Course Analysis – Conserve or Cut?

May 8, 2017

It is not uncommon for schools to receive pressure to address their low enrollment courses (units). They are told that they shouldn’t be running courses with fewer than, say, ten students in them. There is a myriad of reasons why any individual course should be maintained due to the academic benefits it brings to the students and school. Even outside of the academic benefits there are often sound financial arguments that can be made for retaining a course, which can hold more weight if it’s financial issues that are causing the review in the first place.

The chances are a situation similar to this has occurred in the past or will at some point in the near future.  Universities are facing the threat of changes to funding levels, increased competition from overseas institutions, and more recently, the need to convince the students themselves that a university education is a help and not a hindrance to their net future earnings.

So how to you go about the process of determining the ‘good’ courses from the ‘bad’ courses?  It is not a simple process, nor is it overtly obvious – course analysis is like peeling an onion, there are many layers that need to be looked at before getting to the core of the issue.

Identifying the courses to review

While low enrollment courses are the frequent recipients of these types of reviews they are not always the courses that should actually be addressed. Examining the scatter plot below (enrollment is plotted against the vertical and courses left of this axis are making a loss) we can see the largest losses are actually achieved by some high enrollment courses. Reviewing the teaching methodologies for these few courses could have a much higher financial impact than all the low enrollment courses combined.

Returning our attention to the low enrollment courses that are running at a loss. In the plot below the red dots indicate the same course but taught in three different locations or sessions.  The circled course may be taught at a new campus for the first time, or taught overseas, or may be required to allow students to fast track their degree, by being taught in the summer. So there could be legitimate reasons to retain this low instance, especially as the course as a whole is doing well. Conversely, it could be an instance that is readily dropped while retaining the other two high load instances of that course.

The course is an integral part of a program

Low enrollment courses are frequently highly specialized third or fourth year courses that form a key component of a program, so it does not pay to review any course in isolation. A course may be highlighted as being low enrollment and making a loss.

But when put in perspective against the program it is supporting, the program as whole looks very healthy.

While an individual course may come under scrutiny it is essential to understand the role it is playing in the programs being offered, and what the health of the programs are in their entirety.

Are the low enrollment courses actually making a loss?

Just because a course has low student numbers it doesn’t mean it is running at a loss. The delivery methods being used have a high impact on the cost base of these courses. The types of students enrolled also have a direct impact on the revenue. Courses with low student numbers CAN be profitable so it does not pay to just draw a line in the sand and blindly assume that they are all no good.

In the review below there are a variety of low enrollment courses with only some of them running at a loss.

What should be considered low enrollment?

This is the hardest one of all to analyse and is where you need to have a detailed and robust cost model to support your decision making process.

This is where you need to know the break-even point for each course taught.  Not only that, but you also need to be able to differentiate direct costs from overhead costs, and fixed from variable costs.

Based on the simple break-even analysis below, it would appear quite simple to make the decision about courses in this particular school or department – anything below 2.5 EFTSL (Equivalent Full-Time Student Load) is making a loss and could be a strong contender for removal from the course offerings.

However, a deeper look into these courses is required.  Instead of just looking at the margin, both revenue and expense should be analysed separately.

This will give you the revenue per EFTSL ($35,588 in this example) and the fixed and variable components of the expenses: $24,926 fixed and $11,814 per EFTSL variable.

So let’s cut to the chase – what does this mean?

Yes, the fully burdened break-even point is approximately 2.5 EFTSL, and yes, you need an average of 2.5 EFTSL in these courses to fully cover all of your costs, including the university overhead.

However, you are covering your direct (school) costs at only 1.05 EFTSL.  Therefore courses with 10 students or less should be seriously reviewed as they aren’t even covering the cost to teach them.  But courses with between 1.05 EFTSL and 2.52 EFTSL are covering their direct costs AND contributing towards the nearly $2 million of university overheads that this school consumes.

So what happens if you cease to teach any of these courses?  You save on your marginal costs, but your fixed overheads remain the same and just get spread out over fewer courses. So you end up losing more revenue, than you save in expenses!

So be aware!  A course that appears to be losing money can still be covering its marginal costs and contributing towards some of the overheads (just not all of them).  Removing these courses without fully understanding their contribution to the overall bottom line can be very dangerous…you could end up in a worse position!

Next time we look at the final ‘C’ – Consolidation.

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