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FastStats: Breaking Down the Operations Budget

Monday, May 6, 2019   (0 Comments)
Posted by: Lori Spear
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By Jeff Mitchell, Head of School, Currey Ingram Academy, Brentwood, TN


In this FastStats, we examine the expense side of the operations budgets in independent schools.

Figure 1 includes eight major expense categories for NAIS schools. Depicted as the median percentages of the overall operating expense, you see:

  1. Salaries = 54.4%

  2. Benefits & Payroll Taxes = 12.8%

  3. Financial Aid = 7.9%

  4. Plant = 6.8%

  5. Debt Service = 6.3%

  6. Administrative = 3.9%

  7. Technology = 1.6%

  8. Professional Development = 0.6%

  9. Other Expense (e.g., Dining) = 5.6%

 

 

 

The breakdown for SAIS schools is very similar to all NAIS schools, with the exception of Debt Service. Debt Service as a percentage of the operating budget runs at 3.31%, almost half of the 6.3% for all NAIS schools. It seems SAIS schools are a little more debt averse than the overall population of NAIS schools.

For most heads, Figure 1 is a familiar analysis. Comparing your budget to these median percentages for all NAIS schools will give insight into your situation. (See Appendix for further discussion.)

As an aside, I find it interesting that the median expenditure for professional development is a paltry 0.63%. We pale in comparison to other industry sectors:

  1. Healthcare 16%

  2. Technology/Media/Telecommunications 13%

  3. Consumer Discretionary 11%

  4. Industrial, Energy & Materials 3%

  5. Consumer Staples 3%

It is ironic and lamentable that schools are, at their essence, houses of learning and dedicate such a miniscule amount to the ongoing learning of our employees.

Per Students Cost Trend for Major Operating Expenses

The remainder of this FastStats focuses on the per student cost trends of major operating expenses. The per student cost trend allows enrollment to be controlled for, as costs over time are analyzed.

Figure 2 shows the Total Operating Costs Per Student[1] for the past 10 years in both NAIS and SAIS schools. Over the past decade, there has been a modest increase per student, probably explainable by inflation. Notice that NAIS schools, as a whole, spend more per student. This is explainable by the fact that NAIS schools, as a whole, have higher costs[2], especially for staffing.

 

 

Figure 3 shows the 10-year cost trend per student for compensation (i.e., salaries, benefits, payroll taxes). In almost every case, it is the largest single budget expense for schools, thus having the most significant impact on overall budget trends. One can observe in Figure 3 that the percentage of the budget allocated for compensation on a per student basis has increased, likely beyond inflation. From 2009-2010 to 2018-2019, NAIS schools have increased from $15,215 to $18,802 (23.58%) and SAIS schools have increased from $11,700 to $13,859 (18.45%). In a previous FastStats (Is Your Administrative Staff the “Right” Size?), I have demonstrated that the increase in the per student amount, after inflation is accounted for, might best be explained by additional staffing per student, especially administrators.

 

 

Figure 4 represents the 10-year trend for the median financial aid expense per student. The per student financial aid expense in NAIS, as a whole, has increased well beyond inflation over the past 10 years, about $1200, an increase of 48.30%. Clearly there is intentionality on the part NAIS schools to enhance the amount of financial aid available, whether due to enrollment maintenance, socioeconomic diversity, or some other factor. It is very interesting to note that the per student cost for financial aid in SAIS schools has increased a very modest amount, about $300 in 10 years.

 

 

Figure 5 represents plant or facility costs per student, including both cleaning and regular maintenance. Inflation-aligned modest increases are indicating by the trend lines for both NAIS and SAIS schools. In short, it does not look like plant costs have had an undue influence on increasing operating expenses in the past decade.

 

 

Figure 6 represents the square feet per student of indoor space in independent schools. It is not an often-explored variable, but it’s a valuable one, especially if a school is having strategic conversations about whether to create more indoor space. Figure 6 offers the median square feet per student, as a benchmark for those conversations.

Notice that there is a sizable gap between NAIS schools (502 sq ft per student in 2018-2019) versus SAIS schools (310 sq ft per student in 2018-2019). Also, notice that both NAIS and SAIS schools dramatically increased their square feet per student from 2013-2014 to 2014-2015. This is puzzling. It is a statistical impossibility that such a change can occur in one year. The increase over one year probably reflects a change in the wording of the question asked that prompted schools to answer with a higher number. Based on the fact that the trend line is relatively flat for the other nine years, my best guess is that the square feet per student has not changed much in the past 10 years.

 

 

Appendix: Explaining Operations Expenses to Parents

For many years I have conducted annual constituent (i.e., parent, faculty/staff, student, alumni) satisfaction surveys in my schools. Thoughtfully created surveys yield results that are in part:

  • Celebrations of the excellent work the school is doing;

  • Opportunities to share the direction of the school;

  • Feedback on how the school is doing;

  • Feedback on where the school is going.

  •  

    As such, they are extremely valuable tools in the communication cycle.

    I have always conducted a parent session in which the results of the survey are presented, warts and all. Why ask if you are not going to share the results? Like most schools, I am fortunate to be at a school in which the results of the survey are mostly opportunities to wave the flag. There is the rare occasion when something so inappropriate is written that I do not share it.

    However, we do, like most schools, have sticky issues. Perhaps our stickiest is affordability. Currey Ingram is a school for students with learning differences and it takes very low ratios to deliver the mission and we do deliver, by and large. But even when parents can fully appreciate the mission and what it takes to deliver the mission, it’s still hard to get over the price tag and we hear about it in the survey.

    As a response to this feedback, my survey presentations for parents have always included our version of Figure 1, which I use to breakdown our operations budget. Or, in words more germane to parents, I show them exactly where their tuition dollars are going. When parents are given concrete evidence that their tuition dollars are primarily paying for the faculty and staff whom they adore and (fortunately in our case) very little is going to service debt, they walk away feeling much better about the tuition paid.

    As always, I welcome your thoughts on this or any other FastStats article.



    [1] Note that these numbers are not adjusted for inflation.

    [2] And revenues...


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