Dear Reader: What follows is an attempt to define a complex topic. Like all the articles in EdPath, I earned a quick education about online teaching and learning cost models and studies primarily through interviews with experts in the field. I then transcribed these interviews word-for-word and painstakingly reviewed the content. This particular article (which jumps around quite a bit and may seem somewhat disjointed) was more difficult than most to write, but I think I captured the essence of what the three interviewees said. They were, by the way, extremely kind and gracious enough to share their many knowledgeable insights with someone who probably asked too many questions. In short, I believe what follows could be considered a solid springboard for more research and dialogue about the cost of online education.

The cost of online teaching and learning seems to be on everyone’s lips these days, more so than in previous years when I interviewed people about cost issues for another publication. I think the cost issue is becoming more prominent for a variety of reasons:

1. Adding education technology to on-ground programs is obviously growing by leaps and bounds, primarily because students are demanding it. So, institutions need to better understand how to add technology in a cost-effective manner.
    
2. The same holds true for the growth of online degree programs, in general. Many institutions new to online teaching and learning are seeking benchmark data about cost issues from the more experienced institutions that have been offering online programs since the early to mid 90s. Meanwhile, the more experienced institutions are revamping their current programs and going back into their initial forecasts and plans when they first designed and launched their online degree programs. The experienced institutions are taking a closer look at all the elements that typically surround the development and implementation of their online degree programs in order to come up with more effective cost models and projections for the future.
    
3. As the competitive landscape of online degrees changes due primarily to the growth of more business and entreprenurial-oriented proprietary institutions, public institutions are realizing that they had better start acting more like businesses themselves in order to remain competitive in the online degree marketplace. Couple that with dwindling government education funds for higher education, and cost efficiency issues loom large.

To get a better handle on the big picture of cost issues as they relate to online teaching and learning, I interviewed three experts:

Tana Bishop - Bishop is Associate Dean of Administration for the Graduate School of Management and Technology at the University of Maryland University College (UMUC). Bishop did her doctoral research on the economics of education and has authored a number of peer-reviewed papers on cost effectiveness published in the Sloan Consortium’s (Sloan-C) "Elements of Quality Online Education" series. She is also the Sloan-C Effective Practices Pillar Editor on Cost Effectiveness.

Christine Geith - Geith is Director of Michigan State University (MSU) Global Ventures where she is responsible for new product development and creating new lines of business. She has conducted a number of cost studies for online learning, classroom technology, and software applications. Her case studies have been published in Sloan-C’s "Elements of Quality Online Education" series and in the Teaching Learning and Technology (TLT) Group’s Flashlight Cost Handbook. Geith did her doctoral research on the cost analysis of instructional treatments for discussion-based activities. She also conducts workshops on activity-based cost models.

Rick Shearer - Shearer is the Assistant Director of Instructional Design and Development for the Penn State World Campus. He is the author of a popular report published by distance-educator.com, titled "The Distance Education Balance Sheet: What are the Measures of Success for Institutions and Students?" The report explores structures of institutions involved in distance education and the impact of these structures on investment.

The cost of online education is certainly a complex subject. Probably the number-one principle that forms the foundation of any cost model is that you have to consider multiple variables that influence your classic break-even analysis. These multiple variables typically comprise a formula that spits out a cost-per-online-student figure. This formula is also typically segmented into a cost per credit hour and a cost per registration. The challenging and oftentimes tricky part of all this is to first identify all the necessary variables and then decipher the expenses that these variables incur. The foundation of your question(s) regarding cost is also an important aspect of the entire costing process.

At MSU, Geith is helping to refine the institution’s academic business planning model, which is the model "where we sit down with a department or college that wants to put a degree program or certificate program online, and we walk them through a business development and business projection process," she says. "You look at who your audience is, how big is your audience, how are you going to reach them, what portion of your audience are you going to enroll?" says Geith. "You do your revenue projections. How much will they pay? Then you figure out the production and maintenance costs. What is it going to cost the faculty to develop and maintain it? What are the technology costs? Who will be doing student services? What about the library? All the different ingredients that go into putting a degree or certificate program together. . ."

Geith is a proponent of activity-based costing (ABC), which entails digging deep into with how all the people directly and indirectly involved in online education initiatives spend their time (more on this later).

All institutions do some form of this development and projection process based on their unique organizational structure.

"Organizational structure is probably the key to whether people make money or don’t make money (with online learning initiatives)," says Shearer, referring to the importance of how an institution aligns its mission with its distance education efforts. For traditional public institutions like Penn State, for instance, there may be a struggle between the academics and the administration. "On the academic side, you have the loosely coupled organization structures of independent agents in terms of faculty," says Shearer. "On the other side, you have this bureaucratic structure of administration. While they do work together, one does not necessarily report to the other. So you have this interesting dynamic in which they both need each other, but they both think they drive the boat at the same time."

The organizational structure that Shearer refers to is driven by mediated events and negotiations that move online initiatives forward but typically at a very slow pace. Other institutions that have more business-oriented organizational structures, such as the proprietary institutions, can act more quickly and efficiently. "If you look at distance education organizations that are doing well in terms of enrollments and return on investment, you’ll see that they control their inputs and outputs," says Shearer.

One of those inputs and outputs is related to faculty, which is usually the most costly variable in any online program or course. For instance, institutions that can dictate faculty workloads and/or utilize part-time adjuncts more freely, without going through all kinds of negotiations and time-consuming policy changes, have an edge in terms of cost effectiveness. At Penn State, there are "really long negotiations in getting the academic units that we are working with fully on board," says Shearer, adding that part of the challenge relating to cost, is "trying to move policy to where people are more comfortable with degree programs being offered by part-time faculty.

"This is a dynamic that is different from institution to institution. We work with the highest paid faculty at the institution, which makes our costing model a little more interesting. On a percentage basis, instructional design and development is a small percentage of the overall cost of the program budgets each year. The majority of the costs are faculty."

One public institution that does not have this kind of bureaucratic slow-down concerning the hiring of part-time faculty is UMUC, which, like the proprietary institutions, operates on a business model. Of course, it needs to be noted that UMUC is not a Research One institution like Penn State.

"We receive a very low level of state funding, so we have always had an entreprenurial model; we have to be self-sustaining," says Bishop, adding that this model helps "drive the use of adjunct faculty, because, of course, they are less expensive than full-time faculty. We still have that core (full-time faculty) that we draw from, but we do have a lot of adjuncts, and it has a lot to do with costs."

As already alluded to, the cost issues that UMUC deals with are of a different nature than other public institutions offering online degree programs. In short, as Bishop says, all cost models are basically "situational dependent."

Thus, an institution in the beginning phases of launching an online degree program, for instance, is probably thinking mostly about technology and course development. For institutions such as UMUC, with more of an online degree program history, the cost issues have a stronger focus on sustainability and keeping up with the times.

So, where is UMUC investing its dollars? "We are reinvesting constantly in information technology," says Bishop. "We have a proprietary platform that we use (Web Tycho), but we are constantly reinventing that." Additionally, UMUC is in the middle of implementing a PeopleSoft enterprise solution installation that will ultimately integrate all of UMUC’s disparate administrative and educational technology systems.

"We are imagining that tomorrow’s students are not going to be exactly like today’s students in terms of their level of sophistication with technology. And we have to keep on top of that," says Bishop. "It’s a continual challenge. Let’s face it, technology is moving at such a rapid pace that it could be a big sink hole for your money. So, where do you put it?"

The answer to Bishop’s question actually starts with another question, which is, what is your objective? "Institutions need to link their cost goals with other objectives," says Bishop. "Are they trying to increase student retention? Are they trying to save or contain cost? Are they trying to make a profit?"

Geith adds that many institutions "struggle with what it is they they really want to know. What is their question? It can range from costing a program and looking at return on investment; they might be looking at just support cost; they might be trying to project costs only to justify a new choice or a new way of doing something." Another exercise may approach cost from the perspective of teaching practices and student perspectives.

Any way you slice your objective, however, you need to look at all the direct and indirect costs associated with any given online course or program in order to get a complete picture. Speaking from a broad perspective, if you are doing a cost study, items to be considered and unbundled in order to get an accurate picture of costs, include:

Faculty: Separate teaching from course development because those are two different elements.

Technology: Every course/program is different. Includes hardware and software, programmers and a wide variety of technology-oriented administration costs.

Instructional Support: Could include instructional designers and/or peer review processes.

Student Support: From academic advising to library services to help desk and technical support, web development and administration, etc.

Administrative Support: Includes course evaluations, marketing, and other types of overhead.

Opportunity Costs: Also referred to as hidden costs that can include the time put in by high-level administrators. Another opportunity cost deals with faculty time in which faculty who would normally be attracting research dollars are now developing and maintaining online courses and programs. Another opportunity cost deals with change management. Basically, opportunity cost refers to losing some other financial benefit due to resources being allocated elsewhere.

In addition, some online programs have received supplemental funding through grants that need to be figured into any cost study. Surprisingly, some departments that received grants have boasted about their profitability without tabulating in grant funds. This is the kind of practice that can fall under the category of campus politics, which is another multi-faceted variable that can be included in costing models.

According to Geith, one way of refining any given cost study to be more accurate can be accomplished through activity-based costing (ABC). "In this process you are talking about how people spend their time and what is it that drives the cost," she says. "It gives you a reason to reflect on your practice. Just like if you (personally) were analyzing where you actually spend your time, you would probably discover that it is a little different than where you initially thought you spent your time. And it gives you an opportunity to realign things toward your goal."

At the heart of ABC is the fact that much of the cost of an online learning initiative is in staff time. For example, in relation to student services, you would determine who the people are involved in providing such services and how much time they spend in a particular program you are studying, which would vary according to the program’s needs for student services. "So you would have to know the process and what drives the cost and the changes in the process," says Geith. "You may find that most of your student service calls come from 20 percent of your products, and you need to cost it accordingly."

Doing this kind of research and costing around multiple indirect and direct cost variables can, indeed, get complicated. "There can be an awful lot of variables and there can be an awful lot of time calculating them," says Geith. However, the end result will "give you some really good insights that you would not get in a simple budget projection."

Geith says administrators don’t have to be accountants or statisticians in order to do effective ABC studies. "From my experience, you have to be good at listing at how people spend their time and why." What is it that makes them spend their time on a particular task or tasks? In short, the financial calculations are pretty straight forward. All that’s required is that you know how to use an Excel spreadsheet and be able to add a new level of detail to what you would normally do when costing out an online program. "You put it all into a spread sheet and out spits your minimum enrollment that you need to break even."

Geith suggests that the Western Cooperative of Telecommunication’s Technology Costing Methodology (TCM), handbook, and case studies, as well as the TLT Group’s Flashlight Cost Analysis resources and tools are two resources that administrators of online programs can use for doing ABC (see "Resources Related to the Cost of Online Education" in this issue). Both of these have their roots in popular economist Henry Levin’s "ingredients method" of cost analysis.

In general, and from an historical perspective, "we have moved from a model in distance education that was quite successful - independent study - which had huge economies of scale associated with it - to a model that does not have large economies of scale associated with it," says Shearer. "We have introduced technology, which has increased cost. So, from a costing point of view, it is how can we design courses that don’t have to be touched every semester and have some sort of shelf life beyond just a single occurrence?"

At Penn State, those successful economies of scale come only from their undergraduate independent learning courses that are print-based with optional websites. As noted on the Penn State World Campus website, Students begin and complete these kinds of individualized instruction at their own pace. "A maximum of eight months is allotted for completing a course. While course content and activities are available in print format, communications for most of the courses, including lesson submissions and access to additional resources, are handled via the Web or e-mail. It remains the student’s decision whether to use these forms of communication. Access to the Web is not required in order to complete this program."

"That is where we make our money," says Shearer. "It has the economies of scale built into them. Those courses will sit there for upwards of five years and generate income without us doing anything."

Of course, most distance education providers are not in the business of offering courses that are independent print-based with optional websites. So, the challenge they face is how to maximize their much more sophisticated and multi-faceted online teaching and learning environments while keeping costs down. "It’s a year-to-year analysis in which we ask where are we, have we made the right decisions, and do we need to slow down development because we don’t have the flow of students coming in," notes Shearer. "There is this whole systems approach going on to the process as it starts to unwind." And in the final cost analysis, "once you have committed to a degree program, you have to fulfill that requirement. You have opened the door, and, by law, you have to get those students through the program."