2. Case background
When Scott became the president the university was facing declining enrollment and
increasing cost.
The deficit resulted from using the principal of quasi-endowment funds.
Scott instituted measures to turn the financial situation around: by raised tuition, froze
faculty and staff hiring and reduced operation cost.
Mr. Malcom – Piedmont alumni and partner in local consulting firm, volunteered to
examine the situation and offered the following recommendations:
Increased recruiting and fund raising activities.
Recognized the university into a set of profit centers.
3. Case background ( cont.)
At the time the principal means of financial control was an annual expenditures
budget submitted by the dean of each school and other support departments’ heads.
Malcom proposed that the deans and other department administrators would be
responsible for both revenues and expenditures of their activities.
new procedures for crediting revenues to the profit centers that earned them and
charging expenditures to the profit centers responsible for them.
Issues of profit centers:
Central administrative costs, gifts and endowment, athletics, maintenance, computer,
library, cross registration.
4. Items Current Practice Proposal Recommendation
Central
Administrativ
e Cost
No university-wide
administrative costs
The costs would be allocated to
profit centre
The proposal can be practiced. However
Piedmont should include below
measures for a win-win situation
between schools and profit center
• Fair allocation need to be distributed
to each school
• Some percentage of generated
revenues would be given to profit
centre
Gifts and
Endowment
Every schools
received the same
allocation for annual
gifts.
• The revenue from annual gifts
would be reduced by the cost of
fund-raising activities
• The President has the authority
to allocate the amount of annual
gifts + endowment income to
each school
• A committee should be established
to validate the allocation applied by
each schools prior to Presidents’
decision.This is to avoid lobbying
and bias in decision making.
Athletics No cost charged to
students for
individual usage of
the sport facilities
Fee would be charged on students
using the sport facilities
• Offer membership program to
students
• Open the sport facility for public
usage by charging some fees
1. How should each of the issues described above be resolved?
5. Items Current Practice Proposal Recommendation
Maintenance Each school had
maintenance department
and bear the cost for
minor maintenance job.
Sizable job done by
central maintenance
department
The central
management would
charged schools for
the work they did
• If the external contractor is charging
lower than the central maintenance, the
schools can opt for external contractor
given that they have to comply with the
quality standard set by central
maintenance of Piedmont University
Computer Principal mainframe
computers located and
supervised by the
engineering school
Fee would be charged
to the students and
faculty members
based on the usage
• A system is applied to control the usage
of the computer – the clocking system
• Fee will be charged for extra hours
Library No charged is incurred Fee would be charged
to the students and
faculty members on
the use of library on
annual basis or on
time spent or number
books borrowed
• The library can organized events on
books promotion and discounts will be
given
• Free service for basic facilities such as
borrowing books
• Open membership to the public and
membership fee will be charged
• Encourage donation from MNC
6. Items Current Practice Proposal Recommendation
Cross
Registration
No charge is incurred
when students from one
school took courses at
another school
The school at which a
course was taken
would reimburse the
school in which the
student was enrolled
The amount is total
semester tuition
divided by number of
courses
• Any extra fee would be bear by the
students.
7. 2. Do you see other problems with the introduction of profit centres? If so,
how would you deal with them?
■ In education field, universities should not act as profit-oriented business.
■ The purpose of establishment universities is to encourage higher learning
■ The profit in education field cannot be measured as monetary, rather it is more towards the
achievement of the students and the knowledge gained.
■ Instead of implementing/ charging fees to the students and faculty members based on the
proposals, the university should seek more opportunities in terms of contribution and donation
from MNC, alumni, local community.
■ Piedmont can make use its assets to invest and generate more income. For example, sports
facilities, library for public usage and banquet halls.
8. 3.What are the alternatives to a profit centre approach?
• Other alternative: Piedmont asValue
Center
• It involves all the four responsibility
centers where Piedmont’s purpose
both on business capability and
operational efficiency
9. ■ Yes we recommend the profit center to be adopted in Piedmont University as
Piedmont has full control on cost and revenues, generating activities, divisions,
people, processes, projects and etc.
■ Piedmont would have firm grip on profitability which is revenue – cost = profit
■ It also help to take accurate business decision by improving quality and speed of
decision making.
■ Support budgetary control at detailed level, including setting profit objective
4. Assuming that most of the issues could be resolved to your satisfaction,
would you recommend that the profit center idea be adopted, rather than
alternative?