Effective financial management in hard times

It’s equally important to examine financial challenges confronting India’s private schools because 48 percent of the country’s children — and all middle-class children — are enroled in them

THE 82-WEEK LOCKDOWN OF SCHOOLS coun­trywide during the Covid-19 pandemic accentuated the fragility and brittleness of India’s K-12 educa­tion system. Questions have arisen not just about how education is imparted to students, but also about the struggle of 450,000 private schools — especially 400,000 budget private schools (BPS) — to survive financially after the pandemic.

Although it’s important to discuss Covid-induced loss of learning, it’s equally important to examine the financial challenges confronting India’s private schools, because 48 percent of the country’s children — and almost all children of middle-class households — are enroled in them.

Typically, a private school’s major heads of expenditure are teacher and staff salaries, employee benefits, purchased services, supplies and miscellaneous expenses. Provision also must be made for maintenance and renovation of school buildings and infrastructure. On the other hand, a school’s major income heads are tuition, admission and security fees and payment received for transport, uniforms and textbooks. Though a few schools also fundraise, the majority rely entirely on students’ fees.

Normatively, the break-up of expenditure is: salaries (40 percent); infrastructure expenses (30); transportation (12); housekeeping (5); security (3) and miscellaneous, including marketing, communication, technology etc (10).

In a standard CBSE/CISCE-affiliated private school with 1,250 students, average class strength of 35 students and teacher-pupil ratio of 1:23 (as per CBSE norms) and teacher salary of Rs.33,000 per month, merely to meet salary expenses, tuition fee per student has to be a mini­mum Rs.3,000 per month. However, it’s important to note that most schools in India are BPS institutions catering to lower middle and working class households, charging fees below Rs.1,500 per month per child which obliges a family to spend 20-25 percent of its monthly income per child’s education.

According to an authoritative study, State of the Sec­tor: Private Schools in India (2020) commissioned by the Central Square Foundation, a Delhi-based not-for-profit, 70 percent of private schools in India levy tuition fees be­low Rs.1,000 per month. They are wholly reliant on tuition fees paid by their students. Therefore, many of them are confronted with severe financial constraints.

Private schools have little elbow room over teacher sala­ries which are benchmarked with government prescribed salaries influenced by Pay Commissions. Therefore the only option is to control and optimise expenditure under other heads. The good news is that by focusing on expenses within their control, low-to-medium-fee schools can reduce up to 20 percent of their annual expenditure.

• Teacher utilisation. Analyses of teacher optimisation in schools indicate that they have an average teacher utilisa­tion ratio of 50-60 percent as against a healthy 75 percent. By adopting cost optimisation measures, teachers can be optimally distributed across classes through reduction of free periods during which they usually discharge adminis­trative duties. By scientific planning of periods and reduc­ing teachers’ admin work, institutional managements can cut their teachers’ payroll by 20 percent.
• Reviewing and renegotiating outsourced con­tracts. Services such as transport, housekeeping, statio­nery supplies and school uniforms provided by schools should be reviewed/renegotiated. For instance, renegoti­ating transport contracts and route optimization can bring costs down by 10 percent. Similarly, school managements can slash other expenditure such as housekeeping and se­curity to reduce the expenses bill by another 5-7 percent.
• Inventory management. Schools incur significant interest costs by stocking stationery, uniforms, lab equip­ment, food and cleaning materials etc. Most schools don’t practice inventory planning and end up buying more than required. By undertaking regular inventory audits and prac­ticing kaizen or just-in-time inventory procurement, the to­tal expenditure bill can be cut by an additional 3-5 percent.
• Identifying new revenue opportunities. Fundrais­ing and building endowment corpuses is an area of darkness in Indian education. In particular, vintage schools need to tap alumni to accumulate corpuses for infrastructure de­velopment and renovation. Another option is to connect with large corporates which are legally obliged to spend 2 percent of their profit on CSR (corporate social responsibil­ity) projects, which includes school education.

In any business and service organisation when revenue flows reduces and legally mandated and/or uncontrollable expenditure rises, proactive managements must devise strategies to reduce variable expenditure and actively gen­erate new revenue streams. For most private — especially budget private schools — whose finances were thrown into disarray by the Covid pandemic, these are difficult times. By working within the guidelines presented above, they can keep their heads above water in anticipation of better times ahead.

(An alumnus of IIT-BHU, Varanasi and XLRI, Jamshedpur, Vijay Shukla is managing partner of Eduvisors, Gurugram, an education sector consulting and professional services firm)