Pricing PPPs in Education

1. Pricing PPPs in Education Presentation by EnP Manuel L. Javier

2. 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.

3. 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.”

4. MAIN OBJECTIVE Costsare what an institution spends to educate a student, and prices are what institutions charge students. 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.  

5. Guide Questions

6. 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?

7. Questions • 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?

8. Questions • What does it cost to operate a Senior High School ? • Survival mode? • Breakeven? • Adequate with reasonable with ROI? • Its direct and indirect costs component? • Its fixed and variable costs? 10%?

9. 4 Approaches to Determine Price

10. 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

11. 1. Back-of-the Envelope Approach

12. ‘BACK OF THE ENVELOP” APPROACH TO ESTIMATING COSTS • BOTE is a rough estimate… more than a guess but less than an accurate calculation… • Its defining characteristic is the use of simplified assumptions. BOTE = quick calculations; estimates using approximate numbers, instead of exact numbers

13. ‘BACK OF THE ENVELOP” APPROACH TO ESTIMATING COSTS …BREAKOUT EXERCISE… Assuming you use your current resources and facilities, what price would you charge per student, per year? • 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

14. 2. ESC flat grant to selected private schools

15. Expanded GASTPE R.A.8545 (amending R.A. 6728) TUITION FEE CEILING ESC TFS -> HS PESFA -> COLL P 6,000 Every 2 years adjustment SCHOLARSHIP FUND COUNTERPART FUNDING FOR ESC Textbook Assistance Program PESFA

16. Fixed annual tuition subsidy through four years of high school the annual subsidy per grantee increased 21% 14% 13% 7% 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.

17. 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?

18. Co-payment in Proportion to 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. wide regional variations in grantee copayment 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. SUPPORT VALUE = VALUE OF GRANT + SCHOOL FEES

19. 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

20. Breakout Guide Questions • 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?

21. 3. Using total school fees (TSF)(tuition + misc fees) as a proxy for pricing

22. Factors Affecting Tuition and Other Fees 2010 Revised Manual of Regulations for Private Schools in Private Education • Cost of quality education? • Perception? Reputation? • Inflation…? • Family’s financial capacity? • Socio-economic? • Politico-legal…?

23. 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 indicators of per-grantee costs : 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) NCR schools charged the highest fees at an average of Php 23,856 per year.

24. Setting Price Based on TSF • 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

25. 4. COST-BASE APPROACH: PRICING FROM THE BOTTOM UP

26. The principle in cost-based pricing • 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. 

27. ISSUES ON COSTING • 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.

28. Various Costs

29. Sample of Statement of Expenditures MAJOR EXPENDITURE CATEGORIES …for every peso • Instruction, Academic and Administrative • Maintenance and School Operations • General .78 .08 .14

31. 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.

32. ACADEMIC PROGRAMS Academic variables vs. cost structure Gross income Tuition and government support Student population Section capacity Faculty costs Drop out rates Faculty salary structure Faculty size Teachingdemand Curricula Teaching structure Admission process Admin costs Admin structure Gross demand Enrolled students Educational support resources & services Support invest & costs Instit’l admin costs Institutional administration 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.

33. K+12 CURRICULUM Changes in each set of goals, strategies and actions in the K+12 reform affect operational and investment costs.

34. SERVICE STANDARDS UNIT COST PARAMETERS IN 2012 PRICES

35. Pure Public Provision Generally higher in budget requirement except for SY 2018’19 Public with HEIs Provision Generally lower in budget requirement except for SY 2018’19 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

36. 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.

37. SIMULATING COSTS OF PROVIDING EDUCATION BASED ON SERVICE STANDARDS AND USING UNIT COST PARAMENTS

39. Resource & Budgetary Implicationsof Additional 100 Students

40. Resource & Budgetary Implicationsof 270 Students

41. Enrollment Size 50 80 100 150 225 240 280 300

42. Guide Questions

43. Given the different costs, what adjustments would you make to your various price estimates so far? Questions

44. T h a n k y o u ! mljavier819@yahoo.com 09167178134

45. EXTRA SLIDES

46. 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….

47. 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.