I post this for Santosh. - The posting illustrade the usefullness of the tolls of cost-analysis we have learned in the last module. (Total, average and marginal costs.) It shows also that IGNOU can massively capitalize on scale economies.

Note that: 1,000 Indian Rupee = 22.94 US Dollar (or about US $ 23). Looking at the figures we see the AC curve dropping to a value below 2000 Rupees or US$ 46. This is a very low average cost. Total costs for 200 000 students mount to 300 000 000 Rupees ( 6,882,312 US Dollar or nearly 7 mio. US$)

Kind regards
Thomas

In the CBUs in India, about 90 percent of the recurrent costs goes to staff salary, where as in the open universities (OUs) the non-salary component hovers around 60-69 percent. In the CBUs or OUs, the non-salary components include costs incurred on development, production and distribution of printed learning materials; production, duplication, distribution of audio and video programmes and their transmission; study centres including recurring counselling/tutorial sessions; monitoring of assignments, student registration and maintenance of records; examinations and other related costs. These costs are generally classified into three categories: course related, student related, and overheads. The print-video-audio proportion of costs for an 8-credit course in IGNOU (1 credit= 30 student study hours) is 66:33:4.

The percentage distribution of annual recurrent expenditure across the five broad components were as follows for the year 1991-92: development and maintenance of courses (9%), production of printed materials (31%), production of audio and video programmes (about 3%), learner support services (about 25%), and institutional overheads ( about 32%). In comparison to CBUs, the per student annual recurrent cost varied between 14-40 percent.

The DMUs and OUs had been reaping economy of scale, and reduced average and marginal costs. Figure 6.1 shows the behaviour of total, marginal, and average cost functions for IGNOU (Naidu, 1994).

The average cost decreases with the increase in student enrolment. It can be seen that at about 140,000 student enrolment, the university is fully saturated to have achieved the benefit of economy of scale; any further increase in student enrolment flattens the average cost curve. Further, since the variable cost is still less than the average fixed cost, economy of scale is possible up to a student enrolment figure of about 200,000. It has been pointed out that for achieving internal cost efficiency, IGNOU needs to operate at the minimum possible average cost and still achieve its objectives.

When the unit cost of CBUs and OUs are compared, it may so happen that the latter may have higher unit cost than the former if their student enrolment is at a low level. Therefore, it is important for the DMUs/OUs to have sufficient student enrolment to break even. When the unit cost of IGNOU was compared with that of CBUs in India at different levels of enrolment (Figure 6.2), it was found that before the break even point with low enrolment CBUs reaped lower unit cost, and after the break even point the DMUs/OUs were more cost effective than the CBUs.

It may also be pointed out that when detailed programme-wise analysis of unit costs is undertaken, one may find that in case of some programmes (like certificate, diploma in some disciplines) the unit cost may be higher than that of the programmes of CBUs because of high fixed cost and low student in case of distance education. Therefore, it is not surprising that in case of some DMUs, the DE programmes either are non-viable or that the DE departments lower the expenses and therefore the quality of instructional transaction to still try to break even.

Santosh

Naidu, C. G. (1994). Some economic aspects of conventional and distance education systems in India. In G. Dhanarajan et al (Eds.), Economics of Distance Education: recent experience (pp58-73). Hong Kong: Open Learning Institute Press.