICA. FICA is based on 7.65% of wages, while retirement is based on
the rate set by the State of Michigan, which is currently 12.99%. Since the District has some
retired teachers in the program, there is no retirement contribution required for them.
Supplies and Materials – This line item covers all the curriculum items necessary for the
program, including books and supplies.
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Vehicle Expenses – There are currently eight (8) cars in the program. In general, we have
replaced two cars each year at a cost of about $13,000. The remaining costs are for oil, gas,
insurance and maintenance.
Indirect Cost – This cost is calculated by taking 15% of the total cost of the program. It is meant
to cover administrative time, custodial and maintenance, and utilities.
In terms of defining self-supporting, many districts that I spoke to did not include the indirect
cost in their definition of self-supporting. However, if an indirect charge is made, the 15% figure
is commonly used and accepted.
Above Market Price – Assuming instructor wages and FICA remain the same, while the
retirement rate increases to 14.88% (as suggested by the Governor), supplies and vehicle
expenses go up by 5%, and the indirect cost remains at 15%, the following is the total program
costs based on similar 2002-03 Segment I and Segment II student enrollments:
Expenditures:
Instructor Wages
FCA
Retirement
Supplies and Materials
Vehicle Expenses
Indirect Cost
TOTAL
$
$
58,269
4,458
5,632
8,483
18,852
14,354
110,048
Based on receiving payments for 305 students (based on 2002-03, 23 students would either fail
the course or be dropped due to disciplinary issues) and having 13 students pay for Segment II
only (at $50) who had Segment I with another provider, the total charge per student would need
to be $363 per student. Assuming the competition keeps their rates the same next year, the total
rates would be as follows:
Company
(School District)
(Driving School #3)
(Driving School #1)
(Driving School #2)
$
363
358
345
329
The vast majority of our program costs are variable. This means that our costs go up or down as
a direct correlation to the amount of students enrolled in our program. We currently offer three to
four session for each Segment I and II. In each session, we offer three to four different time
schedules. If we eliminated one or two of the time offerings in each session, our loss of student
fees should be offset by reduced costs, since there would be less instructor time, miles on the
vehicles, less gas, etc. The only true fixed cost is the set up time and some of the administrative
work for the program, but I believe this number is not significant.
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In summary, if we raised our rates accordingly and had a reduction in participation, we could still
run a break even program.
At Market Price – Assuming the competition retains their current fee structure, the average
market cost would be $344 for the entire program. If the District charged this fee, including
indirect cost, the shortfall to the District would be as follows:
Based on no loss in market share – Based on payment from 305 students, the shortfall would be
$5,795. If the District were to cover this cost, the result would be a reduced indirect cost to
$8,559 or about 9% of expenditures.
Based on 33% loss in market share – If the amount of students paying was reduced by 1/3 or 100
students, the shortfall would be $3,895.
Assuming the competition keeps their rates the same next year, the total rates would be as
follows:
Company
(Driving School #3)
(Driving School #1)
(School District)
(Driving School #2)
$
358
345
344
329
Below Market Price – If the District chose to not pass on the indirect cost to the program, which
is the practice in some districts, the calculation would results in a student fee of $314. This is
calculated by taking the direct costs of $95,694 and dividing by 305 students paying. The $314
fee would be $30 or 9% lower than the market average.
Assuming the competition keeps their rates the same next year, the total rates would be as
follows:
Company
(Driving School #3)
(Driving School #1)
(Driving School #2)
(School District)
$
358
345
329
314
Impact of Pricing Strategy - It is difficult to ascertain the impact of raising the fee from $235 to
$314, $344, or $363. While a $50 swing in fee would have an impact, it is possible that the
difference in enrollment in the program could be negligible since convenience of the program
seems to be the overriding factor.
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Advertising and Promotion
The District currently does very little advertising for the program. If the District kept the
program, it would be advisable to increase the visibility of the program and also create a
mechanism to gather feedback on the program from students in terms of program times and
offerings.
Impact on Administration
The administration of the program is the responsibility of the (Designated Employee’s) office at
the high school. The program is well ingrained in the day to day operations of the office. All
records are kept as part of the District’s student accounting software system, Skyward.
The potential changes in the program, should have little, if any, impact on administration. To the
extent that enrollment in the program is reduced, there should also be a corresponding reduction
in administrative time.
Rationale for Continuing the Program
Point 1 – We Are Good At It
As evidenced by the memo from (Designated Employee), we have been in this business for a
long time and have been successful at it.
Point 2 – We Are Accountable
Being a local school district, we are accountable to the parents and students of this community.
Point 3 – Tradition
Many of the members of this community have gone through the school’s driver education
program. For some, it is may be viewed as an integral part of the high school education of our
students and a responsibility of the District.
Point 4 – We Are Convenient
As noted in the memo from (Designated Employee), our program is very convenient to students.
Point 5 – We Are Not-For-Profit
Being not-for-profit, the District’s focus has been on the quality of the program and not making a
profit.
Rationale for Eliminating the Program
Point 1 – Cost
For many years, the District was forced to supplement the program, since it was mandated by the
State of Michigan. This took dollars away from other core areas of instruction. To continue with
the program, the District would be financially responsible if there was a cost overrun or the fee
was not set up to cover all the costs.
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Point 2 – Not a Core Educational Program
While our program has been a tradition for many years, the State has recognized that this is no
longer a core function of a school district. Students can receive quality driver education
instruction through many other sources that will likely be about the same cost as a future district
program. For example, the Mackinaw Center for Public Policy feels drivers education is a costly
and a largely unnecessary program for a district to administer.
Point 3 – Savings to the Community
For years, the program was seen as a low cost alternative to private providers. Parents could save
up to half the cost by enrolling their students in the District program. Now with the loss of State
funding, this will no longer be the case.
Point 4 – Reduce Administrative Time
The staff at the high school has to serve an ever increasing student population. It has been
suggested that up to ¼ of the time for the (Designated Employee’s) Secretary is spent on the
Driver Education Program. Eliminating the program will allow for these hours to be reallocated
to other core support areas for students. In addition, Central Office time will be reduced, as well
as eliminating the support, time, and space provided by the Bus Garage for vehicle purchase,
storage, and maintenance.
Point 5 – Reduce District Liability
The current program exposes the District to liability issues including vehicle accidents, personal
injury, staff injury, and property damage.
Option 2 – Contracting With a 3rd Party
Definition
In the past, there have been a few districts that contracted with a 3rd party to provide vehicles and
instruction staff for a school district, while the district continued to administer the program. This
is not being recommended as a viable option at this time. The definition of Contracting With a
3rd Party is that the vendor will operate the entire program from marketing and registration, to
classroom and driver instruction.
Developing RFP
Contracting with a third party would require a detailed Request For Proposal. It would be
advisable that legal council be retained to assist in this process.
Community Recreation and Enrichment
The Community Recreation Program was approached about the possibility of administering the
program. Their Board voted unanimously to not support this possibility.
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Pricing Strategies
The pricing of the program will likely be addressed in the RFP. It is likely that the vendor will
require the flexibility to adjust pricing as they see fit.
Advertising and Promotion
Advertising and promotion of the program would be the responsibility of the company. The high
school may allow flyers to be made available to students.
Impact on Administration
Not running the program on a daily basis would be a significant time savings for the high school.
However, even though the program would not be run directly by the District, it is likely that
there would be a significant amount of inquiries until the community is aware of the changes in
the program. In addition, complaints about the new program would likely involve some
administrative time.
Rationale for Contracting
Point 1 – Control
By contracting versus renting, the District would have more control over what goes on in the
program, versus simply renting out space to a vendor.
Point 2 –Accountability
Conversely, having a control would require more accountability of the vendor to the District.
Point 3 – Less District Involvement
Certainly, contracting out the administration of the program from A to Z to result in time savings
to the District on many levels.
Point 4 - Financial
There would be no financial commitment to the District under a contracted program. In fact,
there would be some revenues associated with the contract.
Rationale Against Contracting
Point 1 – Liability
Although there may be less exposure to the District under this option, since the District would be
choosing a vendor, there may be more liability than if the District simply allowed a vendor to
rent space.
Point 2 – Administrative Time
There would be likely more administrative time under an RFP contract arrangement versus a
rental of space. Also, even if a vendor was perceived as providing a quality program, there would
need to be some administrative time monitoring the on-going program to ensure quality.
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Point 3 – Most Time Consuming
Given the fact that we are at the top of the learning curve for administering the program on our
own, as well as renting space to various vendors, going through an RFP process and contract
would involve the most amount of time. In addition, this would be an acute situation given the
amount of work that would need to be done in a very short period of time to allow a vendor to be
selected in a timely manner.
Point 4 – Not Done
To date, I am only aware of one district that attempted to go through an RFP process and there
has been litigation threatened by a competing vendor who was not awarded the contract. Most
districts have decided either to continue with the program as is, or to allow a 3rd party to rent
space.
Option 3 – Allowing Renting by a 3rd Party
Communication with Potential Renters
I have contacted some of the private providers and received a high degree of interest in the
potential of renting space in the high school to operate their programs.
Pricing Strategies
Pricing would be based on competition and market conditions, and set by the renter.
Advertising and Promotion
Advertising and promotion of the program would be the responsibility of the company. The high
school may allow flyers to be made available to students.
Impact on Administration
This arrangement would have the least impact on administration. In the event of inquiries,
contact information can be provided by the District.
Rationale for Renting Space
Point 1 – Least Amount of District Involvement
As discussed previously, allowing a vendor to rent space would result in the least amount of
District involvement versus the other options.
Point 2 – Easy to Set Up and Administer
Since the District currently has a Facility Secretary to arrange for rental of District facilities,
rental of space for driver education would be a fairly simple proposition.
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Point 3 – Least Amount of Liability
Since the District would not be choosing or endorsing one particular vendor, the amount of
liability would be less than under the other two options.
Point 4 – Financial
There would be no financial commitment to the District under a rental situation. Revenues would
be received for the rental of facilities.
Rationale Against Renting Space
Point 1 – Lack of Oversight
Similar to the multitudes of companies and vendors that rent space in the buildings, we would
not be involved in the oversight of how they do business. In the event a program becomes
substandard, we would be less likely to be aware of the situation versus the other two options.
Point 2 – Abandonment
Under this arrangement, the District is more likely to be viewed as abandoning the program
versus the other two options.
Administrative Recommendations
Program Recommendations
Allow a 3rd Party to Rent Space
Based on all of the information at hand, it is the Administration’s recommendation that the
District discontinue administering a driver education program, allowing a third party to rent
space in the high school based on interest and availability.
The recommendation is based on two main factors. First of all, since there would be little or no
cost savings by enrolling in our program, there is no financial savings for the community.
Second, the program is not a core district program. Third, by renting out space for the program, it
would result in dollars coming in to the district to support our core objectives, as opposed to
taking money away from our core objectives.
Timing Issues
As discussed, it would be our recommendation to continue to offer Segment II classes through
the end of the school year. Regarding Segment I, we recommend no changes in the spring
session. Also, since the June Segment I class is also considered part of our program year, it may
be advisable to continue this session as a District program, allowing adequate time to arrange for
parents and students to make the necessary arrangements.
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