Author: Dr. D. Mukhopadhyay
Indian higher education is becoming costly day by day and it is currently in a state of dismal conditions. Parents are not happy with the service delivered by the educational institutions. There is unhealthy competition among the educational institutions and service both in terms of academic and administrative are of cost prone. The tier one educational institutions including Indian Institutes of Management are charging more than twenty lakhs for a two year Management and Engineering Degree Programmes. Under the prevailing conditions, it is difficult for the middle class and lower middle class society to avail the best and quality education. Here lies the role of cost and management accounting in managing the escalating costs of the higher education system in the country in particular and education sector in general.
Education comes under the category of service sector and manufacturing sector manages the business with the help of modern cost and management accounting tools and techniques and service sector like health and sanitation is equally benefitted with the help of cost management process to sustain competition in the market. Techniques such as Activity Based Costing popularly known as ABC, Total Quality Management, process of waste elimination, improving quality of service gained and the confidence of the customers. In education sector, students are customers and they need to be treated with qualitative service at reasonably competitive costs. In higher educational Universities, there are more than thirty to fifty departments and thus each department should be treated as a profit centre instead of cost centre. Each department shall be equipped with annual budget and the same must be judiciously managed by the Head of the Department. Each and every expenses must be justified before it is spent. Cost and management accounting methodology aims at identifying activities of each department and assigns costs to each activity. No spending is to be done before it is earned.
Each department apart from employment cost of the faculty members incurs expenditure on projects, research and development, students training and extracurricular activities, seminars and conferences. It is essential, that each of the stated activities must have a predefined budget and variance if any between budgeted expenditure and actual expenditure has to be analysed periodically. Their performance measurement parameters should be contribution per student in one hand and cost per student on the other. Contribution would contribute towards the recovery of fixed cost and certain reasonable degree of surplus. Since there is considerable amount of investment in the infrastructure of the institutions, a reasonable rate of return on investment not less than the opportunity cost should be in place. Entire cost for running the institutions has to be segregated into direct costs and indirect costs. Indirect cost is overhead and they are incurred to support the operations.
By modern cost and management accounting techniques it is possible to ascertain cost per class, cost per student, cost per research project etc. An operating cost sheet can be designed and cost per student can be monitored with the help of cost management techniques. An institute should not charge anything more than actual cost plus operational surplus as the reward in the form of return on investment which can be ploughed back for future plan and expansion. The pricing per programe can be designed with the help of management accounting techniques. Majority of expenditure of an educational institutions is fixed cost and variable cost is comparatively on the lower side. Again majority of the fixed cost is attributed to employment cost, rent and rates, advertising and cost of communication. In order to be free from financial risk , most of the institutes charge exorbitant fee and accumulate huge surplus. Most of the higher educational institutions are formed by trusts and they enjoy lot of income tax benefits. Hardly in few cases, they become subject to tax. Universities prepare financial statements and they mostly depend on grants from the governments and they remain indifferent to cost management of each departments and that is why cannot take part in developmental programmes.
It is the private institutions that are found to be more cost effective and thus they do not suffer from anemia. Cost and management accounting can take care of better management of resources, performance measurement department-wise, evaluation of new project and adding of new departments, creating cost effectiveness and cost consciousness among the people and staff by providing certain pro-employees incentives, managing overall cost of running the University. Operational cost sheet, budget and budgetary control and mainly zero based budgeting , treatment of profit centre concept for each department can make the institutions run financially viable. Teaching and learning constitutes the major operational part of work of a University. Once cost per student is computed, it can be matched with revenue per student and in each department would leave margin per unit. Student is the cost unit here. There is support activities like finance section, examination holding section, admission section , class room and class routine management sections and expenses of these sections shall be covered under the canvas of overhead which are subject to allocation and apportionment. Each department's earning and allocated expenses shall be matched to measure the financial performance of the concerned department. If the cost is managed scientifically, no institute shall be closed down but shall be able to deliver qualitative service at competitive prices. The fee charged by certain educational institutions on the basis of quality of placement and package of placement. Multinational and reputed organizations recruit from those institutes whose products are comparatively superior to other and those institutes take that opportunity to raise fee like anything and they need not bother about cost of education delivery system. But they are few in number.
Majority of the Universities and institutes are of average standard and cost and management accounting techniques can help them in better performance management and can generate competitive strength with those tier one standard organizations. Cost and management accounting techniques help in taking strategic decisions by the promoters under uncertainty, and risk. There is certain degree of lack of awareness about the efficiency and effectiveness of these techniques. Only those who knows the utility of the this scientific professional discipline, they reap the benefit.
The higher education in particular and education sector in general needs to depend on cost effective and cost efficient techniques and systems in order to sustain competition on one hand and to remain financially self sufficient on the other end. Management accounting is a strategic management science that acts as a guide of the management. India is one of the leading countries across the globe where Management Accountants (ACMAs/FCMAs) plays a catalytic roles in managing profitability of the Multinational Companies and big industry houses. The objective of this write up to make the educational societies aware of the cost effective management process in order to sustain under different critical situations. Management accounting can be used and useful to any organizational sustainability, growth and development irrespective of its size or type. Cost is the common denominator of everything for the purpose of decision making. Education sector can immensely be benefitted to manage cost and deliver quality with the help of a robust costing system. The message of the Institute of Cost Accountants (ICAI) of India is "Behind Every Successful Business Decision, There Is Always A CMA" and thus education sector can be managed better with the assistance of management accounting science and techniques.
(The Author is Professor of Management, School of Business, Faculty of Management, SMVDU)
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