Cover Image
close this bookSchool Enterprises: Combining Vocational Learning with Production (UNEVOC, 1998, 64 p.)
close this folder3. Conclusions and Guidelines
View the document(introduction...)
View the document3.1 Rough typology of school enterprises
View the document3.2 Structures of school enterprises
View the document3.3 Organisation of learning
View the document3.4 Competency profile, learning outcomes and learning goals
View the document3.5 Curricular processes
View the document3.6 Teaching staff
View the document3.7 Regulatory framework of school enterprises
View the document3.8 External relations
View the document3.9 Impact of school enterprises
View the document3.10 Financial options for school enterprises
View the document3.11 Mixes of private and public roles
View the document3.12 Factors that may enhance school enterprises

3.10 Financial options for school enterprises

The question of who should bear the cost of school enterprises as a basic mode within vocational training and education is becoming of increasing relevance because of the pressures of scarce resources. Closely related to this question, and of equal importance, is the mode of financing school enterprises as school enterprises are not merely commercial institutions oriented to the goals of market production, but primarily oriented to the goals of training and education as well as to social goals. Theoretically, there can be several choices in financing school enterprises.

1. One option for school enterprises is to diversify the mechanisms of providing technical and vocational education by combining public and private sources as well as profit-making and non-profit-making means. This could mean a combination of

· direct financing from Government budgets,
· the partial self-financing of school enterprises with assistance from donor agencies, and
· complementing training in school enterprises with apprenticeship training in the modern sector as well as in the informal sector, carried out mainly by private enterprises at their own expense in accordance with their labour demands.

2. The second option for school enterprises to respond to pressures of scarce resources is through the cost-recovery methods, such as fees for laboratories, marketing of enterprise copyrighted inventions, contracts, consultancies, and sales of products and services. Another form of cost recovery is charging fees to the enterprises benefiting from the supply of skilled labour, and partial cost recovery through fee charged to the trainees.

3. The third option for school enterprises to respond to pressures of scarce resources is by increasing institutional efficiency. This includes the economic efficiency in the use of available educational resources so that the institution is able to be in a position to finance its operation at costs from its income. This includes close attention to student/ teacher ratios, less expensive contractual arrangements, and divergence in salaries to reflect market demand for students. This option will be gone into in detail as school enterprises may be said to be oriented inter alia towards internal efficiency because they pursue both educational and economic goals.

Issues in economic efficiency of school enterprises

A major raison d’e for establishing school enterprises is the belief in internal economic efficiency in the use of educational resources, particularly in field of public sector education where the gap is widening between the increasing demand for education and training on the one hand, and the limited amount of resources to meet such demand on the other. The argument is that institutions of technical and vocational education should use available financial resources more efficiently. Further it postulates a better cost-effectiveness in comparison to resource inputs; i.e., the internal management of the school should consider their investment decisions without overlooking the economic constraint. In other words, total revenue must exceed total expenditure and also allow an adequate return on capital employed. This may be said to be the internal commercial goal of school enterprises.

Most methods for measuring educational efficiency49 attempt to measure the performance of training and compare it with the necessary inputs in order to obtain information on the optimal utilisation of financial inputs by decision makers. According to these methods it becomes necessary not only to quantify the cost of training50, but also to attach a monetary value to the learning outputs. The range of learning outputs subject to evaluation is enormous. Nevertheless, the main learning outputs of school enterprises may be characterised as follows:

1. the learning outcome, i.e., the trainees’ competencies and qualification as skilled workers;

2. the trainees’ productive achievements, e.g., an apprentice’s competency utilisation in the production process, with a valuation according to the equivalent skilled-worker wage;

3. earnings51 from the sale of goods and services emerging from the training process as well as other proceeds: e.g., rent, tuition, income from the cafeteria.

49 Educational efficiency is assessed in several different ways: cost-benefit analysis, cost-effectiveness analysis and input-output analysis.

50 The most common way of calculating the economic efficiency of school enterprises is through the cost control method, taking into account productive achievements, trainees’ qualifications, and sales from goods and services. It is advisable to differentiate between gross costs, net costs, and earnings. Gross costs are understood as the total cost of training; earnings are the result of the school selling its goods and services plus miscellaneous revenues. The difference between the gross costs and the earnings yields the net cost of training, or the amount that must be financed by the training establishment or other organisations, since it exceeds the school’s own goods and services output. Training costs comprise both a quantitative component, i.e., the amount of goods and services required to complete a school’s training programme, and a value component, i.e., the quantification of prices of goods and services. The calculated cost is the result of multiplying the quantity of inputs by the prices of inputs.

51 The training of skilled workers in a school enterprise can yield direct and indirect forms of income. The proceeds resulting from the provision of goods and services from the customers or for internal needs are regarded as the school’s direct income, while its indirect income includes earnings from the trainees’ productive activities, e.g., in connection with practical training in a real enterprise. Mostly, the cost calculation of school enterprises takes into account direct income.

The learning input (academic achievement) comprises of two broad categories: those over which educational authorities have no control (previous educational and job experience levels of students and socio-economic background, gender, ethnicity, home environment, learning ability and trainees’ interest) and those over which educational authorities have considerable control. Within the latter group, further differentiation can be made between financial inputs within the scope of school enterprise (teachers, buildings, teaching and learning aids) and elements involving no direct financial expenditures or costs (value-added concept of learning, incremental learning and instructors’ classroom behaviour).

For any analysis of cost of training, very often the only suitable input elements are those that can be influenced by the school’s decision-makers and which incur costs within the school enterprises. These may be termed the school-based production factors. Four cost groups are usually distinguished: personnel, operating costs, administrative expenses, and fixed-asset costs. Personnel costs are gross amounts including trainee, staff and supporting staff remuneration. Operating costs of schools are the costs of the educational process, and depend on the number of trainees and teaching materials. These consist of energy, consumables, learning-teaching aids, transportation, working clothes, and rent. Administrative expenses are incurred for managing and administrating school enterprises: insurance, taxes, fiscal charges, etc., consumables, communication and entertainment. Fixed-asset cost may be broken down into immovable and movable assets. Immovable assets are comprised of real estate; movable assets are comprised of tools, machines, and shop, laboratory, office and classroom equipment.

In the following, the economic efficiency aspect of technical and vocational training will be examined more closely across the various case studies. It is also necessary to address the question regarding the utilisation of income: is it used for covering operating costs, including the teacher salaries, or does it serve to pay students from low income families?

In some enterprises, educational goals take precedence over economic goals. These schools are very often characterised by a predominantly school organisation structure. They provide practical training on the basis of a simple level of equipment, have limited external relations and are normally under state control. These school enterprises tend to confine their objectives to the educational mandate.

This type of school enterprise generates no special input costs. However, in order to keep trying to minimise the costs of training, and at the same time maximise the economic benefit of existing resources, a situation may arise whereby learning achievements may have to be reduced in favour of directly marketable output factors, e.g., the production of goods by the trainees in the course of instruction. This illustrates one of the problems of combining commercial and educational goals in some school enterprises.

There are other school enterprises, however, which try to achieve an effective balance between educational and economic goals. In such schools, although the costs of the input factors, such as manpower, equipment, infrastructure and material costs are substantially high, this is balanced by high earnings from the sale of goods and services. These schools achieve a positive net cost balance because they are able to earn substantial amounts of sundry income through vocational upgrading measures that utilise the existing inputs (in the case of PIKA, 30% of all income is attained in this way).52 This may be attributed to the fact that such schools are more effective than other schools in adjusting to local market conditions. At the same time, they are able to increase their sale of goods and services without sacrificing their learning achievements. This has been made possible by combining economic and educational goals in the marketing of teaching services, such as offering further vocational training courses for welfare institutions and local industry enterprises.

52 See Greinert, W.-D. and Wiemann, G. 1993, pp. 48-49

In school enterprises that offer self-employment oriented occupational training and social education aimed at strengthening the self-help potential in urban squatter areas, there is a good basis through school enterprises for self-financing through self-employment within the executing institutions. This can be clearly seen from the experience of the Don Bosco Self-Employment Research Institute, Howrah. Here the income generated by self-employment is shared between the school, the bank, teachers and supporting staff, till the trainee is able to pay off loans and a fixed percentage of operating costs. The salaries of teachers, etc., have to, however, still be paid through governmental subsidies, donor agencies or contract work carried out for modern industry by the Don Bosco Technical School. This sharing of income approach serves as an incentive for all parties to participate in the training programme.

Self-support is as important for an individual as it is for the institution. Many of the students in educational institutions, particularly in vocational courses, come from families which have limited resources. The modality of school enterprises has been shown to create income for poor students and their families through the sale of goods and services produced by the students, and also to reduce opportunity costs for the participants who decide to go to school instead of work.

Principles for assessing the suitability of the different modes of financing

School enterprises are economically efficient institutions as they combine commercial production and educational objectives and most of them are also able to cover their operating costs. They, nevertheless, have to be dependent upon external contributions, especially during the initial phases. Due to the slow development of their financial basis, school enterprises have long take-off periods. At the start of these programmes, school enterprises are able to finance running costs to a very small extent and are thus reliant on outside financing. It is only in the well-established school enterprises existing outside state control that the training costs are fully covered from the income of the school enterprise, both from the training division and the production division (PIKA, Indonesia, and Don Bosco, India).

However, when assessing the suitability of the different modes of external financing, the following educational and equity considerations should be taken into account:

Educational considerations

· The combination of training and production requires adequately trained personnel and better school quality.

· A shift of financing responsibility directly to a private enterprise may leave little scope for concentrating on the learning objectives of the enterprise as this would clash with the business management and commercial objectives of the private firm.

· The more and more ‘marketable’ self-financing courses may distort the educational priorities of school enterprises. School enterprises should therefore limit their continuing education courses for regional industry, especially when it interferes with the educational goals of the trainees within the school enterprise.

· The emphasis on investment costs for physical infrastructure, equipment and teaching material, and the neglect of operating costs such as salaries, training instructors and social multipliers is detrimental to the successful implementation of the learning objectives of school enterprises. For, without well-trained instructors, school enterprises cannot be successfully implemented.

· School enterprises incorporate the notion of social education and effective linkages between school and community as well as between production and learning. These extra functions of school enterprises require expensive investments in adequately qualified teachers and instructors as well as in the employment of local craftsmen, social workers and technical experts for supportive measures.

· Financing should not only be on the basis of a calculation of economic efficiency as this calculation takes into account those learning results to which a monetary value may be applied. However, learning results very often depend upon the trainees’ prior education, his learning and retention ability, and his interest. Furthermore, several learning outcomes are not amenable to objective measurement. Particularly, the results of the affective and social learning dimension (moral values, team work, and problem-solving) are difficult to measure in monetary terms. Finally, several outcomes of learning relate to institutional and managerial prerequisites such as a co-operative work environment.

· Training and education tasks should always take priority over the cost recovery aspect.

· The mode of financing should give due consideration to the aspect of sustainability of school enterprises. Heavy reliance on non-governmental sources may create the problem of not only external indebtedness, but also sustainability of school enterprises in addition to cultural and administrative problems.

Equity and social considerations

· The training of people from low-income families requires more time and personnel in order to make up for restrictive out-of-school influences.

· School enterprises, as the case studies exemplify, are intended not only for trainees from middle-class families but also for beneficiaries who can bear neither the direct nor the indirect costs of vocational training or further education, not least to say, the costs of extended training. Therefore, in many cases, grants or subsidies for the trainees are required to cover the direct training costs and often also the indirect costs for accommodation, food and/or transportation. These are essential to enable people from low-income families to participate in training. Governmental scholarships and loan programmes should however aim to overcome the inherent administrative and structural weaknesses of these programmes and serve as an antidote to the regressive effects of increases in fees, especially with regard to creating a system of separate schools for the rich and the poor.

· School enterprises which offer decentralised training and advisory services to recipients from the informal sector may have to bear high operating costs, mainly for staff payment and transportation. However, a nominal fee for training and advisory services provided to small and micro-entrepreneurs and self-employed business women might serve as an additional educational objective of promoting cost-conscious entrepreneurial thinking and/or sustaining the will for self-help.

· Although private commercial training institutes may provide good job-related training opportunities for some target groups, they are largely unsuited to meeting the competency requirements of all target groups. In fact, most enterprise-based private sector training tends to perpetuate the existing social disparities.

· School enterprises very often have to make up for insufficient basic educational competencies. This requires longer training periods than in normal training institutions.

· A consideration of these reasons clearly shows that the main burden and responsibility for the financing of school enterprises must be carried by the national budgets. This does not mean that it might not be reasonable and worthwhile to seek nongovernmental sources by which at least part of the financing could be provided otherwise. Nongovernmental sources, however, can only supplement the governmental efforts; they cannot be viewed as reliable sources or as alternative sources to public finances.