The Costs and Costing of Distance/Open
EducationThe cost-effectiveness of distance
education
3.4 While comparative data on the relative cost of
particular media is still scarce, there is plenty of evidence
that distance education can be more cost-effective
than traditional education.
3.5 The basic cost function of distance education is
explained in Appendix 1. Broadly speaking, this function
is:
T=S[pi]+Cµ+F
where T is the total costs, S is the number of students, C
is the number of courses or volume of materials, [pi] is the
unit cost per student, µ is the unit cost of the courses or
materials, and F is the fixed costs.
3.6 Those planning a distance education system in the hope
that they will reap economies of scale must ensure that:
- the variable cost per student is less than that found in
conventional systems operating at a similar education
level
- the number of students S is large enough to bring down
the average cost per student to a level where it is lower
than the average cost found in conventional educational
systems. The average cost per student (AC) is found by using
the formula:
- drop out rate is kept at a reasonably low level.
- the number of courses or volume of materials C does not
grow so large as to increase the value of (Cµ + F) to a
level where it becomes difficult, given the likely volume of
students (S), for the average cost per student (AC) down to
a level that is 'competitive' with the average cost per
student in conventional educational systems.
3.7 These conditions have very significant implications
for:
- the choice of media. In theory distance educators have a
wide choice available to them. In practice this is often
constrained not only by the absolute costs of a particular
medium but by the effect its adoption may have on average
student costs.
- market research—aimed at ensuring that sufficient
students will be attracted to particular programmes at the
institution to enable economies of scale to be
achieved.
- the resources put into student services. Since these
costs are a student variable cost, the degree of investment
in student support services has to be weighed against the
effect on the average cost per student (AC) and on drop-out
rates.
- the resources put into the central infrastructure (fixed
costs of the institution) are too large relative to student
numbers.
3.8 The concept of cost-effectiveness needs to be
distinguished from that of cost-efficiency.
Effectiveness is concerned with outputs: an
organisation is effective to the extent that it produces
outputs that are relevant to the needs and demands of its
clients. It is cost-effective if its outputs are relevant to
the needs and demands of clients and cost less than the
outputs of other institutions that meet this criteria. This
implies the existence of criterion for the measurement of
effectiveness.
Efficiency is concerned with the cost of achieving
outputs: an organisation is efficient relative to another
programme if its output costs less (per unit) than that of the
other institution. It becomes more efficient to the extent
that it maintains outputs with a less than proportionate
increase in inputs.
Organisations can be effective but not necessarily
efficient. For example, one can teach Russian to Italians very
effectively (i.e. they learn to speak Russian like a native),
but if the cost per student of doing this is five times the
costs incurred by anyone else, then one is not doing it very
efficiently.
An organisation may also appear to be more efficient than
another one (i.e. its unit costs are lower) but the extent to
which it is really efficient must depend on its effectiveness.
The single-minded pursuit of efficiency (ie. cost-cutting) may
damage the effectiveness of an organisation, thus diminishing
its cost-effectiveness.
3.9 The fact that an organisation is cost-efficient in
comparison with another does not necessarily mean that it is
as cost-efficient as it could be. There may well be internal
diseconomies which could be rectified without damaging its
effectiveness.
3.10 Distance and open education systems are not always
more cost-effective than conventional educational
institutions. Some of the major factors which may make
distance or open education institutions less cost-effective
than traditional ones are mentioned in paragraph 3.6.
3.11 It is important to point out that what is not
being compared is the absolute cost of different systems.
Distance education requires considerable investment before a
single student can be enrolled—in both the development and
production of course materials and the design and
implementation of an institution's infrastructure. Thus Wagner
(1977 : 360) pointed out that the ratio of fixed to variable
course costs in conventional British universities was 8:1
whereas in the British Open University it was 2000:1. What is
cheaper in distance education is the cost per student. What is
compared is the average cost per student, full-time equivalent
student, or student credit hour.
3.12 In summary, a distance system may cost more in
absolute terms than the conventional systems with which it is
being compared, but it can be more cost-efficient because it
has sufficient students to bring the average cost per student
down below that of conventional systems—thus making it more
cost-effective.
3.13 Perraton (1982 : 21–35) shows:
- that at the primary basic education level, some distance
teaching systems with even quite small numbers of students
(eg. Radioprimaria, Mexico with 2,800 pupils) had lower
average costs than conventional schools, and students
achieved comparable scores. Other systems with large student
numbers (eg. ACPO, Colombia with 70000 pupils) were also
cheaper. However, in the Ivory Coast the primary educational
tv system had a higher average student cost than
conventional systems, even though it had 23 1000 enrolments
annually. (The cost of setting up a tv network and of paying
teachers salaries near to those of regular teachers meant
that even with its large student numbers the Ivory Coast ETV
system could not bring the average cost per student
down.)
- at the secondary level, where there are more systems,
some distance education systems (such as the Correspondence
Course Unit, Kenya with from 340 to 2900 students each year)
were more expensive than traditional systems. The Malawi
Correspondence College (with 3800 students) had a cost per
successful student that was more expensive than that of day
schools but cheaper than that of boarding schools, while the
National Extension College, UK, were cheaper than full-time
classes and probably cheaper than evening classes. Yet other
systems (eg. Tevec in Canada with 25000 students) were said
to be cheaper than the in-school alternative.
- at the tertiary level, the British Open University is
probably the best studied of all distance education systems.
The cost per graduate at the Open University (which has an
annual enrolment of 20000–25000) is about half the cost of a
graduate at a conventional university, while the cost per
student per year is about one third that of a student in a
conventional university. The relative advantage of the Open
University is less when comparing the cost per graduate
because it has a higher drop-out rate than conventional UK
universities. The costs at Athabasca University, Canada
(with an annual enrolment of 4400) is comparable to that
found in conventional universities in Alberta. These costs
are for universities designed to teach only at a distance.
Universities which run distance education programmes
'pick-a-back' on conventional programmes can expand their
student numbers for relatively modest costs per student by
teaching the additional students at a distance.
- in non-formal education, it is much less easy to draw
comparisons between the costs of distance and conventional
educational methods, not least because non-formal education
does not lend itself to traditional methods of teaching what
can be said is that where distance methods are used in large
scale projects the unit costs are low.
3.14 Thus distance teaching can be cheaper than
conventional methods, but this is not invariably the case. It
is clear that achievement of high student numbers has a major
impact on whether or not average costs per student are bought
down to a level at which distance education is an attractive
proposition. It is equally clear that distance systems have a
high absolute cost and that it is cheaper to use conventional
methods where student numbers are restricted. At which point a
distance teaching system becomes cheaper per student than a
conventional one depends on answers to the issues addressed in
paragraph 3.7 above.
3.15 Two final points need to be made. Firstly, even though
distance education can reap economies of scale, and even if
the level of potential demand is such that one can envisage
large numbers of students enrolling in a system, it is
possible that the total cost will be such that a particular
government or funding agency cannot contemplate starting to
develop the system. Secondly, achieving a lower average cost
per student may be economically and financially desirable, but
it is a secondary objective. What is important is to teach
students who perhaps cannot contemplate studying by other than
distance or open means. The fact that certain students (eg.
adults in full-time employment living in remote areas) can
only be reached by distance means is in itself an important
consideration in deciding to teach at a distance, and the
comparative cost of doing this may be deemed irrelevant to the
decision to establish a programme. Cost of
collaborative projects
3.16 Most distance and open education systems exist as
autonomous institutions in their own right. No publicly
available cost studies of collaborative projects operating at
an international level (although such projects exist—eg.
University of the South Pacific) or intranational level (eg.
Universitá a Distanza, Italy; DIFF, German Federal Republic)
have been identified. However, there is a cost associated with
collaboration, and collaborative schemes may well incur costs
which are not encountered in 'stand alone' schemes.
Appendix 1
Economic studies of education costs
- The majority of cost studies of distance and open
education projects have been based on approaches derived
from the discipline of economics. Such studies
generally
- identify the fundamental variables involved
in the institution, project or activity that is the
subject of the study. Variables may include
- student load (based on head counts, full-time
student equivalents, or some other appropriate measure
of load)
- either course loads (based on credits, credit hours,
or some other measure of load) or materials (number of
textbooks, television programmes, etc.)
- identify the costs associated with the particular
variables that have been identified, with a view to
deriving an average unit cost per variable (eg. unit cost
of one FTE student, unit cost of one television
programme). Such costs are usually held to be the
direct costs of that variable. A direct cost is a
cost that can be directly attributed to an activity or
variable.
- identify those costs which are unrelated to defined
variables. These costs are usually described as
overheads. Such costs are usually called indirect
costs. Indirect costs are costs that cannot be clearly
related to an activity.
- The studies then seek to show how total costs will
change given a change in the volume of the fundamental
variables within the system. Generally, it is assumed that
the overhead costs are 'fixed' although this assumption is
usually subject to caveats:
- in the case of 'young' institutions that are still
developing there is a reasonable expectation that overhead
costs will rise. Economic studies of Athabasca University
by Snowden and Daniel (1980) and of the Universidad
Estatal a Distancia by Rumble (1981) attempted to meet
this point by assuming that overhead costs would continue
to rise for several years during the initial years of
development
- even for established institutions, overheads are
usually held to be 'fixed' within a range of levels of
activities, as reflected by the value of the fundamental
variables. For example, it may be held that there will be
no change in overhead costs while student numbers are in
the range 60,000–80,000, but that above this level some
additional overhead costs may be expected to
occur.
- Typically then, an economic study will derive a series
of simple cost functions of the following kind:
T = S[pi] + Cµ + F
where T is the total cost of the project, S and C are
variables (for example, students and courses or course
materials respectively), [pi] and µ are the average unit
costs of S and C respectively, and F is the overhead cost.
T, [pi], µ, and F are expressed in money terms, S and C in
volume terms. There may be more than two variables built
into cost function. When comparing the costs of two or more
projects or of two or more policy options, two measures are
generally of importance. The first is the total
cost (T) of the project or policy. The other measure
usually adopted is to derive an average cost per
student or participant in the educational programme. The
average cost per student (A) is equal to the total
cost (T) divided by the number of students (S)
A = T/S
- It is obvious that as the number of students (S)
increases, so the total student-related cost (S[pi]) will
increase. However, a sizeable proportion of the costs of
distance education project are unrelated to student number
(ie. Cµ + F) so that, while increases in student numbers
adds to total expenditure (T), average costs per student (A)
fall. 'Economies of scale' are achieved quickly at first,
but once high volumes are achieved, further economics of
scale are at the margin (see Appendix 1, figure 1).
- Economic studies have their value in the sense that
they
- identify the fundamental (most important) variables
affecting costs in distance and open education
- demonstrate in simple terms the cost structure of
distance and open education
- assuming that the variables are identified in
sufficient detail, enable broad conclusions to be drawn in
respect of the cost structure of different media.
- provide a basis for deriving average costs per student
or some equivalent measure (eg. average cost per graduate,
average cost per student credit hours, etc.) which can be
used to make comparisons between systems, institutions,
projects and policy options
- provide a basis for deriving average costs per one
hour's instruction, by media.
- The virtue of economic studies lies in their simplicity.
They can be used for 'propaganda' purposes by the
institution to demonstrate:
- the extent to which a particular distance or open
education system is more cost-efficient (ie. has a lower
average cost per student or graduate) than another
system
- to show how expansion of student numbers will enable
economies of scale to be reaped.
- On the other hand, economic studies of distance and open
education projects generally identify a limited number of
variables. The unit costs are average costs, derived by
analysing the budget or accounts for a given year, and
assigning costs to the variables in the model or to
overheads. The total costs assigned to a variable are then
divided by the number of units of that variable to give a
unit cost per variable. Generally the models
- do not specify the fundamental variables which affect
costs in sufficient detail to be of practical value to the
people who are trying to prepare an operating budget for
an institution (Rumble, Neil and Tout, 1981:235)
- depend for their validity on a range of judgements
about the allocation of costs to variables (Rumble 1986 b:
4)
- can seriously obscure the very wide range of costs
found in individual to programmes (Rumble, 1986 b:
5)
- while they can demonstrate external cost-efficiency
(ie. this system is more cost-efficient than that one),
they are useless as a means of demonstrating internal
cost-efficiency (ie. this system is as cost-efficient as
it can be without impairing its
effectiveness).
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