PIEDMONT UNIVERSITY

Group 5

Outline
Introduction
Case

Context Analysis of the Issues Concluding Remarks

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Problem Statement
Piedmont University did not apply sound management principles in an environment of declining enrollment and increasing costs. Prior administration(s) expended the principal of the quasi-endowment fund to meet operating expenses.

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Financial Control - Present

Annual expenditure budgets from Deans and Administrators of support departments Budgets usually approved with minor changes

emphasis on monitoring major items less focus on adhering to other items

Overall lack of budget discipline?

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President Scott

Since 1991, implemented short-term, stopgap measures

Increased tuition Implemented hiring freeze Curtailed operating costs

Small operating surplus @ fiscal YE 93

Not permanent solutions
Fundamental problems not addressed Long term strategy needed

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Neil Malcolm
Management

consultant and

alumnus Volunteered to analyze Piedmont University finances Recommendations:

Increase student recruiting and fundraising activities Re-organize Piedmont University as set of profit centers
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Financial Control - Proposed

Re-organization into profit centers Deans and administrators to submit budgets for both revenues and expenses General shift in responsibilities New procedures for:

Crediting revenues to profit centers which earned them Charging expenditures to profit centers responsible for them

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Exhibit 1
Profit Center: Undergraduate liberal arts school Graduate liberal arts school Business school Engineering school Law school Theological school Unallocated revenue Total, academic Other: Central Administration Athletics Computers Central maintenance Library Total, other

Revenues

Expenses

$ 42.0 7.8 21.4 23.8 9.4 1.7 7.0 $ 113.1 $ 14.1 3.6 4.8 8.0 4.8 $ 35.3

$ 40.9 16.1 17.2 24.2 9.1 4.8 -$ 112.3 $ 14.1 3.6 4.8 8.0 4.8 $ 35.3

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Central Administrative Costs

Problem
Many costs related to undergrad schools Unfair to grad schools Deans not ready to take responsibility for allocated cost out of their control

Solution
Should be setup as an Expense Centre University costs should be allocated to administration No allocation to schools as they have no control over these costs
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Gifts and Endowments

Problem
Too much authority for the president Deans did not have a specific alternative

Solution
Costs should be allocated to the University Income and gifts should be allocated proportionately Inputs from schools should also be taken to reduce excessive authority of the President
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Athletics Department

Problems
Did not generate enough revenues to cover their costs Exhibit 1

Solutions-profit center
Charge fees for users Break even goal

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Maintenance Department

Problems
Each school had a maintenance department of its own and not a centralized one. Schools seeking authority to outsource maintenance to reduce costs. But this can prove to degrade the quality of maintenance

Solutions
Have a centralized maintenance department Minimize its cost without compromising the quality Schools may seek outside bids as far as the quality is not compromised
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Computers: Overview
Principal Mainframe, related equipment located in and supervised by Engineering School. One fourth capacity used for admin purposes. Located throughout the university, no central record.

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Proposal
Each user charged on the basis of usage. Would recover full cost of equipment, overheads. Schools responsibility, expense of teacher and students.

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Problems/Objections
Potential of Computers still unknown(students and teachers). Significant part of educational and research experience. Opposite effect.

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Suggestions

Expense centre
Improve records & assign responsibility to schools No monitoring; no control.

Charging students on usage will discourage them.

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Library
University Library: main repository Small libraries in each of the schools. Secure entrance to libraries

Proposal

Students & faculty members to be charged as per:

o Annual usage o Time spent o Books withdrawn
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Cross Registration

Student enrolled at one school could take admission at another school. One school would reimburse the other.

Proposal

total tuition of school at which tuition Amount charged = taken no. of courses normally in a semester

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Do you see other problems with the introduction of profit centres? If so, how would you deal with them?

Profit Center approach doesnt recognize non-monetary factors Solution: Focus on core values (MBO & Balanced Scorecard) Competing activities between multiple profit centres Solution: Coordination needed under presidents leadership. Consequences when schools are unprofitable Solution: Some schools may never be profitable yet be essential to goals and objectives. Not profit centre, discretionary expense centre more appropriate

Unanticipated risks

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What are the alternatives to a profit centre approach?

Minimize profit focus in current environment Students already paying more Schools not allowed to increase faculty Allow Piedmont to focus on academics

Rebuild quasi-endowment
Define profit in non-monetary terms with performance measures Support functions Historical costs Comparison to market costs
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Assuming that most of the issues could be resolved to your satisfaction, would you recommend that the profit centre idea be adopted, or is there an alternative that you would prefer?

Profit centre approach appropriate; not necessarily profit focus approach Common sense and organizational culture play a role
MBO or Balanced Scorecard
Enhance management capabilities Ensure achievement of goals
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Thank You

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