Online Learning at UC Davis Extension—Seeding Growth
March 20, 2013 DRAFT
Background
Online learning accounted for one-half of all enrollment growth in higher education between fall 2003
and fall 2010.1 The explosive increase in student demand, together with mounting evidence supporting
the efficacy of online learning, has brought new entrants to the online education space including
numerous elite institutions of higher education. The burgeoning interest in online learning is also
evident on our own campus. The Provost has earmarked funds to support the development of new
hybrid courses. UC Davis figures prominently among the projects selected for funding by UC Online, a
system-wide project to develop fully online undergraduate courses. And, recently, a Joint
Senate/Administration Committee was convened to plan a campus-wide planning retreat concerning
the future campus strategic position in online learning.
At UCDE, online education continues to grow, albeit incrementally and in concentrated pockets.
Currently, UCDE has six online certificate programs and four PC awards, with four new programs under
development. Collectively, online programs at UCDE serve over 4,000 students per year (including fully
online and hybrid models). Last year, students represented 53 countries and every state in the U.S.
However, our growth in online learning has stalled over the past two years. This is due, in part, to the
drop in enrollments in some successful programs, such as Project Management. However, it is also a
reflection of fewer new programs being put into development outside of the Enterprise Department. By
comparison, UCI Extension offers nearly all of its certificate programs online, with the total number now
exceeding 45 programs.
Problem Statement
While UCDE is a recognized leader in the quality of online programs, we are falling behind other UC
campuses in the volume of online program activity. We believe this is largely a product of how we
distribute the costs of online development, and not a lack of good program ideas. At UCDE, such costs
are recharged to the program level so as to align costs with activities for purposes of accountability. At
most other campuses, these costs are institutionalized.
Although the existing recharge model does a good job of promoting accountability, it also creates the
unintended consequence of restraining online development due to the perceived risks. Consequently,
few units are investing in new online programs – leaving viable revenue-generating opportunities on the
table that could benefit UCDE as a whole.
Proposal for UCDE Programs
We believe our future success is inextricably linked with the strength of our online presence. This is not
to suggest face-to-face, experiential programs are not important, but rather the disruptive influence of
online learning in higher education will favor more flexible and nimble organizations that fully embrace
all teaching and learning modalities. Moreover, there is a window of opportunity to bolster our
leadership in the online space– as well as on our own campus –through a more aggressive, strategic
1
Allen and Seaman (2012). Will the Real Online Learning Please Stand Up? [PowerPoint slides]. Retrieved from
http://sloanconsortium.org/sites/default/files/RealOnline.pptx
approach to online education. After exploring a number of alternative recharge models with Brad (see
attached), we believe the best alternative in the short run is as follows.
Specifically, we propose a two-year institutional investment from the Reserve Fund to support the cost
of all new online development (approximate cost is $530k/year). This applies only to open enrollment
programs, as contract and grants have the capacity and mechanism to fund the associated online
development costs. Secondly, we propose forgiving all outstanding Distance Learning Amortization
(approximate cost is $135k) to reward those who have already assumed significant risk to promote the
growth of online education at UCDE. Any ongoing institutional investment or modification of the
recharge system would be revisited at the end of this two year initiative.
The rationale for this approach is to remove all perceived barriers to online development so as to seed
projects more aggressively and broadly throughout the organization. It is important to stress up front
that we assume development costs would continue to be tracked by program to facilitate analysis of the
ROI. Moreover, all operations and maintenance costs would continue to be recharged on a usage basis.
One additional benefit of this approach is that it would allow our designers and developers to produce
the quality of course demanded by the marketplace rather than the program unit’s willingness to spend.
A course that requires a higher production cost to be competitive would receive the necessary
investment; and, at the same time, money would not be wasted on unnecessary fluff that adds little
value to the learning experience.
Another key part of the proposed strategy is to identify the highest probability targets for success, and
prioritize these projects in the development queue. Targeted programs might include those for which
there is a strong UC Davis affinity (e.g., brewing, winemaking), a high market demand (e.g., healthcare
analytics), or that serve a high-paying audience thus enabling a faster return on investment (e.g.,
materials science).
The development of a sound but simple selection process is key to the success of this investment
initiative. The overall approach would be to identify targets of opportunity among existing classroomonly programs and entirely new programs. It would be critical to devise a process that is helpful and
motivational rather than one that is onerous or becomes a barrier to development.
Proposal for campus programs
At the same time UCDE is making strategic decisions concerning online learning, our campus is grappling
with its overall online education strategy. The issues are complex and involve many stakeholders; so,
although discussions are accelerating, rapid solutions and actions are unlikely. Of immediate concern to
campus are the bottlenecks caused by over-enrolled “gateway” undergraduate courses. The Provost
considers this one of the primary challenges we face as a campus, as it has considerable impact on the
success of our 20/20 initiative.
There are two ways that additional investment by UCDE from its reserves might help campus deal with
this serious issue. First is UCDE support for the development of selected ‘gateway’ courses, perhaps
targeting those that also promote our goals—either for new partners or new revenue. One possible
candidate is the Physics 9A, B & C series. These courses are required for all Engineering majors, thus our
investment in development would serve one of our most valued new partners—the College of
Engineering (COE). Department leadership and faculty are not only supportive but enthusiastic about
the project, and the material will adapt well for online delivery. Moreover, there is some potential for
UCDE to generate additional revenue from external students, such as through Open Campus online
sections or licensing to other institutions. The Provost would in all likelihood find this an attractive
investment. The downside is very little potential for long-term revenue generation for UCDE.
Second, UCDE might invest in the creation of a proof-of-concept (POC) product for a virtual lab course.
Labs represent one of the major roadblocks to moving students efficiently and swiftly through the
system at UC Davis and most other universities. If we could reduce the number of physical lab sections
needed, the impact on campus would be enormous. Furthermore, the opportunity to license virtual labs
to other institutions represents a market niche that could prove very lucrative for UCDE.
The initial investment required for the three physics courses and the virtual lab POC would be an
additional $150k from reserves (on the high side). Although there is some potential for UCDE revenue
generation, the primary benefits include service to the campus and increased visibility and involvement
in the leadership of the campus’ future online strategy.
Potential fiscal impact
Below are a few back of the envelope scenarios for the potential return on investment from the
proposed initiative. More accurate numbers can be developed once programs are selected.
If we seeded four new programs with a similar demand and pricing structure as Health Informatics, the
organization would generate additional gross revenue of $1.6 million/year. Possible candidates include
engineering, health sciences, specialty brewing and winemaking and other highly technical and
specialized programs. Additionally, if we moved four successful existing programs online, and assume
this generates a 50% increase in participation, we would generate between $400,000-600,000k/year in
additional gross revenue. Possible candidates include brewing sciences (a 50% increase in the
MasterBrewer program yields $238K/year), construction management (a 50% increase yields
$46k/year), human resource management *a 50% increase yields $68k/year).
Conclusion
Currently, higher education is weathering a perfect storm of disruptive change. One of the elements at
the center of this storm is online learning. It is becoming increasingly important not only for schools to
be involved but to stake out a position that is unique and valued in the marketplace. We submit that this
is a time for bold action. UCDE has a very good start with a strong reputation for quality, several highly
successful programs and a track record of innovation. It is time to go ‘all in’ to continue on our path to
success.
ATTACHMENT
Alternative Funding Options Considered:
Extending timeline for amortization:
This approach would not diminish overall risk of development, and thus is not likely to promote more
aggressive growth. Extending the amortization timeline could mean a payback schedule that is longer
than the shelf life of a course.
Fold costs into institutional O/H:
This approach would likely have only a small impact on the O/H formula (raising O/H by 1-2%), thus it
would be 'felt' less by units. And, since units are paying whether or not they use the services, it would
likely spur more use of online production services. That said, it is likely to generate more opposition
internally, particularly from Departments like CHS and CIE that pay a disproportionate share of O/H and
are unlikely to become big users of OLE. Moreover, it would make it more difficult for certain contracts
and grants to fully recover costs (i.e., those that convey an O/H rate of 25% or less). *This option might
be a partial solution, in that some additional OLE costs (such as R&D of new tools and capabilities) could
be expensed this way since presumably the whole organization benefits from this learning.
Institute new marketing-like assessment on OE revenue:
This approach is perhaps the most logical one, as it places the costs on the program types most likely to
use the services. Further, a revenue-based assessment means programs would not pay unless/until they
generate revenue. Finally, since units would pay irrespective of use (much like the current Marketing
indirect assessment), it would likely stimulate more aggressive development. All that said, spreading OLE
development costs across OE revenue would yield an increase in COGS of 5-6% for all programs, which
would need to be passed along to students across the board. Units would need ample time to adjust
pricing, and higher prices might backfire if they constrain enrollment. *This option could be used in
combination with shifting more OLE R&D to institutional O/H as described above.
Observations
While the revenue assessment approach has some promise, it still sets us apart from other UCs in how
we distribute online development costs. Our course prices would need to be higher relative to
competitors to recover the costs.
In the short run, buying out development costs from the Reserve Fund would do the most to stimulate
new development. It would also enable us to examine how removing risks/cost barriers impacts
development (e.g., will it spawn new users across the department, how many new programs are
requested, etc.?), and allow us to take the time to consider new recharge options that best reflect new
usage patterns.
In combination with the Reserve Fund option, we might also set up a payback schedule such that new
online programs that succeed in the marketplace would pay X% of net margin back to reserves
(potentially a special fund to support new OL development?).