Rakesh Gupta is Managing Partner of LoEstro Advisors which advises clients on strategy, fund-raising and M&A. An alumnus of IIT KGP and ISB, Hyderabad, Gupta was former head of finance and strategy, People Combine Educational Initiatives and management consultant with McKinsey & Co.
Imagine you owned a boat and set sail for a distant land you were excited to see. You wouldn’t expect to spend your journey sleeping and then wake up exactly where you wanted, would you? You’d be constantly watching the weather, and adjusting your course accordingly, regularly refuelling the engine and sometimes even repairing it. The same is true of a school: you have to regularly adjust your direction and fine tune the management and financial processes that drive your school forward to reach your destination.
When anyone first launches a new school they will, quite rightly, give a lot of thought to the following questions:
– Am I charging the right fees for the market I am in?
– Am I overspending or am I spending on the right things?
– How can I make the school operations more efficient?
The problem is that in some cases, those same people forget to keep investigating those questions as time passes. Markets change and the competition adapts, and a school will only thrive if it makes sure it embeds processes that constantly examine these forces and adapts its management and finances accordingly. If a school doesn’t run efficiently, education will soon suffer, and that will eventually lead to the school failing.
This article will explain more about how to constantly renew and refresh your approach to management and finances, using these two schools as our examples.
School A: Our first school operated in a top tier metro, with more than 1,000 students and relatively high fees. The school had a strong brand name and a long waiting list but still found itself struggling to turn a profit.
School B: This school operated in a tier one city. It was extremely successful and had a generous surplus compared to its peers. However, it faced one major challenge: a very high teacher attrition rate which in turn affected the quality of education and hence parent satisfaction.
As school owners and managers, the goal to deliver high quality education should always come first for ethical as well as business reasons, but maintaining financial discipline is also essential to building efficient and sustainable institutions. Embedding a simple but robust process of continuous planning, benchmarking, analyzing and course correcting can ensure that inefficiency does not creep in over time, and you always remain on course.
Planning: The planning process, which should be formally timetabled at least once a year involves identifying and re-examining the key short-term, medium-term and long-term objectives of the school. Do they need to adapt or should they remain the same? Once the plan is agreed by the key stakeholders, the school needs to work out what execution steps should be taken, and what resources are needed, which leads to the next stage.
Budgeting: The budgeting process draws on the plan, execution steps and required resources to develop a detailed budget. This should involve forecasting student and revenue growth, allocating resources to necessary initiatives, and forecasting expenses for the future period. Zero Based Budgeting (ZBB), a methodology which does not rely on historical spends and where each cost needs to be justified, is typically found extremely effective in driving efficiency.
Benchmarking: Once the budget is ready, it is important to identify and benchmark some of the key operational and financial drivers alongside industry peers. You need to identify which are the key line items on the revenue side (in a school these are usually tuition, lunch and transport fees) and which are the key line items on the expense side (usually staffing, building and utilities costs). Then you need to identify key drivers, such as the number of students taking lunch and how that drives lunch revenue, or the average teacher’s salary as a driver for your staffing costs. Finally, you benchmark these drivers alongside industry peers, making sure you select the right set of peers first.
Analyzing: This is a crucial step – taking the results of the benchmarking exercise and examining them thoroughly. Wherever your school is found to be an outlier in a revenue or an expense item, examine why and if something needs to be done to adjust your current approach to management and finances.
Course Correcting: The analyzing process will leave you with a clear sense of which outlier expenses have revealed areas where your school needs to change direction and/or improve efficiency. At this point you should conduct a detailed analysis of that operational domain, and initiate discussions amongst the key stakeholders to identify improvement strategies. All of this work will then feed into your next year’s plan, ensuring that this entire process constantly renews itself.
When this process of planning, benchmarking and analysing was applied to School A, its owners found that the student teacher ratio and the square feet space per student were high compared to the industry average. This indicated inefficient use of both space and manpower, and indicated some clear steps that could be taken to improve profitability.
In School B the benchmarking found that, without the managers noticing, the market had changed and its teachers were now paid less than most of its rivals, causing its troubling levels of staff attrition. A relatively small increase in salaries and increments was able to stem the losses of key staff, ensuring the long term sustainability of the school.
This approach to continuous planning, benchmarking, analyzing and course correcting is quite straightforward, so it’s remarkable how many schools neglect it. It does take time to set up these processes, but if they are then maintained and integrated into the heart of your school management, they will ensure your school continues not just to function but to thrive.
Everyone who owns or runs a school has a vision, an idea of exactly where they want to be, but if you don’t regularly adjust and fine tune your approach you may end up blown off course. However, if you adopt a rigorous approach to continuous improvement you will land exactly where you hoped with everyone still on board and ready to join you on your future journeys.
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