1. FINANCIAL MANAGEMENT IN EDUCATION

2. Definitions Capital/revenue Capital/revenue Usually refers to major durable items, such as buildings, land, large items of equipment, and often including major renovative or enhancement programs They are normally excluded from the annual budget Virement Virement It is the authorization to switch expenditure from one budget heading to another.

3. Cost centers Cost centers The characteristics of a cost center are that it is responsible for its own budget and that all expenditures incurred by it are debited to it The characteristics of a cost center are that it is responsible for its own budget and that all expenditures incurred by it are debited to it Costing Costing It is the art of measuring the consumption of resources in financial terms. Opportunity costs Opportunity costs Every expenditure and transfer of resources has its opportunity cost – the next-best alternative use for these resources

4. Direct and indirect cost Direct and indirect cost Direct costs are costs that can be easily identified with a cost center Direct costs are costs that can be easily identified with a cost center Indirect costs are costs that cannot be identified and have to be apportioned (sometimes called overheads) Indirect costs are costs that cannot be identified and have to be apportioned (sometimes called overheads)

5. The Three Es of Financial Management Economy Economy It can be defined as careful use of resources, frugality, and good housekeeping Examples: Repair of equipment rather than a new purchase, effective arrangements for stock-taking and etc. Efficiency Efficiency It is the fullest possible attainment of specific objectives or standards Examples: An air-conditioning system brings all rooms to the desired temperature, a timetable which deploys staff fully, and etc

6. Cost-efficiency Cost-efficiency It relates efficiency to its cost. X is more cost- efficient than Y because it achieves greater efficiency at the same cost or same efficiency at lower cost Examples: A new air-conditioner which provides the same cooling system more economically, preventive maintenance of buildings which avoids long-term maintenance costs, and purchase of slightly more expensive equipment which stands up better to wear, and etc.

7. Effectiveness Effectiveness It is the fullest possible attainment of the goals and objectives of the school Examples: Improved performance, improved student attitudes and behavior, better parent and community relations and etc Cost effectiveness Cost effectiveness It relates effectives to the cost incurred Examples: Expenditure on the promotion of schools brings increased enrolment, peer tutoring improves student performance with little extra cost, and etc The three Es can be in conflict, but how?

8. Cost Characteristics of Schools Most schools are non-profit organizations. Therefore: Most schools are non-profit organizations. Therefore: There is no single objective criterion to use in measuring performance There is no way to estimate the relationship between inputs and outputs Schools are service organizations and perform a social as well as an economic function. Schools are service organizations and perform a social as well as an economic function. This makes measurement and costing of their output difficult

9. School cost structures are very stable (Schools are conservative institutions). School cost structures are very stable (Schools are conservative institutions). School unit costs tend to rise when education becomes more technical and science-centered, when it deals with older students, and when there is greater concern for quality School unit costs tend to rise when education becomes more technical and science-centered, when it deals with older students, and when there is greater concern for quality Schools are very labor-intensive Schools are very labor-intensive School calendars cause high costs School calendars cause high costs

10. School Financial Management Model (Knight) Features of the model Features of the model Finance triggers and controls the system Finance triggers and controls the system An individual component, be it financial resources or human or physical resources, are only part of the system. An individual component, be it financial resources or human or physical resources, are only part of the system. The further away from the initial financial input, the more its direct impact is reduced The whole system is susceptible to good management The whole system is susceptible to good management Financial management has two faces: money management and cost management Financial management has two faces: money management and cost management Cost management not only dealing with identifying costs and reducing them, but also covers time utilization, the educational process and its outputs, and alternative educational strategies, and etc