Artefact 6 | Business and Cost Structure

MDDE 605 has been a foundational course that tied together variety of topics including management, organization and leadership in the context of distance education. While learning about these essential skills, which included strategies for effective strategic planning, business planning, and change management, MDDE 605 was also a key course in my learning process about education without a cost to the learner.
 
As I review my MDE coursework, I see an emerging theme that began in my first course. In MDDE 601, I discussed free education on the forums and in MDDE 611, I posted a commentary entitled "Random thoughts on economy, democracy and free education". The following term, in MDDE 605, I developed a business plan for FOSS based on templates that were derived from a for-profit business world. However, a free of charge open school is not a business to pursue in a market-driven world and therefore writing a business plan for a not-for-profit institution by using methods developed for profit-oriented organizations was a challenge. Nevertheless, the opposing nature of the two models gave me a deeper insight into the business development process.

The FOSS business plan was a critical juncture, making me realize that I had fantasized the revolutionary effects of new information technologies and non-market production methods on building a FOSS. The euphoria of FOSS, although my initial aspirations have tapered off, still fuels my desire to impact incremental changes within the existing educational settings (see Artefact 3).

My personal experiences and observations dictated the choice of SBM as an organizational model in this paper. I tend to believe that it might be more costly to induce a staff member to work on someone else’s (i.e., the supervisor's) idea rather than on his or her own. Decentralized management models on the other hand allow for collective decision-making at different levels in the system. By the time I wrote this paper, I had explored the power of individual efforts (e.g. Benkler's Commons-based Peer Production (2006)) at various occasions and the underlying concepts of SBM aligned well with those notions.

In this paper, I cited Rumble's (1982) cost studies for distance teaching systems. His equation for total cost (TC) was a summation of two terms: the fixed cost of the system (F) and, the product of variable costs (V) and the number of students (N).

TC = F + VN

Rumble (1982) also noted Wagner’s computation of the total recurrent cost (C) in the British Open University which took two variables into consideration; the number of courses (x) and the number of students (y). The constant figures were the fixed cost (a), the unit cost per course (b) and the unit cost per student (c):

C = a + bx + cy

Examining these basic calculations more than two years after I first studied them, it is quite interesting to notice how my context has changed. When I first learned about calculating costs, estimating total cost and break-even analysis, although I realized how the parameters and variables were interrelated, I simply concentrated on the computational procedures without extrapolating the impact of the equations.  These calculations are now particularly important (due to the current budget cuts) because they not only identify various factors that influence the total cost of distance learning but also identify methods for improving the management of fiscal resources (see pages 4 to 7 in the supporting file).

For example, in Wagner's formula above, if c approaches zero, the term cy is minimized. Likewise, if b approaches zero, the term bx is minimized. Therefore C, the total recurrent cost of a distance learning agency, can be considerably reduced.

Another example is the break-even analysis, which is a key management tool.  The mathematical representation of the break-even point allows one to estimate the minimum number of students enrolled in a course without incurring a deficit. As the chart demonstrates, fixed costs remain the same no matter how many students are registered in a course; however, the variable costs impact the break-even point. For example, when variable costs are reduced, the minimum number of students enrolled also reduces.  On the other hand, as variable costs increase, the break-even point is also increased.