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? “focus less on programs and more on public value.”

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

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

12. ‘ BACK OF THE ENVELOP” APPROACH TO ESTIMATING COSTS BOTE = quick calculations; estimates using approximate numbers, instead of exact numbers

13. ‘ BACK OF THE ENVELOP” APPROACH TO ESTIMATING COSTS BOTE = quick calculations; estimates using approximate numbers, instead of exact numbers

15. Expanded GASTPE R.A.8545 (amending R.A. 6728) TUITION FEE CEILING ESC TFS -> HS PESFA -> COLL ESC Textbook Assistance Program PESFA

16. Current Subsidy: NCR : P 10,000 Elsewhere: P 6,500 the annual subsidy per grantee increased Fixed annual tuition subsidy through four years of high school 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. 21% 14% 13% 7%

17. The ESC Program is a lower cost alternative to direct provision of secondary education by the government. WB, ESC-Phil Study 2009 BUT, CAN WE BE SURE THAT THE COST PER STUDENT OF PUBLIC AND PRIVATE SCHOOLS ARE COMPARABLE? ARE THE COST STRUCTURE THE SAME?

18. 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. 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?

23. NCR schools charged the highest fees at an average of Php 23,856 per year. From the point of view of the private schools that participate in the ESC, there are two indicators of per- grantee costs : (1)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) Tuition and other fees — provide a proxy measure of the per capita costs of private schools.

24. 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

26. 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. 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 Direct Capital CostsDirect Maintenance CostsDirect Operating Costs Design costs Land and other development costs (lease, purchase, etc) Raw materials Payment to external actors (financial, legal, engineering, etc.) Equipment Payments for procurement (project development, documentation, etc.) Raw materials Tools/Equipment Labor (wages/salaries) Capital Improvements/upgrade to facilities or expansions Teacher salaries Other employees (wages, entitlements, superannuation, insurance, training, annual/sick leave, travel, etc.) Insurance Building services (water, electricity, furniture, etc.) Indirect Capital CostsIndirect Operating Costs Corporate overheads (running costs) Non core IT and equipment employees Facilities management Employees not directly involved (ex. HR) Partial use of plants/equipment Partial use of administrative buildings Depreciation

29. Sample of Statement of Expenditures …for every peso. 78. 08. 14

31. 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. RECASTING INCOME STATEMENT TO PROGRAM BUDGET 60% 10% 15% 15%

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

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

36. Direct social costs are costs of education other than tuition fees, such as books, writing supplies, and other instructional expenses Operating costs refer to educational production spending per student based on cost and enrollment. 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. Private/Public Unit Cost Ratios

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

38. SERVICE STANDARDS 1.0Class Size (Number of Students in a Section) 40 2.0Student Station in square meter 1.4 3.0Section to Classroom Ratio 1 4.0Full-time Equivalent (FTE) Teacher per Section 1.75 5.0Teacher to Teaching Assistant Staff Ratio 5 6.0Number of Section to Laboratory Support Ratio 3 7.0Student to Seat (Armchair) Ratio 1 UNIT COST PARAMETERS (ANNUAL) 1.0FTE Teacher Average Salary and Benefits 320,320 2.0Teaching Assistant Average Salary and Benefits 218,400 3.0Instructional Materials support per student 720 4.0Academic Administration Support per student 2,038 5.0Capital & Improvement Costs per classroom 12,000 6.0Student Seat/Armchair Cost Support 800 7.0Institutional Support per Section 30,000 8.0Lab Equipment Improvement Support 36,000 9.0Academic Administration Compensation Package 582,400

39. Resource & Budgetary Implications of Additional 100 Students

40. Resource & Budgetary Implications of 270 Students

41. Enrollment Size 5080100150225240280300

42. Guide Questions

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

45. EXTRA SLIDES

46.  …”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.  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.