Cost and Financing in Open Schooling/ How Student Numbers Affect Costs/Economies of Sale

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The cost-effectiveness of open and distance learning relative to conventional systems of delivering education relies heavily upon its potential to achieve economies of scale. Conventional, classroom-based education is characterised by relatively low fixed costs. Even though considerable amounts are spent on providing school buildings, the relative importance of these costs is reduced if they are depreciated over the useful life of the structure. However, large numbers of teachers are needed to provide conventional education, and their salaries represent a high variable cost.

By way of contrast, ODL institutions incur high fixed costs in developing self-instructional materials. However, the variable costs of reproducing and distributing these materials, as well as providing face-to-face tutorials and academic support, can be considerably lower than for conventional education. If the ODL institution manages to increase the number of students registered for a particular course, the average costs per student declines more rapidly than those for conventional education. This situation is illustrated in Figure 2e below.

Insert MS Word file: Figure 2e – Average Costs of ODL vs Conventional Education.doc

Whether it is cheaper to deliver a course through ODL methods than in a conventional classroom depends upon the average costs of the two modes, which are themselves dependent on student numbers. Zone A in Figure 2e shows where the average cost per student for conventional education is lower than for ODL. As student numbers increase, however, the relative position changes so that the average cost per student is lower for the ODL institution, as is the case in Zone B.

The point at which the graph lines showing the average costs for the two modes of delivery cross over corresponds with a specific number of students. If the ODL institution can enrol more than this number for its course, then both average and total costs of delivering the service will be lower than for classroom-based education.

From an economist’s point of view, ODL institutions must do the following in order to ensure that they remain cost-competitive in relation to conventional methods of delivering education:

  1. Increase the scale or number of students enrolled for their courses (beyond the crossover point).
  2. Keep their fixed costs to a minimum, by:
  • Reducing the scope or range of courses offered (especially those with low numbers),
  • Utilising less sophisticated media in delivering their courses,
  • Extending the life of courses.
  1. Keep variable costs to a minimum, by:
  • Limiting interaction between students and tutors,
  • Minimising other student services.

Questions for Consideration Why might it be counterproductive to follow the economist’s advice? What reasons can you think of for:

  • NOT reducing the range of courses offered?
  • Using more varied and sophisticated media to deliver a course?
  • NOT extending the life of a course?
  • NOT limiting interaction between students and tutors?
  • NOT minimising other student services?