1. CBA of the MS3 Program Public Expenditure Analysis Spring 2003 Trey Carlson Mike Kaufman Manos Kranidis

2. Outline Methodology/Statistical Info Costs Benefits Model Possible Solutions

3. Acquisition of Information Number of applicants Per Student education cost Per student scholarship amount or percentage Total Donations Aggregated value of salaries Unable to obtain

4. Survey Pt 1 What program you are currently in: A. MS1B. MS2 C. MS3 How many graduate schools did you apply to? A.1-3 B. 4-6 C. 7+ From how many graduate schools did you receive acceptance letters?__________ Did you apply to any program that was less than 4 semesters? Yes or No Were you accepted? Yes or No Would you attend a three semester Masters Program? Yes or No Would you attend a four semester Masters Program? Yes or No

5. Survey Pt2 Would you prefer to be in a 3 or 4 semester Masters Program? Why did you pick the Heinz School? How would you rate the availability of courses accessible to you? (scale 1 to 10 with ten = excellent and 1 = very poor) ___ Did you apply for the MS3 program? Yes or No If the MS3 program didn’t exist, would you attend Heinz? Yes or No If the MS2 program didn’t exist, would you attend Heinz? Yes or No Have you switched programs at Heinz? Yes or No Do you feel the MS3 program enhances the prestige of the Heinz School? Why? A. Yes B. No C. I have never thought about it

6. Key Assumptions Discount Rate*= 5% Growth Rate = 5% Alumni giving rate/yr = 20% of total alumni at $150 avg. Alumni giving effective period= 30 yrs School revenue composition*: Tuition $ = 42% of revenues Research $ = 58% of revenues Scholarship per student = 30% of tuition *Source: CMU Annual Report 2001-02

7. Key Assumptions Cont’d 20 MS3’s per class (x -20) MS2’s per class Faculty to Staff Ratio: 1 to 1.2 Faculty to Student Ratio: 1 to 2.6 MS2/MS3 analysis 10 year period MS3’s effect on reputation = 10 years

8. Costs Introduction Cost of Scholarship Cost of Staffing Incremental classes of MS3 Reputational Costs Total Costs

9. Scholarship Cost of MS3 3 rd Semester 20 students on average/yr Scholarship = (30% x MS3 tuition) = $4,440 Total Scholarship Costs = $88,800

10. Cost of Staffing # Type Base SalaryBenefitsTotal Cost 8Faculty Assistant $ 30,000 $ 9,000 $ 312,000 3Admissions $ 35,000 $ 10,500 $ 136,500 4Career Services $ 40,000 $ 12,000 $ 208,000 10Computing Ser $ 40,000 $ 12,000 $ 520,000 1Dean office $ 35,000 $ 10,500 $ 45,500 3Alumni Relation $ 50,000 $ 15,000 $ 195,000 3Fiscal Management $ 40,000 $ 12,000 $ 156,000 2Financial Aid $ 35,000 $ 10,500 $ 91,000 1Facility Mgmt $ 30,000 $ 9,000 $ 39,000 3Associate Dean $ 70,000 $ 21,000 $ 273,000 38 Total $ 1,976,000 Average $ 52,000 *Salary estimated

11. Total Faculty Salary at Heinz # Salary Factor Salary & BenefitsTotal Cost 32 Full-Time Faculty1 $ 80,000 $ 2,560,000 16 Related Faculty0.5$ 80,000 $ 640,000 100 Adjunct Faculty0.1 $ 80,000 $800,000 50 total $ 4,000,000 Salary Estimated

12. Cost of Staffing Incremental MS3 Classes MS3 program requires additional 8.5 classes Requires: 3 faculty and 2 staff Total Cost: $240,000 + $104,000 = $344,000

13. Current Heinz MS3 Staffing Procedures Relieve faculty of research responsibilities and increase teaching load Average research grant per faculty member 130 students*(0.7*$28,000)*1.4/50 faculty =$71,350 Total Staffing Cost =$71,350*3= $214,050

14. Effects on Reputation “Congratulations to all of the Heinz School faculty and staff members who worked so hard to bring these significant funds to the Heinz School to support our research, outreach and teaching missions! They are a significant factor in our success in the most recent US News & World Report's graduate school rankings.” *US News & World Report's graduate school rankings *Source: Heinz School Alumni Website. http://www.heinz.cmu.edu/fyi/may01/fyi/grants.html

15. Reputation Average GRE score: MS2 2002=1245, 2003 = 1250 MS3, 2002=1250, 2003 1250

16. Cost of Reduced Prestige 4000 alumni Average salary $65,000 After 5 years, reduction in prestige results in.1% decline in salary for next 5 years NPV Per year reduction in combined MS2 alumni salary = $130,000

17. Total Costs Scholarship Costs: $88,800 Staffing Costs : $214,050 Reduced Prestige Cost: $130,000 Total Cost: $432,850

18. Benefits Cash Inflow due to 3 rd semester of MS3 during calendar year Predictors of future Alumni giving

19. Cash Inflows from Entering MSPPM 1yr Class MSPPM 1 year program, Cash flow (received) per Student July 1 2002 January 1 2003 June 30 2003 $14,100 $14,800 Total annual revenues from 1 year program: $43,000/student-year

20. Extra Income Generated due to MS3 Program Income generated from 3 rd semester of MS3 ($14,800 *20) = $296,000

21. Predicting Alumni Giving

22. Predicting Alumni Giving cont’d

23. MS3 Alumni Giving Increased number of alumni: 20 MS3’s/yr – 20 MS2’s/(2*yr) = 10/yr Average MS3 rate that gives drops from.2 to.15 Average donation =$150/yr-alumni Total increase in Alumni giving= $6,750

24. Total Benefits Income from Tuition = $296,000 Income from Alumni = $6,750 Total Benefits = $302,750

25. NPV Benefits - Costs = 302,750 - 432,850 $-130,100/yr 10 year lifespan = $-1,301,000

26. Recommendations Faculty should be doing research Faculty utilization can only be optimal with an MS2 program or MS3 program, not both

28. Heinz Most Wanted