THE EXPECTED, BUT UNSTATED PROFIT MARGIN

Georgia Military College Two-year liberal arts public independent college 5 branch campuses, 3 extension centers, new branch opening next year 3 branches have larger student enrollment than our main campus

Georgia Military College Tuition driven – no line in state budget Accelerated quarter system (5 eight week terms) Over 8,500 students statewide, 250 cadets at main campus Campus Directors report directly to the President.

Budgeting Most branch campus leaders operate within a target budget for expenditures. Several more plan for revenue targets to support, in part or in entirety, proposed expenditures. What may not be clearly stated is an expected profit margin.

Profit Margin Most campus leaders in non-profit higher education do not mention the word profit margin even if they are aware they are operating within some unstated margin. Consider how your approach to the budget process would change if you planned your expenditures, however you wanted, as long as you met a certain revenue target and a certain profit margin target?

Your Current Situation How many of you budget for expenditures? How many of you budget for expenditures and revenues? How many of you are assessed an overhead allocation in some form? How many of you budget for a stated or unstated profit margin?

Georgia Military College Operated with an unstated profit margin for the last 15 years Transitioned to the profit center model in planning for FY13 budget Stated profit margin goals for each campus

How Profit Center Budgeting Works Provided a campus revenue goal Determine how that revenue goal will be met Tuition and fee rates (set locally with approval) Credit hours/Enrollments Other revenue sources (bookstore, misc. income, etc.) Provided a profit margin goal Determine expenditures to reach profit margin Real estate lease cost are excluded from initial profit plan but no other expenses are excluded All salaries and benefits are included Is this drastically different than what you do now?

Profit Plan Summary Example RevenueFY15 Matriculation$9,500,000 Fees$1,000,000 Bookstore$1,100,000 Other$20,000 Total Revenue$11,620,000 Expenditures Payroll and benefits$3,546,200 Travel$40,000 Operating Expenses (excluding facility lease cost) $2,340,000 Total Expenditures$5,926,200 Net Contribution$5,693,800 Profit margin49% *The numbers in chart are for illustrative purposes only.

Advantages of Profit Center Model No line item review of budget at submission Monthly review of revenue and profit margin instead of line item or department review 10% allowance for over/under Campus level autonomy for expenditures More regular attention to the bottom line (takes less time than the line item review)

Challenges of Profit Center Model Determining the profit margin goal Increasing the profit margin goal Adjusting for capital improvements or large-cost initiatives Adjusting from line specific to monthly overall details Enrollment sharing

Relationships and the Profit Center Concept Inter-campus relationships (between campuses) Intra-campus relationships (within the campus) Institutional/Campus relationships (between campuses and main campus)

Impact on the budget manager Would you approach the budget process differently under this model? How would you integrate ROI with institutional goals such as improve student learning and the profit center model?

Phase Two - Main Campus Moving to Profit Center Model Hiring a campus director for main campus Main campus staff are being allocated to the campus versus institutional All campuses will be assessed overhead allocation for the institutional expenses coupled with the profit margin goal Main Campus will operate on profit center model

Keep Profit Margin in Mind Even if you do not have a stated profit margin keep the idea of profit margin in mind when you build your campus budgets or submit expenditure requests Be clear on the revenue your campus or department generates and leverage that in your requests

Follow Up Discussion What are you initial thoughts about the stated profit center concept? Would you expect this process to be easier than what you do now? What advantages would you envision with this plan that I did not cover? What challenges would you envision with this plan that I did not cover? Would you approach the budgeting process differently based on your revenue impact? How could you use this model to your advantage?