THEORIES AND MODELS FOR FINANCIAL MANAGEMENT IN EDUCATION General theories and models Models in planning Models in decision making

GENERAL THEORIES AND MODELS IN FINANCIAL MANAGEMENT School financial management model (Knight, 1993) Models of Educational management (Bush, 1995) Human capital theory Agency theory GENERAL THEORIES AND MODELS IN FINANCIAL MANAGEMENT

Perkhidmatan sokongan KELUARAN Pengetahuan Kemahiran Sikap PELAJAR Bilangan Umur Kebolehan Akademik Motivasi Dana Sekolah Kerajaan Derma Yuran Sumber lain PROSES PENDIDIKAN Kurikulum, kaedah, teknologi, latihan Perkhidmatan sokongan KELUARAN Pengetahuan Kemahiran Sikap SUMBER KEWANGAN Modal Pendapatan Belanjawan SUMBER MANUSIA DAN ASET FIZIKAL Guru Kakitangan am Peralatan Bangunan PENGGUNAAN MASA Kalendar persekolahan Jadual kelas Hari dan waktu bekerja Pengalaman pembelajaran pelajar MANFAAT Tenaga kerja Warganegara baik Individu seimbang Donated funds Yuran Fund raising Donated resources Donated time Staff Pelajar Ibubapa komuniti DASAR PENDIDIKAN, POLISI, PERATURAN Kerajaan PIBG Politik Petunjuk Sumber yang masuk Maklumbalas dalaman Maklumbalas luaran Model sistem pengurusan kewangan Knight

A MODEL FOR SCHOOL FINANCIAL MANAGEMENT (KNIGHT,1993) Several features of this model stand out: Finance triggers and controls the system. Financial resources are only a part of the system. The whole system is susceptible to good management. Given the importance of feedback to the system, good management information is essential. Financial management has two face

4 MODELS OF EDUCATIONAL MANAGEMENT (BUSH, 2010) Rational models Collegial models Political models Ambiguity models Rational models proposes that people follow a rational, four step sequence when making decisions. The four steps are: Indentifying the problem Generating solutions Selecting a solution Implementing and evaluating the solution Some of the limitations not considered in this model are issues such as not having enough information relevant to the problem and also  the fact that problems can change in a short period of time. Collegial models This model began about 50 years ago. Collegial means people working together cooperatively. In this model, management builds a feeling of partnership with employees. The environment is open and people participate. The collegial model is about team work. Managers are coaches to help build better teams. Employees are responsible – they feel obliged to others on the team to produce quality work. Employees must be self-disciplined. Many employees feel satisfied that they are making a worthwhile contribution. This leads to self actualization and moderate enthusiasm in the way they perform. The collegial model is especially useful for creative work, like marketing or communications or in thinking environments, like education or planning. (Newstrom 38) Political models Ambiguity models

Political models Political models In contrast to the rational model, players in the political model (often referred to as incrementalists) do not focus on a single issue but on many intraorganizational problems that reflect their personal goals. In contrast to the administrative model, the political model does not assume that decisions result from applying existing standard operating procedures, programs, and routines. Decisions result from bargaining among coalitions. Unlike in the previous models, power is decentralized. This concept of decision making as a political process emphasizes the natural multiplicity of goals, values, and interests in a complex environment. The political model views decision making as a process of conflict resolution and consensus building and decisions as products of compromise. The old adage, “Scratch my back and I’ll scratch yours,” is the dominant decision-making strategy. When a problem requires a change In policy, the political model predicts that a manager will consider a few alternatives, all of them similar to existing policy. This perspective points out that decisions tend to be incremental--- that managers make small changes in response to immediate pressures instead of working out a clear set of plans and a comprehensive program. The incremental approach of the political model allows managers to reduce the time spent on the information search and problem definition stages. Incremental decision making is geared to address shortcomings in present policy rather than consider a superior, but novel, course of action. In the political model, the stakeholders have different perception, priorities, and solutions. Because stakeholders have the power to veto some proposals, no policy that harms a powerful stakeholder is likely to triumph even if it is objectively “optimal.”

HUMAN CAPITAL THEORY Economist view education (and training as an individual investment decision designed to achieve monetary return in the labor market. Human capital (Adam Smith, John Stuart Mill, Alfred Marshall) – individuals’ skill could contribute to their economic status. Underlying the concept is the idea that knowledge and skills acquired through educational investments increase human productivity enough to justify the costs incurred in acquiring them. Justin Slay defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters). The four types were: useful machines, instruments of the trade; buildings as the means of procuring revenue; improvements of land; the acquired and useful abilities of all the inhabitants or members of the society. http://en.wikipedia.org/wiki/Human_capital Adam Smith defined human capital as follows: “Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.”.[13]

HUMAN CAPITAL THEORY Human capital is the stock of competencies, knowledge, habits, social and personality attributes, including creativity, cognitive abilities, embodied in the ability to perform labor so as to produce economic value. It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural and psychological complexity as they interact in explicit and/or economic transactions. Many theories explicitly connect investment in human capital development to education, and the role of human capital in economic development, productivity growth, and innovation has frequently been cited as a justification for government subsidies for education and job skills training http://en.wikipedia.org/wiki/Human_capital

AGENCY THEORY The two problems that agency theory addresses are: A theory explaining the relationship between principals, such as a shareholders, and agents, such as a company's executives. In this relationship the principal delegates or hires an agent to perform work. The theory attempts to deal with two specific problems: first, that the goals of the principal and agent are not in conflict (agency problem), and second, that the principal and agent reconcile different tolerances for risk. http://www.investorwords.com/6398/agency_theory.html The two problems that agency theory addresses are: the problems that arise when the desires or goals of the principal and agent are in conflict, and the principal is unable to verify (because it difficult and/or expensive to do so) what the agent is actually doing; and the problems that arise when the principal and agent have different attitudes towards risk. Because of different risk tolerances, the principal and agent may each be inclined to take different actions. http://www.investopedia.com/terms/a/agencytheory.asp

MANAGEMENT FUNCTIONS IN FINANCIAL ASPECTS OF EDUCATION INSTITUTION Institution strategic planning and financial planning (Planning Model) Resources planning: Budgeting (budgeting model / budgeting approach) Decision making in allocation distribution (Decision making model) Organizing resources through compliance with financial regulations and accounting system Controlling based on accountability concept

PLANNING AND DECISION MAKING MODELS IN FINANCIAL MANAGEMENT Types of planning models (Knight, 1993) Spending Models on Educational Resources (Sutton, 1996) – decision making PLANNING AND DECISION MAKING MODELS IN FINANCIAL MANAGEMENT

Strengths – what are these, currently? Weaknesses – what are these? SWOT ANALYSIS Strengths – what are these, currently? Weaknesses – what are these? Opportunities – what opportunities are likely to arise in the future? Threats – what threats are likely to arise? Need to consider the institution’s environment, internal resources, organizational culture, institution’s performance, and outcomes. To manage education institution finance effectively, a manager needs a clear longer-term plans and priorities. Financial management without plans and priorities is just like a house without foundations. Plans need long-term objectives. Need a thorough analysis of the institution’s current performance and situation. A SWOT analysis will produce a useful starting point.

4 PLANNING MODELS (KNIGHTS, 1993) RATIONAL PRAGMATIC ENTREPRENEURIAL LATERAL

MODEL ‘A’ The rational approach C (not visible from B) Goal B A The rational approach RATIONAL Analysis of institution’s current performance and situation. Produce long term mission, goals or vision of the institution. Objectives - what is to be achieved, when, what criteria? Plans - what to be done to achieve objectives? Resources - human, financial and physical resources required. Implementation - how, when and by whom? Monitoring and evaluation - how is it going, criteria for evaluation, and have the objectives been achieved? Weaknesses Schools are not necessarily rational organisations. Garbage can model. Rational plan needs predictable and stable environment. Can only plan for what you can see.

MODEL ‘B’ The pragmatic approach Goals A Planning must be a learning and responsive process, learning to understand our changing environment and respond to it (Knight, 1993). Flexible and builds on existing strengths. Lack clarity of objectives. Short-term. Responds inadequately to sudden change.

MODEL ‘C’ Entrepreneurial approach Philosophy and values C B A Exploiter of opportunity. Positive search for opportunities. Example: school offering relevant programmes to another organisation. Changes in school uniform. Community education.

MODEL ‘D’ The lateral approach Vision or goal D z B y A Visionary statement of future goals and identification of possible routes. Indepth analysis, brain-storming and divergent thinking are required.

SPENDING MODELS ON EDUCATIONAL RESOURCES (SUTTON, 1996) Centralised model Decentralised model Hybrid model Centralised model Decisions are made by a single body. Can operate through a single person at the extreme or through collective decision making by committees of staff. Decentralised model Decisions are made by individual teachers acting as budget holders. The process of allocating resources is very much simpler, quicker, more open, and perceived to be objective and fair. Hybrid model A combinations of decisions making. Some centralized decisions may be made and other decisions may be made by others through delegation.

DECISION MAKING APPROACHES An individual's way of thinking. be rational and logical be creative and intuitive An individual's tolerance for ambiguity. low tolerance for ambiguity. can tolerate high levels of ambiguity An individual's way of thinking. be rational and logical in the way they think or process information. A rational type looks at information in order and makes sure it's logical and consistent before making a decision. be creative and intuitive. Intuitive types do not have to process information in a certain order but are comfortable looking at it as a whole. An individual's tolerance for ambiguity. low tolerance for ambiguity. These types must have consistency and order in the way they structure information so that ambiguity is minimised. can tolerate high levels of ambiguity and are able to process many thoughts at the same time. http://toolkit.smallbiz.nsw.gov.au/part/8/42/201

FOUR DECISION-MAKING STYLES Directive Style Analytic Style Conceptual Style Behavioural Style: Directive Style: A person has this style if they have a low tolerance for ambiguity and are efficient, rational, and logical in their way of thinking. They focus on the short term and are quick to make decisions, usually resulting in a decision that has been made with minimal information and not carefully analysing other alternatives. Analytic Style: As opposed to the directive style, a person with an analytic decision-making style has greater tolerance to ambiguity. They are careful decision makers that like to be well informed and thoroughly assess their options. They usually have the ability to adapt or cope with unique and challenging situations. Conceptual Style: Conceptual decision makers are generally very broad in their approach and consider all available alternatives. They are long-term oriented and are usually capable of formulating creative solutions to problems. Behavioural Style: People with a behavioural decision-making style work well with others, are open to suggestions, and are concerned about the achievements of their team. They generally try to avoid conflict and place importance on their acceptance by others. http://toolkit.smallbiz.nsw.gov.au/part/8/42/201