Piedmont University Harvard Case Solution & Analysis

Introduction

            The case Piedmont University has been facing financial issues. The university has been restricted with the number of student enrollment also which has been escalating the cost quite rapidly. In such a situation, Hugh Scott has been hired as the new President, to overcome the issues on hand; he increased the tuition fees and stopped new hiring. With this change, Scott has been able to generate small operating reserve or capital.

            Neil Malcolm, alumni of the university has suggested based on the financial situation that the university needs to increase the recruitment, reorganize the departments and also look to increase the fund raising activities within the community. However, the proposal of Malcolm has certain issues and disagreements where it has been looking to deal with administrative costs, gifts and endowments, athletics, maintenance, computers, library, cross registration

Problem Statement

            The major problem that has been identified in the case is that the concerns have been raised about the operational feasibility of the profit centers. Along with this, the situation where the management has been looking to charge some fees from the users of different services and the overall implication of this process.

            The increase in the fees will create dissatisfaction among the current students, and the increase will also restrict new students from enrolling into the university. The overall objective of attracting new students might be affected with such a suggestion. Along with this, the excessive charges on students will also increase the administrative cost also. Similarly, the central administration and the maintenance cost or expenditure may not affect the fees to the individual schools

Question 1

 

Arguments for Profit Center concept

Arguments for alternative Responsibility Center concept (identify which one)

Central Administration

Allocate administrative cost to students

Allocate the cost to Schools who earn profits from central administration

Gifts and Endowments (Foundation)

 

Reduce President discretionary power

Empower president to make final decision, board of directors should be introduced

Athletic Department

Charge fees from students using services

Charge fees from students using services

Maintenance Dept.

The department will charge schools and profit centers for the work they did, direct and overhead cost.

Charge schools only for the cost to ensure more enrollments are made

Computer/IT Dept.

Charge students to recover cost.

Charge students to recover cost

Library

Faculty member and teachers will be charged fees for using services.

No fees shall be charged over this area.

Individual Schools (& related cross-registration issue across schools)

 

Students will be charged fees for cross registrations

Students will be charged fees for cross registrations

 Question 2a: For units you identify as suitable to be treated as profit centers, should their operating surpluses (if any) be at their discretion to spend (or save), or should they cross-subsidize other units?

            For the current profit centers that are running in profits which include the Undergraduate liberal arts school, Business school and the Law school which are profitable for the university should be at the discretion of spending. The reason is simple, since the university is facing issues in managing the financial and the limited human resource has also been a problem for the firm, therefore, it is advisable that the profitable centers should look to spend.

            Although it might limit the profit margins, but to attract students and bring in more students, the most obvious thing is to providefacilities which can comewith the element of spending on the operations that can earn revenues.

Question 2b: Conversely, if the profit center units are operating at a loss, will you recommend that they be shut down?

            As per the Exhibit 1, the three profit centers which are graduate library arts, engineering school and theological school have been in loss. The expenditure of Graduate liberal arts school is 11.5 and the revenues are 5.6 which create a deficit of (5.90). Similarly, engineering school has been generating revenues of 17 whereas the expenses are 17.3 which is a deficit of 0.30. Finally, the Theological school has been under the deficit of (2.20).

Piedmont University Case solution

            In such a scenario the most feasible option for the company is to shut down the graduate liberal arts school. The reason is simple, the total profit after deducting the three deficit departments become 4 which can overcome the loss of engineering school and theological.............................

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