Costs, Effectiveness, Efficiency: A Guide for Sound Investment

Neil Butcher and Nicky Roberts

 Introduction 

This article draws heavily on the work of Don Swift, who worked at SAIDE between 1992 and 1997. This article is dedicated to his memory and to the extraordinary legacy he left behind.

Sadly – despite many claims to the contrary – sound and rigorous financial planning is a serious omission in several new projects and institutions seeking to harness the potential of distance education methods. The most problematic aspect of this omission is not analysis of the current or short-term running costs of a distance education programme or institution; many (but, by no means all) planners have a handle on these dimensions of distance education practice. Far less common, though, is rigorous planning for the long-term sustainability of a programme or institution. Obviously, this is problematic in any context, but it is of particular concern in contexts where financial resources are very constrained, which is usually a feature of distance education programmes in developing countries.

Some financial problems are beyond the control of financial planners. For example, in many countries, even modest course fees are beyond the reach of many potential learners. Similarly, national communication systems (roads, telecommunications, postal systems) are often not sufficiently reliable or pervasive to meet the requirements of distance education provision. Beyond this, though, there are many other problems that arise from ineffective financial planning. The following common features of struggling distance education programmes are symptomatic of weaknesses in financial planning:

•     Face-to-face tutorial support is seen to be critical to learner success, but too expensive to implement;

•     There are few reliable and sustainable strategies for making ongoing investments in course materials design and development;

•     Professional development for educational and administrative staff members is sporadic and limited, resulting in insufficient skills amongst personnel to sustain distance education systems;

•     Administrative systems either do not exist or are highly underdeveloped;

•     Innovation in distance education relies heavily on unsustainable sources of funding, particularly donor funding. 

This chapter focuses on exploring ways in which to avoid the symptoms of weak financial planning. It outlines key concepts and approaches to financial planning for distance education. It then explores some key mistakes that have been made in financial planning in different contexts.

 Some key concepts 

While there are numerous approaches to costing distance education, each of which is tailored to specific institutional requirement, many of them have several commonalities. As an introduction to our discussion on costing distance education, we offer a short explanation of approaches to costing distance education by focusing on a few pertinent concepts.

Differentiating between Effectiveness and Efficiency

In considering sound educational investment, it is essential to distinguish effectiveness from efficiency. Cost-effectiveness is used as a term distinct from cost-efficiency. For the purposes of this chapter, the latter is about ‘cheapness’ of educational provision – usually expressed in terms of per-student costs – while the former represents striking the optimal balance between cost, student numbers, and educational quality, a balance which will be entirely different for different educational contexts. In many ways, the concept of cost-effectiveness represents the balancing act that constitutes open learning. There is no magical formula that leads to cost-effective education; rather, cost-effectiveness needs to be measured on an ongoing basis in relation to changing contextual requirements.

The Difference Between Actual Costs and Notional Estimates

Many approaches to costing distinguish between actual and notional costs. Actual costs are an accurate reflection of what an item or activity costs at a specific time. Such costs can only be accurately calculated retrospectively, as there are various factors (that are in themselves dynamic) that determine actual costs at a specific time. Notional costs on the other hand reflect an average cost of what an item or activity is likely to cost. Notional costs are considered in estimating expenditure when projecting forward in planning (therefore needing to take into account the likely effects of inflation). The actual cost of buying a Super DX e-180 VHS videocassette in South Africa in November 2000 may be R13.99. An appropriate notional cost for financial planning in 2001, which factors in the likely impact of inflation, may therefore be R15. These differences may seem obvious, but the process of extrapolating notional costs from historical data is often ignored in financial planning processes. 

The difference also becomes critically important in planning broader resource usage. To illustrate, we will look at the issue of how much time learners spend on different learning tasks (the hours of learning). This concept is important, as it has a direct impact on use of all resources (human and otherwise) in any education system. Actual hours of learning refers to the amount of time a specific student spends engaged in an educational course. This can seldom be accurately predicted, and thus requires careful measurement for specific students to give an accurate reflection of the time they have spent on a particular course. 

Despite the impossibility of accurately predicting how long different learning activities will take, it is critical to estimate notional hours of learning during planning processes because this estimate affects all other resource and financial planning (in particular, it strongly influences personnel costs). In such exercises, educational planners seek to estimate the ‘average’ time that the ‘average’ learner would spend on a particular course. Although such estimates can never be entirely accurate, they are critical to effective planning. Moreover, they can become increasingly accurate over time by measuring actual hours of learning across a range of students and using these measurements to revise future estimates. Likewise, establishing means of comparing actual and notional costs is an important component of improving financial planning processes and ensuring that financial planning processes are sufficiently detailed and accurate to be useful.

Fixed and Variable Costs

One of the most common distinctions made in costing approaches is between fixed and variable costs. Fixed costs refer to actual or notional costs of an item or activity that remain constant when other variables (such as student numbers) change. Variable costs are dependent on other factors. They change as student numbers or the level of activity changes. 

The most obvious example of a fixed educational investment in distance education is that of course design and development. This cost remains constant no matter how many students are added to a course. By contrast, the process of producing and disseminating these course materials may be considered to be variable, as it will increase in direct proportion to increases in student enrolments. Some costs will vary according to different parameters. For example, the cost of running tutorial sessions will increase as new groups of students are formed, rather than as individual students enrol. 

Some costs may share characteristics of both fixed and variable cost. For example, investments in designing administrative systems for distance education are generally regarded as fixed (although the costs of running the administration are obviously not). However, when a distance education system expands beyond a certain size, additional fixed investments will be required to re-design the administration.[1]

Direct, Indirect, and Overhead Costs

When considering the costs of a distance education course, the direct costs are all those costs associated with a specific course. These include items such as course materials, educator and tutor time, and student administration, as well as costs of course design, coordination and learner support. Indirect costs are course-related costs that are not specific to that course alone. Students may, for example, make use of a telephone help-line or use a venue that is used for other courses and by other students. Although these costs are related to an individual course, they are also distributed across several courses and are, therefore, referred to as indirect costs. Where indirect costs are summed or simply allocated as a percentage of direct costs, these are referred to overhead costs. What is considered to be overhead cost differs in various approaches to costing. Most frequently, overhead costs are used to distribute costs common to all courses within an institution without having to calculate unit costs for each element. These might include costs associated with office and building infrastructure (repair, maintenance, and rental), electricity and water, gardening, cleaning, security, and so on. Such costs are necessary to run an educational institution and are distributed accordingly as indirect costs or overheads.

Unit Costs and Cost Centres

Various units of analysis are used to measure costs in distance education depending on what is being considered. For example, an appropriate unit of analysis for course materials may be a book or a page. The unit cost is the cost associated with one unit of analysis. The unit of analysis selected will depend on what the financial planner is seeking to cost. For example, if one is seeking to compile a broad budget for a new distance education course, one might select a unit of analysis that incorporates all costs associated with designing and developing a study guide. For more micro-level planning, one might break this down into smaller units of analysis such as design of a single graphic, copy editing of a single page, or desktop publishing of a single page. 

In developing costing approaches and models, a series of unit costs are frequently clustered or grouped around specific areas of activity or items. Costing is calculated according to agreed categories such as costs associated with a course, with a department, or with a student. Costs may also be grouped according to function, such as by teaching and learning strategy, course design, course materials production, or dissemination. Such groups or categories of costs are referred to as cost centres. Different institutions develop different approaches to costing and therefore use various cost centres.

Cost Drivers

According to Rumble, ‘a cost driver is anything that, following a change in its volume, causes the overall costs to change’[2] It is anything that influences costs, and can drive costs in either direction: up or down. Depending on which aspect of distance education is being considered, there are different cost drivers. In the example of course materials, one cost driver in relation to the costs of producing course materials (per page or per book) is the number of students. Increases in student numbers will drive up overall costs associated with producing, storing, and distributing course materials. However, it may also help to reduce the unit costs of this activity, as certain economies of scale will start to take effect with increased student numbers. 

Cost drivers are the ‘factors’ or ‘variables’ that influence costs that we described above under variable costs. Identifying appropriate cost drivers or factors that will influence overall costs is essential to making cost-effective financial decisions. It is, therefore, essential to examine costs drivers over different periods and to consider the effects they will have in both the short- and long-term.

Personnel Costs

Personnel costs refer to all costs relating to the time spent by people on specific activities (whether these people are employed on a full- or part-time basis or employed as sub-contractors). These would include functions such as course design, course or programme coordination, instructional design, tutoring, mentoring, and counselling, student assessment, invigilation, moderation, administration, tutor coodination, and research, as well as a host of others.

Capital Costs

Capital costs are used to reflect an initial purchase of equipment, infrastructure, or items that ‘have a useful life of more than one year’. Capital costs are generally not considered to be recurrent. This is the commonly used approach in accounting but obviously most capital investments have various related costs that are recurrent and therefore should not be considered ‘once off’ investments in this way. 

Rigorous financial planning takes into account all costs related to a capital investment such as repair, maintenance, insurance, and depreciation costs that will recur over several years. For example the capital cost of purchasing photocopy machine may be, say, R20,000. This can be considered a capital expense in its first year, but has several related recurrent costs. Ongoing repair, maintenance, and insurance will be necessary, and the capital investment will also be depreciated over, say, five years. Taking these recurrent costs into account in financial planning allows for capital items to be used optimally and to replaced when necessary.

 Understanding the logic of Distance Education costing 

The financial logic of introducing distance education has, in many ways, been a response to education systems that are in crisis because they are pushing against the ceiling of capacity of their speaking teachers to manage the learning of incoming students. The methods of what became known as distance education offered some hope that the productivity of education systems could be substantially raised. Distance educators have also long held that the quality of educational experience for students can also be improved by proper use of those methods. This is because they introduce greater flexibility into the system, enabling students to study in ways and places and at times that best suit their personal circumstances. By such methods, institutions can reach students who would not otherwise be drawn into education systems. Finally, they also support, and encourage, highly desirable system developments towards internally generated quality assurance and accountability. Evidence of the veracity of this argument is that, increasingly, these lessons are being integrated into traditional education systems. 

However, it has become a dangerous piece of conventional wisdom that distance education is less expensive than traditional contact education. There are many ways in which that is not true. At present, many education systems in the developing world are looking to distance education because it seems to offer cost-efficiency benefits. However, consideration tends to take the form - is distance education cheaper than contact? - as if distance education is a set of social arrangements as standardized as contact education. 

Research on comparative costs has not been undertaken on a consistent or comprehensive enough basis. Some studies have looked at institutional costs, others at public expenditure costs, and still others at total economic costs. Some have examined recurrent costs but neglected capital costs. The accumulated research literature on the cost-efficiency/effectiveness of distance education[3] does suggest two fundamental conclusions:

1.       Distance education institutions are usually more cost-efficient than conventional institutions, particularly when they enrol large numbers of students on each course in order to reap large economies of scale;

2.       Distance education institutions can be more cost-effective than conventional institutions when they offer high quality learning materials and tutorial support for students, thereby securing satisfactory retention and graduation rates. Conversely, if they do not achieve satisfactory retention and graduation rates they may well be much more expensive. 

In distance education, major expenses are incurred in designing courses - particularly if they involve the use of ‘expensive’ media and technologies. This is potentially a bottomless pit of expense, since it is always possible to add more person-power or seek more expensive media and technologies, but it need not be. Many good courses have been designed with relatively small amounts of person power. However, the world of distance education contains many times more bad courses than good ones. A broad generalization that has fairly high reliability for distance education is that the ‘quality’ of the course (subject matter and pedagogy) is related to the level of investment in its design.

Taking Time To Design

Perhaps the first danger that politicians and educational planners make is to grossly underestimate the amount of person-power needed to design one hour of student study time. Bedazzled by the cost-efficiency claims of distance educators, they conceive of distance education as merely another, less expensive, type of school and proceed to plan its costs in similar ways. Instead, the budget for distance education should be built up from a detailed costing of the design and presentation costs of each of its proposed courses. The first stage of that involves considering the level of investment to be made in the design of each course. Whilst this decision involves an enormous amount of rule of thumb and guesswork, it is a necessary process for initial decision-making, because ‘it all depends’ on the media mix, level and type of subject matter, and the kinds of competence aimed for in the course. Some crude generalizations are likely to bring recognition of reality, if not firm agreement, from those involved. At higher education first year level (perhaps the most challenging), the following provide some indication of the kinds of investments required: 

Time Taken To Design One Hour Of Student Study Time[4]
Print	20 - 100 hours
Audio	20 - 100 hours
Video	50 - 200 hours
Computer Based Instruction	200 -300 hours
Experiments	200 -300 hours

 However a particular institution might diverge from these figures, two core agreements would be likely to emerge. First, at the lower part of each of these ranges, the quality of teaching (i.e. capacity to bring success to students) will be positively related to investment in design time. Disagreements might enter about the strength of the relationship at the top end, with returns to additional investment drying up beyond a certain point. It might be that an additional 20 hours after the first 50 might only bring a small improvement, raising the possibility that it would have been more profitably invested in some other part of the system. Second, there is a point at the lower end beneath which it is not worth going – the likely failure rate, and/or poor quality of exit performance, make it unlikely that the investment will be justified in comparison with face-to-face provision. Falling below that lower figure runs the risk of an inadequately prepared course which must be compensated for by excessive amounts of teaching person power in its presentation, or a high failure rate, or a lowering of exit performance standards, or most likely, all three. Unfortunately, large amounts of distance education practice internationally appear to have been pitched below this level. 

A further complication in the ultimate budget for design of a course follows from real or accidental decisions about the proportion of hours of the course allocated to each medium in the course. Each is likely to make up a very different ‘weight’ of student study time and may not necessarily play a proportionate role in equipping a student for success. 

Finally, design time itself is not a stable quantum. It is worth considering that, in each medium, and in the course overall, different combinations of expertise might have different effects on student performance. For example: 

Course Team A		Course Team B
Academic	95%	Academic	50%
Editor	5%	Instructional Designer	20%
		Media Specialist	20%
		Editor	5%
		Designer	5%

 All other elements being equal, it is reasonable to assume that, if the two teams put in the same total amount of design time, it is likely that Team B will produce a more successful course. 

Costs of design are incurred regardless of the number of students who study the course. Low unit costs then follow only if very large numbers of students study it successfully and the person power devoted to ‘presenting’ the course is substantially lower than in face-to-face settings. 

The costs of teachers in traditional institutions are directly related to student numbers. Even more importantly, their magnitude is so great as to make all other aspects of variable costs relatively trivial. (For example, the cost of teachers’ salaries in schools in South Africa is around 80% of all costs. In higher education, it is lower but not substantially so). Distance education therefore, changes the production function of education by substituting cheaper management of students’ learning for the expensive process of applying teacher time to it. This creates potential for lower costs per student, provided large numbers of students can take the expensively designed course and that the resulting unit cost advantage is not eroded by the lower success rate that is likely to ensue. 

In successful distance education systems, as much attention is given to presentation or teaching of courses as to their preparation. Where they are well-resourced and judiciously deployed, high quality materials and learner support systems can reap substantial benefits in improved completion rates and thus enhanced cost-effectiveness. That is how distance education institutions can be more cost effective than conventional institutions.

Comparative Costs

Lessons from Higher Education

Care needs to be taken in using measures of effectiveness that are appropriate to distance education institutions. Most, and particularly those concerned with lifelong learning, aim to ensure that as many students as possible attain their various learning objectives, whatever they may be. In some cases, this is a degree but in other cases it may be a certificate or diploma, a single course credit, or a short updating course successfully completed. Graduation is therefore not the only successful outcome of study. 

In addition, several distance education institutions operate an open admissions policy and are committed to offering higher education to those who lack traditional entry qualifications. Success rates for those students are inevitably lower than for students qualified selected for entry to conventional universities. Nevertheless, institutions with such policies may be adding more value in personal and social benefit than the conventional universities. 

Regrettably, measures of cost based on units of education achieved other than degrees and on concepts of ‘value-added’ are not yet widely used. This leaves only less satisfactory measures such as cost per registered full-time equivalent year of study. Such calculations greatly favour distance education institutions because their very much lower course pass rates are not brought into the equation. On the other hand, calculations based only on successful graduations favour conventional institutions because distance education students who are satisfied with partial completion of a programme are ignored and their costs charged to graduations. Nevertheless, even on this limited criterion of success, distance education institutions with high quality materials and tutorial support score well (although those without score very badly). 

Early studies of the UK Open University, (OU) for example, indicated that it produced graduates at something over half the cost of other universities. A confidential study undertaken by the Department of Education and Science in 1981 found that a three-year FTE degree at the OU cost £4,890 compared to an average of £8,550 in other universities. A four year FTE degree cost £7,984 at the OU and £11,842 elsewhere. The differences were even greater when calculated in terms of public fund costs (£4,356 compared to £10,801 for a three year FTE degree) and total economic costs (£7,116 compared to £17,843).[5] The differentials have narrowed somewhat since 1981 because the proportion of under-qualified students entering the OU has increased and unit costs in other universities have fallen - but a more recent calculation put the cost of an OU graduate at less than two-thirds that of a full-time graduate in other universities[6]. 

A further confidential study, undertaken by the Department for Education and Science in 1991, compared the cost of OU degrees with part-time degrees offered by three conventional institutions. It found that a three year FTE degree at the OU costs less than 60% of the average of the other universities. These are impressive statistics, but they are not unique. Other distance universities with similar teaching systems achieve similar rates. For example, the Allama Iqbal Open University in Pakistan, which is modelled on the UKOU, achieves costs per graduate that are 45-70% of the cost of conventional universities[7]. The Open Learning Institute of Hong Kong, makes heavy use of existing distance teaching materials from the OU and elsewhere and marries these with highly-resourced student support arrangements. As a break-even institution, it is required to charge students the full cost of their courses. Its graduates have paid about one-third of what a similar degree of the University of Hong Kong[8] costs. 

There is another variation on the question of returns to investment in distance education. Few distance education specialists in Australia would accept a general argument that distance education is cheaper than residential, because in Australia it is not. This is because, in general, the methods are used for other purposes than cheapness and, inevitably, on small numbers. The most precise study of costs in which outcomes were identical, was conducted at the University of Southern Queensland (USQ) in comparing the cost of its distance education and residential output. The conclusion was that they were broadly comparable. The advantages of adding distance education to conventional provision were political, in the sense that a wider clientele of students was being served, institutional in that a small institution was able to increase its size giving both generalized cost-efficiency benefits and greater weight on the higher education institutional battlefield, and educational, in that use of distance education methods across all fields encouraged pedagogical quality. Some income and staff development benefit was also derived from ‘off-shore registrations in Asian countries. 

The studies of the UKOU and the University of the Southern Queensland elucidate only some of the benefits of the range of distance education methods because neither institution uses all of them. Each also dealt with only a specific range of possibilities amongst the clientele.[9] USQ had small numbers of students on a large number of courses; two important causes of high costs. The OU has an open entry policy; very expensive course-design strategies; a short (thirty two week) studying year; a slow registration procedure, and for most of its life has been grossly restricted in the numbers it was permitted to enrol. In these ways, the cost efficiency of its degree structures, particularly in science and technology, has been retarded. 

The course production methods of the two institutions are almost at the two extremes of expensiveness – the OU spending up to £4m to prepare a course equivalent to one eighth of a four year honours degree while USQ spends a small fraction of that amount. In summary, the OU, despite limitations on its numbers set by government policy and challenges to its teaching system of open entry, was nevertheless big enough (in course registrations) with a small enough number of courses, to produce a particular level of cost advantage (up to 40% cheaper) over its competitors. USQ had no chance of achieving similar numbers and therefore the expensive course was not an option; nor was it likely to obtain a cost advantage over conventional delivery. 

Studies also reveal, however, that distance education institutions that do not invest in high quality materials and student support systems achieve much lower completion rates and therefore lower cost-effectiveness rates than the OU and, indeed, than conventional universities. In the early 1990s, for example, The International Correspondence School in the USA, for example, was providing materials but no student support and taking no action to monitor student progress. Completion rates were less than 15%. The consequences of low completion rates can be catastrophic to cost-effectiveness if the most challenging criterion of graduation rates is used as the sole measure of educational value added. A study by John Daniel of data supplied by the ten largest distance education universities illustrates the point. He found that these ‘mega universities’ taught their students at between 10 and 50 percent of the average cost of the other universities in their countries.[10] However, they were less likely to bring their students to the point of graduation. Where graduation rates are an important aspect of the higher education system that cost advantage is diminished by the ratio of the difference between the two forms.Considering Other Education Sectors.

The same financial challenges exist when transporting the logic of distance education into sectors other than higher education. Internationally, there has been growing interest in introducing Open Schools.[11] While there are varying motivations for the introduction of such schools (discussed further below), a common motivation when such projects are aimed at younger learners as an alternative to mainstream schooling is usually to reduce the cost of providing education. Evidence from around the world suggests that Open Schools tend to succeed in this regard as the following table excerpt from Perraton illustrates:

Costs of Some School Equivalency Projects[12]

Country, Project, Date	GNP per capita at date of study		Student Numbers	Cost per learner US$	Comparative cost
	Current US$	1998 US$
Brazil, Bahia State, Madureza, 1976	1,410	3,793	8,000	$418 per student following three courses	Higher cost per student than alternative
Brazil, Minerva, 1977	1,410	3,793	118,118	$49 per student following group of courses for 1 year	Costs 65% of private sector alternative; no evidence on cost per successful student
India, National Open School, 1990	360	449	40,885	$44 per student p.a.	Cost 63% of cost of government school
South Korea Air Correspondence High School, 1976	980	2,636	20,000	$171 per student p.a.	Cost per student 24% of alternative; cost per successful student 29%
Malawi Correspondence Study Centres, 1978	150	404	2,884	$399 per student; $2,794 per examination pass	Cost per student 62% cost at day school; cost per pass 81% higher
– 1988	160	220	17,000	$107 per student;$378 per pass	Cost per pass reduced to 34% of day school rates
Mexico Telesecundaria, 1975	1,160	3,514	33,840	$589 per student	Cost per student 76% of alternative
– 1981	3,170	5,684	170,000	$927 per student	Cost per student 9.5% higher than alternative
– 1988	1,860	2,563	>400,000	$441 per student	Cost per student 32% of alternative
– 1997	3,680	739	767,700	$562 per student
Zambia Correspondence Study Centres, 1981	600	1,076	11,800	Cost per student in range $102-291	Cost per student 7-21% of day school

Again, however, these comparative costs should be read in combination with several of the other points made in this chapter. They do not, by themselves, create an argument in favour of introducing distance education methods, as the educational implications of this need to be weighed up against any likely financial efficiencies.

Considering Relative Financial Benefits

There is ample evidence that the methods of distance education can be used greatly to increase the productivity of education systems. Prima facie, the evidence and the logic of analysis seem indisputable. However, two kinds of environing arguments can introduce doubt. The first is educational and the second, macro-economic. The educational rebuttal asserts that any dilution of the intense personal interaction between educator and learner will weaken the quality of the learner’s experience. Even if many more students are taught, even if they achieve the exit performance levels of the old system, something will be lost. Few would disagree with this if two extremes are compared - an Oxford personal tutorial relationship with a correspondence course - but one is not possible and the other is not proposed. In between, we are left with the educator’s responsibility for managing the highest quality learning experiences for as many people as possible at lowest cost. 

Experience elsewhere demonstrates that the quality of distance education can be as good as the best conventional teaching. In the UK, where the quality of higher education provision is being assessed by peer review according to a set of common criteria, OU provision has been judged ‘excellent’ (the top rating) in almost half of all subjects so far assessed, putting it in the top twelve of 120 HE institutions.[13] 

The second environing rebuttal is to do with the minutiae of economic costing. Well established, large scale, distance education institutions are easily capable of producing equivalent educational outputs to those of traditional institutions whether expressed in certificates obtained or, even less difficult, per full-time equivalent year of study. However, they often do so partly by taking advantage of the historic investment in people and facilities of the wider system. To the extent that any educational gain brings cost benefits that are distributed in favour of the distance education institution, calculations that do not take this into account will be biased. For example, do the charges made by traditional institutions for use of their classrooms, laboratories, accommodation, and ancillary staff, represent true cost or marginal cost? If the latter, they could be said to be subsidizing distance education. This kind of question, however, only has relevance in inter-institutional comparison. All would agree that the system benefits because output is increased from the same quantity of historical investment in expertise and capital equipment. 

Equally difficult to quantify will be the returns to lifetime earnings of degrees by distance education. To the extent that distance education students have a much wider age range, they could be said, as a group, to have a lower working life expectancy. If many of them are in employment it may also be difficult to ascribe future earnings to the act of graduation. Traditional analysis of returns to investment tends to assume a fully causal link. On the other hand, because most distance education students are studying part-time while in employment, they continue to contribute to the Gross National Product, paying taxes and (probably) paying a higher proportion of the costs of their education in fees. These environing arguments can be ignored for present purposes. They either work in favour of the cost-benefit advantage of distance education against residential education or they bring system benefits. As lifelong learning gains hold around the world, the economic advantage of distance education over so-called full-time residential education will begin to be demonstrated.

The Issue of National Need

One implication of the foregoing analysis is that distance education offers a very much wider and more detailed range of alternatives to the educational policy-maker or planner than does traditional education. This wide range, unfortunately, includes, not only unconscionable amounts of failure, but also excessive and unproductive expenditure. Measurement of cost efficiency and effectiveness is therefore a key to assessment of an institution’s performance. 

There is a further implication, which is well illustrated at the higher education level. Quite the most crucial policy difference between distance education institutions of economically developed countries and those in the developing world is that the latter must be important elements in provision at the traditional university entrance cohorts. In developed countries their functions are usually seen to be that of extending ‘second chance’ opportunities and enhancing the life-long learning capacities of the system. Consequently, their responsibilities can be expected to be very different. The following table outlines differences between distance education universities in developed and developing countries: 

Developed Countries	Developing Countries
Curriculum may well be a vocational, interest directed, flexible, non-traditional, experimental.	Curriculum must be that thought to be necessary for school leavers.
Curriculum may range broadly.	Curriculum should concentrate on subjects of national need.
Graduation rates and speeds are less important than other, more general educational objectives.	Graduation rates and speeds are of primary importance.
Student support may assume maturity of students and infrastructural support for independent learning.	Student support in all its aspects will be crucial in early years of study.
Student counselling may concentrate on use of the learning system.	Student counselling may play an important part in directing student careers.
Cost per unit of educational output may not be important.	Cost per unit of educational output must be important since other forms of education are under-funded.

For this reason, whilst international institutions may have much to offer on a wide range of techniques, strategies, systems and philosophy it is essential to consider separately the nation’s policy in funding a given institution or programme. For example, a relatively rich country may fund a distance education university for ‘second chance’ and personal enrichment purposes. In this case, the institution performs functions marginal to those of mainstream education. Graduation rates and the subjects within which graduations occur, may not be of particular importance. The general contributions to adult education, to flexibility of the system, and to satisfaction of the electorate are looked upon as proper returns to use of tax revenue. At the same time, because students are adult, possibly already qualified, and pursuing personal or economic interests, it is also possible to countenance high failure to graduate rates depending upon the cost of the various units of output. It would be difficult to imagine a developing country substantially funding distance education with any of these functions or results as primary objectives or even acceptable consequences. 

Similar differences can be found in exploring the development of open schools. Many countries around the world, when faced with problems of learner access to conventional schooling systems, have implemented some or other form of Open School as a response to these problems. However, the reasons for establishing such systems are many and varied, depending on the context in which they are implemented. The Correspondence School in New Zealand, for example, was established in 1922, while the Open School in India is over 20 years old. Reasons for establishing such schools have tended to revolve around accessibility to traditional schooling. In the two examples mentioned above, part of the motivation to establish the School was to provide access to students in remote farming communities (New Zealand) and access to large numbers of students whom the mainstream schooling system could not absorb (India). Our financial analysis above has illustrated the potential such approaches have for reducing costs per learner (even per successful learner), but this of course needs to take into account various of the dangers of simply introducing distance education simply because it reduces cost. Consequently, in our final section, we focus attention on some common problems and mistakes that often accompany implementation of distance education in the developing world.

 Some common problems and mistakes 

The previous section has attempted to summarize some of the financial logic underpinning choices to create distance education programmes and institutions. It has attempted to illustrate that basic understanding of cost-efficiency needs to be tightly integrated with a range of qualitative issues if investments in distance education are to yield useful results. Using this base, it is useful to reflect briefly on some common problems facing education planners.

Building a Financial Planning Culture

The most obvious problem that tends to arise is that some educational planners continue to believe that, because education is theoretically an endeavour in the ‘public interest’, some amorphous entity (often vaguely referred to as ‘government’) should cover the bill regardless of what it may be. As a result, financial analysis is frequently absent, often resulting in the spread of widespread systemic inefficiencies across both distance and contact education provision. More importantly, though, it has meant that, in several cases, decisions to introduce distance education courses and programmes are not based on any sound financial argument, but rather on a vague notion that distance education is ‘cheaper’. 

Where financial planning is done, it has tended to focus narrowly on the direct costs of a course or programme, rather than on understanding the full direct and indirect costs necessary both to sustain the educational intervention and the educational provider itself. At its worst, such financial planning is integrated with the laissez-faire attitude outlined in the previous paragraph, with educators in many systems routinely omitting their own costs as part of their financial plans. At a systemic level, it is often reflected in absence in systematic financial planning templates that factor in a wide range of indirect costs and institutional and administrative overheads as part of financial plans. Usually, these errors of omission are symptomatic of a culture of financial dependence, in which institutions that have regularly received funding from a guaranteed source (usually the government fiscus) have not been required to engage seriously with strategies to ensure their own financial sustainability. 

Linked to the above, a key problem that many educational planners have faced is knowing whether or not the courses and programmes they are designing or implementing are generating more income than expenditure. Careful analysis of all associated costs of a course or programme is the only meaningful way to overcome this problem. Our experience is that the only meaningful way in which to achieve this is to begin by developing a thorough map of what students will be expected to do. All education provision involves a set of teaching and learning strategies. It is possible to group these strategies into three related categories:

•     Contact strategies, which refer to all time spent in synchronous or asynchronous communication between educators (be they facilitators, tutors, lecturers, or mentors) and learners. Contact strategies include face-to-face sessions, as well as other communication strategies such as telephonic support, e-mail and Internet chat, and videoconferencing. The key cost driver of contact strategies is the ratio of learners to educators.

•     Assessment strategies, which refer to activities designed to enable educators to evaluate student learning or progress. Educator time on assessment strategies will be affected by the number of assessment tasks, the complexity of those tasks (as increasing complexity usually requires additional time spent on assessment), and the number of students working together (assessment tasks completed by groups of students reduce the overall number of tasks requiring assessment, but may increase the time that has to be spent assessing each submission).

•     Independent study strategies, which refer to all student time spent in course-related activities that do not directly involve educators (other than in design of the activities). 

These distinctions are essentially arbitrary, but are designed to estimate student notional hours of learning (how many hours each student is expected to put in to successfully complete the course) and the resulting staff workload. Off this base, it becomes relatively simple to calculate a full range of associated costs, including specialized costs of course design and development. It also becomes possible to compare accumulated costs with projected income, and thus to determine whether or not proposed curriculum strategies are financially viable. 

Distance education planning, however, introduces the need to project costs over time and student numbers. This is because distance education is predicated on the logic that up-front investments in design and development of courses and administrative systems will be amortized over time and large student numbers. It is, therefore, not reasonable to expect a distance education programme to generate more (or at least as much) income as expense in a single year. However, such financial sustainability needs to be achieved over a cycle of a number of years. Without undertaking such calculations, it becomes impossible to establish when – if ever – new courses and programmes will break even financially, hence making it harder to make effective financial decisions on whether or not to make initial design and development investments. 

It is important to note here that such planning does not assume a need for all income to be generated from students. There are several other potential sources of income, including governments, donor agencies, and businesses. The important point, though, is that the educational viability of any distance education programme will definitely be undermined if income does not at least match full expenditure.

Avoiding the Income Trap

When financial analysis is undertaken, it often focuses narrowly on unit costs (that is, the cost per individual student). Such analysis depends for its persuasiveness on demonstrating declining student costs as economies of scale are achieved. This often ignores macro economic analysis to assess whether or not the total sums of money that such educational activity will require exist in the educational economies for which new distance education programmes are being planned. This problem is most serious when it creeps into national policy planning, and it has undermined the viability of many distance education programmes around the world. 

Developing countries share at least one common problem; there are more urgent social problems to solve than there are time or resources to solve them. Faced with so many urgent problems, it becomes very difficult – some would argue almost impossible – to establish priorities, as focusing on one course of action over another often involves taking decisions that may be construed as ignoring fundamental human rights or even – at its most extreme – leading to loss of life (through poverty, disease, unemployment, and other core social problems). This makes it increasingly tempting to want to solve all problems together, as prioritization simply forces decisions that are too difficult to take. 

Often, distance education planning succumbs to the pressure of this problem. Persuasive arguments about reduced unit costs prompt investments in large-scale new programmes aimed at providing almost immediate solutions to major problems. The following example illustrates this financial logic:

Graduating a single student at a traditional contact institution is, say, costing $5,000. If we invest in a large-scale distance education programmes – using earmarked government funding or money from a donor agency – we can reduce this unit cost to, say, $2,000 (and still provide a quality experience, as this will incorporate extensive learner support).

Regretfully, such logic is usually seriously flawed by inadequate analysis of real income streams. It requires an additional element of analysis, which might run something as follows:

Our analysis is based on a current reality in which 100 students are enrolled for the contact programme, thus leading to a total cost of $500,000. To achieve the economies of scale we have planned, we need to enrol at least 1,000 students. Thus, although our unit costs have declined, we need to expect total expenditure to increase to $2,000,000, a fourfold increase. 

In many instances, income analysis will reveal that there is simply no way to accommodate this increase in total expenditure. We have witnessed several examples where omissions of this type of planning have led to diversions of income away from small, but sustainable, interventions into large, unsustainable interventions. As income streams dry up, the large-scale intervention is forced to cut back on certain critical investments, most notably ongoing course design and provision of adequate learner support. At the same time, the smaller intervention has also been rendered unsustainable. The nett consequence is an increase in the kinds of social problems outlined above as education delivery becomes undermined. 

A key source of this problem is that planners often seek to understand institutions and systems considered to be successful in other contexts. This is a sensible approach to further develop the understanding of different models as well as necessary conditions for success for such models. It however runs the risk that once successful models have been identified elsewhere, it is assumed that they will succeed in the local context. Regretfully, experience demonstrates that such expectations are rarely fulfilled. Again, the only meaningful strategy to overcome this problem is to undertake rigorous financial planning on a case-by-case basis.

Perpetuating Current Patterns of Expenditure

On the flip side of the above problem is that of perpetuating financial inefficiencies. In many cases, establishing distance education institutions and programmes perpetuates existing patterns of educational expenditure rather than challenging them. Very often, their establishment has been motivated by intrinsic weaknesses in the mainstream, ‘contact’ system, which policy makers have seen requiring years of structural change before large-scale improvements will become noticeable. Thus, distance education provides a handy, reasonably quick institutional solution to problems of educational delivery, which can operate largely outside of mainstream systems and hence not be slowed down by the pace of these structural changes. On the face of it, these appear then to be structures of particular interest and relevance to developing contexts. There is, however, a very real danger implicit in this, namely that such expediency further retards the pace of change in mainstream systems. Better financial planning – particularly at national level – can go some way towards avoiding these problems.

 Conclusion 

Perhaps the best generalization that can be made about the methods of distance education in relation to cost-effectiveness is that they provide tools for designing and building high quality systems for facilitating learning that are sensitive to the specific needs of students. Their cost-efficiency and effectiveness depend primarily on the number of students who can be recruited to each of their courses and the quality of their teaching materials and student support systems. Other factors have a bearing (for example, whether fees are set at levels that discourage recruitment and retention, and whether courses are designed from scratch or bought ‘off the shelf’) but these are the fundamental conditions for success. Distance education institutions that have been able satisfactorily to fulfil these conditions have been able to demonstrate higher levels of cost-efficiency and cost-effectiveness than comparable conventional institutions.

 Footnotes 

[1] For a more comprehensive discussion of fixed, variable and semi-variable costs consult Rumble, G (1997) the Costs and Economics of Open and Distance Learning, Kogan Page Limited: London.

[2] Rumble, G (1997) the Costs and Economics of Open and Distance Learning, Kogan Page Limited: London, p. 27.

[3] See, for example, G Dhanarajan et  al., ed., Economics of Distance Education: Recent Experience Hong Kong:  OLI Press, 1994.

[4] Swift, D. 1996. A Conceptual Analysis of the Costs of Distance Education. SAIDE Concept Paper, Unpublished.

[5]Department of Education and Science, Average Recurrent Unit Costs of the Open University and Conventional Universities, Confidential and Restricted Paper, 1981.

[6]JH Horlock, ‘The Open University after 15 years’, Proceedings of the Manchester Statistical Society, 1984.

[7]H Perraton, ‘Comparative Cost of Distance Teaching in Higher Education:  Scale and Quality  in G Dhanarajan. op. cit. p.21

[8]DF Swift and G Dhanarajan, Cost-Effective Distance Education: A Hong Kong Strategy, Hong Kong, 1992.

[9]JC Taylor  & VJ White, The Evaluation of Cost Effectiveness of Multi-Media Mixed-Mode Teaching and Learning, Canberra, Australian Government Publishing Service, 1991.

[10]JS Daniel, Open Universities and the Knowledge Media: New Opportunities: New Threats, Conference Paper delivered at IXth annual conference of the Asian Association of Open Universities, 3-5 December 1995, Taipei, Taiwan.

[11] As used here, an Open School refers to an educational institution operating in the spheres of primary and/or secondary education, providing courses and programmes predominantly through use of distance education methods.

[12] Perraton, H. Open and Distance Learning in the Developing World, Routledge, New York, 2000. p. 126-27. This book provides a useful overview of several comparative costings of distance education in the developing world, for readers interested in pursuing the topic further.

[13] Swift, D. 1996. A Conceptual Analysis of the Costs of Distance Education. SAIDE Concept Paper, Unpublished.