Presentation by
EnP Manuel L. Javier
Coverage of the 30 Minute Talk
 The Why, objective and questions to be addressed
 Some guide questions on costing and pricing
methods
 Explanation on the four approaches for workshop 1
on Costing and Pricing related to PPPs in education.
 Think about your own institution’s pricing strategies
and practices that have worked well.
Why price PPPs in education?
If private sector provision is
found to be the more cost
effective option, then the
public sector may choose to
engage in a public-private
partnership, sharing in the
costs, benefits, and risks of
the project with the private
sector.
“focus less on programs and more on public value.”
In response to the request of
the DepED, we are to identify a range
of costs/ subsidies per student, price
ranges and financing for
Senior High School.
are what an institution spends to educate a student, and
are what institutions charge students.
GUIDE QUESTIONS
COSTS IN EDUCATIONAL PROGRAMS & SERVICES
School charges varies by type, nature
and structure of curriculum, geographic
location, etc….
 What do these total school/college
costs include? Compensation
packages, MOOE and overhead costs,
facilities operating costs, administrative
costs…taxes, inflation, etc?
 Can we really compare costs of public
and private sector provisions?
 Is there a standardized method for
estimating these costs?

How do private institutions chose to ‘price’ their
educational services?

Can graduating Grade 10 public school students afford
these prices?

What are the costs of operating a high school or a
college first year course?

What are the key components of the costs?

When making a projection, what are the cost
parameters used?

What is considered “fixed” costs? “variable costs”?
“direct costs”? “indirect costs?
 What does it cost to operate a Senior High
School ? Its direct and indirect costs component?
Its fixed and variable costs?
 Survival
mode?
 Breakeven?
 Adequate
with reasonable with ROI?
10%?
4 APPROACHES TO DETERMINE
PRICE
Pricing PPPs in Education: Approaches
 “Back-of-the envelope” method
 ESC flat grant to selected private schools
 Using total school fees (tuition + misc fees) as a
proxy for pricing
 Cost-based approach: pricing from the bottom
up
‘BACK OF THE ENVELOP” APPROACH
TO ESTIMATING COSTS
 Its defining characteristic is the
BOTE = quick calculations; estimates using approximate numbers, instead of exact numbers
‘BACK OF THE ENVELOP” APPROACH
TO ESTIMATING COSTS
What price would you charge to ensure that
your competitor does not get the students
(otherwise they will likely go to the other
college)?
BOTE = quick calculations; estimates using approximate numbers, instead of exact numbers
Expanded GASTPE
R.A.8545 (amending R.A. 6728)
Fixed annual tuition
subsidy through four
years of high school
the annual subsidy per
grantee increased
21%
14%
7%
13%
Current Subsidy:
NCR
: P 10,000
Elsewhere: P 6,500
In contracting forms of partnerships, the government procures education or
education-related services of a defined quantity and quality from private providers at
an agreed price for a specific period of time.
COMPARISON OF COST PER STUDENT
Amount in Pesos
in 2008
9048
10000
8000
5343
6000
4000
2000
0
ESC Grantee
Public School Student
WB, ESC-Phil
Study 2009
The ESC Program is a lower cost alternative to direct provision of
secondary education by the government.
BUT, CAN WE BE SURE THAT THE COST PER STUDENT OF PUBLIC AND PRIVATE SCHOOLS
ARE COMPARABLE? ARE THE COST STRUCTURE THE SAME?
wide regional variations
in grantee copayment
SUPPORT VALUE = VALUE OF GRANT + SCHOOL FEES
The total amount of
“copayment” by ESC
grantees but does not
include
other
costs
incurred by private school
students such as the costs
of, for example, school
uniforms, text-books, class
projects,
meals,
and
commuting costs.
ESC-participating schools
have to make any financial
sacrifice, this comes in the
form of the delay between
the start of classes and the
day when DepED finally
pays the school its ESC
grant allocation.
ESC GRANTS & SCHOOL FEES
 On average, tuition fees in
private schools exceed the
value of the ESC grant.
 In general, ESC grantees pay
for school fees in excess of
the tuition subsidy.
 The average support value of
the ESC grant is 0.67
―Support value = value of
grant/school fees
• On average, schools receive
Php 1.18 Million per year
from DepED due to the ESC
program
WB Study on ESC Phil 2009
• Based on the following:
– The current ESC grant
– How much DepEd spends if it does it on its own
(remember that is a 2008 number; adjust for
inflation)
– Your estimates of providing Grades 11-12 (assume no
significant lab investments)
• How much would you charge per student for
Grade 11 and Grade 12?
Factors Affecting Tuition and Other Fees
Tuition
Miscellaneous Fees
Library
Computer Lab
Science Lab
Registration
Guidance
Medical and Dental
Insurance
Testing materials
Programs and Activities
Testing Fee
Reservation Fees
Guidance
Medical and Dental
Insurance
Testing materials
Programs and Activities
Testing Fee
Reservation Fees
Other Income
Printing of Certificates
First Communion
Graduation Fee
Energy fee
Developmental Cost
Energy Cost
Cost of quality education?
Perception? Reputation?
Inflation…?
Family’s financial capacity?
Socio-economic?
Politico-legal…?
Tuition and other fees — provide a proxy measure of the per
capita costs of private schools.
From the point of view of the
private schools that participate
in the ESC, there are two
NCR schools charged the
highest fees at an average
of Php 23,856 per year.
indicators of pergrantee costs :
(1)a normative cost
per student (does not take
into account inflation)
(2) the level of tuition
and other fees
charged (real costs taking
into account inflation and
other factors)
• Preparation:
– Get your current school fees (freshman, AB: tuition and
miscellaneous)
– Estimate your range of possible tuition increases for next year
– Assume you would likely use your college faculty for 11-12
– Assume you won’t have new investments in labs etc.
• Think about how you would price Grades11-12:
–
–
–
–
Same as Grade 10?
As a premium to Grade 10?
Same as 1Y College?
[HEIs] What price would you charge to “make sure” the public school
students go to your HEI?
• Develop a range of prices based on the scenarios above
• That prices are based on
costs plus an add-on profit
percentage.
• Costing calculations are
based on the marginal costs
that an operator would incur
if it were to build similar
network elements in the
current situation.
• How to allocate properly fixed costs to programs?
• How are the direct costs computed? What are the
component costs to be included?
• How do schools and colleges account for overhead
costs (like buildings, depreciation, administration,
maintenance, and support services? registrar costs?
additional library hour costs?
• How are cross subsidization of products,
i.e., programs, other cross-over and
transfers accounted for?
Activity-based costing is helpful in allocating the proper
overhead costs in higher education environment.
Various Costs
Direct Capital Costs
•Design costs
• Land and other development
costs (lease, purchase, etc)
• Raw materials
• Payment to external actors
(financial, legal, engineering,
etc.)
• Equipment
• Payments for procurement
(project development,
documentation, etc.)
Direct Maintenance Costs
• Raw materials
• Tools/Equipment
• Labor (wages/salaries)
• Capital
• Improvements/upgrade to
facilities or expansions
Direct Operating Costs
• Teacher salaries
• Other employees (wages,
entitlements, superannuation,
insurance, training, annual/sick
leave, travel, etc.)
• Insurance
• Building services (water,
electricity, furniture, etc.)
Indirect Capital Costs
Indirect Operating Costs
• Corporate overheads (running
costs)
• Non core IT and equipment
employees
• Facilities management
• Employees not directly involved
(ex. HR)
• Partial use of plants/equipment
• Partial use of administrative
buildings
• Depreciation
Sample of Statement of Expenditures
MAJOR EXPENDITURE
CATEGORIES
…for every peso
Instruction, Academic and .78
Administrative
Maintenance and School
Operations
.08
TOTAL EXPENSES
1,945,568.16
1.00
Instructional, Academic and
Administrative
1,517,010.89
0.78
Salaries and wages
1,247,550.00 0.82
0.64
Employees Benefits
142,715.69 0.09
0.07
SSS Premium
74,090.20 0.05
0.04
Pag-ibig Premium
14,100.00 0.01
0.01
Philhealth
12,637.50 0.01
0.01
Faculty and staff development
25,917.50 0.02
0.01
Maintenance and school
operations
162,507.61
0.08
Depreciation
43,682.94
0.02
Repairs and Maintenance
20,452.75
0.01
Communications
26,752.94
0.01
Light and water
63,571.43
0.03
8,047.55
0.00
266,049.66
0.14
School and office supplies
25,291.85
0.01
Transportation
21,334.00
0.01
500.00
0.00
5,000.00
0.00
Representation and Entertainment
13,891.00
0.01
Miscellaneous
84,784.05
0.04
115,248.76
0.06
Janitorial expenses
General
General
.14
Taxes and licenses
fees and Dues
Others
NET BALANCE (DEFICIT)
9,676.44
RECASTING INCOME STATEMENT TO PROGRAM BUDGET
60%
10%
15%
15%
Based on historical financial analysis, you might find the percentage allocation share of each of
the program categories: 60% instructional support; 10% academic support; 15% student
support; and 15% institutional support. Independent operations are self-liquidating activities.
ACADEMIC PROGRAMS
Academic variables vs. cost structure
Student
population
Section
capacity
Admission
process
Gross
demand
Drop out
rates
Curricula
Enrolled
students
Tuition and
government
support
Faculty
size
Teaching
demand
Gross
income
Teaching
structure
Faculty salary
structure
Faculty
costs
Admin
Admin
costs
structure
Educational
support
resources &
services
Support
invest &
costs
Institutional
administration
Instit’l
admin
costs
Each set of goals, strategies and actions affect operational and investment
costs which can be evaluated in this flow chart. Thus selecting the sustainable
and academically acceptable strategies.
K+12 CURRICULUM
Changes in each set of goals, strategies and actions in the K+12
reform affect operational and investment costs.
SERVICE STANDARDS
UNIT COST PARAMETERS IN 2012 PRICES
Pure Public
Provision
Generally higher
in budget
requirement
except for
SY 2018’19
Public with
HEIs Provision
Source: MEDIUM TERM SPENDING PLAN FOR BASIC EDUCATION, 2012-2017: ENROLLMENT PROJECTIONS
AND COST SIMULATIONS UNDER ALTERNATIVE SCENARIOS by Rosario G. Manasan, 14 April 2012
Generally lower
in budget
requirement
except for
SY 2018’19
Private/Public Unit Cost Ratios
Operating costs refer to educational production spending per student based on
cost and enrollment.
Direct social costs are costs of education other than tuition fees, such as books,
writing supplies, and other instructional expenses
Disclosed operating costs by these private tertiary institutions will not correspond to the genuine
institutional cost for maintaining such institutions.
The reliance on enrollment school fees without the attendant non-tuition direct private costs could
result in severe underestimation of total private costs of private institutions.
SIMULATING COSTS OF PROVIDING EDUCATION
BASED ON SERVICE STANDARDS
AND USING UNIT COST PARAMENTS
SERVICE STANDARDS
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Class Size (Number of Students in a Section)
Student Station in square meter
Section to Classroom Ratio
Full-time Equivalent (FTE) Teacher per Section
Teacher to Teaching Assistant Staff Ratio
Number of Section to Laboratory Support Ratio
Student to Seat (Armchair) Ratio
40
1.4
1
1.75
5
3
1
UNIT COST PARAMETERS (ANNUAL)
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
FTE Teacher Average Salary and Benefits
Teaching Assistant Average Salary and Benefits
Instructional Materials support per student
Academic Administration Support per student
Capital & Improvement Costs per classroom
Student Seat/Armchair Cost Support
Institutional Support per Section
Lab Equipment Improvement Support
Academic Administration Compensation Package
320,320
218,400
720
2,038
12,000
800
30,000
36,000
582,400
Resource & Budgetary Implications
of Additional 100 Students
Resource & Budgetary Implications
of 270 Students
Tuition as Price and Number of Sections
Enrollment Size
50
Tuition in Pesos
30000
80
100
150
225
240
280
300
27,930
24,081
25000
22,127
26,006
22,798
20000
21,535
21,515
21,831
15000
10000
5000
0
1
2
3
4
5
Number of Sections
6
7
8
Guide Questions
Questions
• Given the different costs, what adjustments
would you make to your various price
estimates so far?
T
ha
nk
yo
u!
EXTRA SLIDES
Mechanisms for pricing
 …”that price should not be too far from current levels (e.g.,
PhP 10,000 on the average nationwide) but with top up for
good performance. Otherwise, it be too difficult to explain to
the difference to legislators and the general public.” (Sec.
Bro. Armin Luistro)
 Tiered pricing to focus on two aspects: (1) geographical
location of school ( to take into account differences in cost of
school operations ); (2) income of grantees. (Dr. V. Fabella)
 Tiered pricing will require means testing. Need to look at
existing targeting mechanisms (eg. National Household
Targeting System for the CCT). Number of tiers/brackets for
administrative ease….
Mechanisms for pricing
 With regards to existing ESC grantees in Grades 7-10, at the
very least continue to receive the same grants as now (thus,
the new scheme will have a hold harmless provision that will
apply to these existing ESC grantees).
 With regards to other pricing considerations, FV noted that
inflation plus pricing does not work given existing government
budgeting rules. With regards to PFI, while this is being done
for infra PPP right now, the private sector expressed interest
in having an arrangement like it for private school expansion.