A program is not self-funding because tuition covers the lecturer.
In higher education the most expensive cost is the one that is shared and untraced: the support services, the facilities, the administration, the central functions that every program consumes and none owns. When a program is judged on tuition against direct teaching cost, almost everything that actually costs money is left out. Time-driven costing assigns the shared cost to the programs, courses and students that drive it, and the picture changes completely.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
In higher education, profitability and cross-subsidy are invisible until shared and support costs are fully assigned. At a public university, a campus dining operation that looked profitable ran a real deficit once it was fully costed, and one department's total cost per student was found to be several times its direct teaching cost. The lesson generalises: across sectors, traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and in the models we build a large minority of a fully costed portfolio turns out unprofitable. TDABC assigns shared and support cost to the programs, courses and students that consume them, revealing which programs are genuinely self-funding and which are cross-subsidised.
The shared cost dwarfs the direct cost.
Shared and support cost dwarfs teaching cost
Libraries, IT, facilities, student services, admissions and central administration are consumed by every program but charged to none. In the illustrative analogue, one department's total cost per student reached several times the direct cost of teaching it.
Things that look self-funding run deficits
An auxiliary or a program can wash its face on a direct-cost view and lose money once shared cost is loaded. A campus dining operation is the textbook example: profitable on the surface, in deficit once fully costed.
Cross-subsidy is real but unmeasured
Some programs and departments subsidise others. Without a fully costed view, leadership cannot see who funds whom, and resource decisions are made blind. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is.
Capacity is paid for whether used or not
Lecture halls, labs, faculty time and facilities carry a cost when empty. Kaplan and Anderson put practical capacity at 80 to 85 percent of theoretical, and the cost of the unused slice is almost never measured.
THE LECTURER IS THE CHEAP PART
Illustrative analogue from a public university, not a sector benchmark. Total cost per student reached several times the direct teaching cost once facilities, support and central overhead were loaded.
Two parameters, no surveys.
A capacity cost rate per resource group (faculty, facilities, each support service) and time equations that describe how each program, course or student consumes those resources. The cost drivers that matter here are contact hours, space and lab intensity, support-service usage, administrative touch per student, program size and cohort mix, and central-function consumption.
Cost per student = direct teaching cost + facilities and space consumed (hours x capacity cost rate) + library, IT and learning-support consumption + student services and administration time per student + admissions and enrolment cost + share of central overhead by activity consumed
Illustrative structure, not a measured benchmark. Everything below the first line is the shared and support cost a direct-cost view leaves out.
The ratio is the whole point.
The illustrative analogue makes the point. At a public university, applying full costing changed two pictures at once: a campus dining operation that looked profitable was shown to run a real deficit, and the total cost of educating a student in one department came out at several times the direct cost of teaching them. That ratio is the whole point. Everything between the lecturer's salary and the true cost per student is shared and support cost that a direct-cost view hides. The transversal whale curve gives the lens for the portfolio: across sectors, industry research shows the top 20 percent of activities generate 150 to 300 percent of the surplus while the bottom 10 to 20 percent consume 50 to 200 percent of it. In a university that shape is the map of cross-subsidy between programs and departments, made visible for the first time once everything is fully costed.
PROGRAMS, RANKED BY SURPLUS
Transversal whale curve as the lens for cross-subsidy between programs. Not an education benchmark; the agnostic shape applied to a program portfolio.
Data exists, allocation does not.
Universities typically score lowest on Cost Allocation, shared and support cost spread by enrolment headcount or simple averages rather than by consumption, and on Profitability Visibility, surplus or deficit seen at institution or faculty level but never per program, course or student. Strategic Decision Support is weak because program, capacity and portfolio decisions are made without a fully costed view. The data usually exists in the student and finance systems; the missing capability is TDABC Process Design. The seven dimensions are read qualitatively here, with no invented sector score.
When AI tutors and answers, what is a student costing you?
AI changes university cost on the teaching side and the support side. AI tutoring and content generation shift the cost of delivery and the role of faculty time. AI absorbs a large share of student-services and administrative contact, which moves cost-to-serve per student. The institutions that benefit are the ones that already know their true cost per program and per student, so they can redirect resource as the cost base shifts rather than guess. This is a question of decision quality, not a regulatory countdown.
Two ways into the sector's cost.
Frequently asked questions
- How do you calculate the true cost per student?
- Load direct teaching cost plus the facilities, support services, administration and central overhead each student actually consumes, using time equations. In one illustrative analogue, a department's total cost per student was several times its direct teaching cost.
- Why does a program that looks self-funding run a deficit?
- Because tuition is compared to direct cost, while the program also consumes shared and support cost that is never charged to it. In one illustrative analogue, a campus dining operation looked profitable and ran a real deficit once fully costed.
- What is cross-subsidy between departments?
- Some programs generate a surplus that funds others that run a deficit. A fully costed view makes this visible so resource decisions can be made deliberately rather than blind.
- What is TDABC for universities?
- Time-driven activity-based costing assigns cost via a capacity cost rate per resource and time equations per program or service, giving true cost per program, course and student without surveys.
See which programs are self-funding and which are cross-subsidised.
ProfitAudit 360 builds the true cost per program and per student on a TDABC base. Or take the Profit Check first: 12 to 15 minutes, no data upload, and it points to where your shared cost is most likely hiding a deficit.
- Fee
- Fixed, agreed before we start
- Duration
- 3 to 5 weeks
- Your time
- 2 to 4 hours in total
- Access
- No ERP access, no lock-in
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
Done. Advertising and measurement is now declined on this browser, so the LinkedIn Insight Tag does not load and nothing about your visit is shared with LinkedIn. You can turn it back on here at any time.
We are asking again. Your last answer is more than 12 months old, so it has been cleared. Nothing is switched on until you answer.
This notice has changed. Your previous answer was given to different wording, so it has been cleared and we are asking again. Nothing is switched on until you answer.
Session recording. Microsoft Clarity records how this page is used - mouse movement, clicks and scrolling - so we can improve it. Form fields are always hidden from the recording.
Advertising and measurement. The LinkedIn Insight Tag tells LinkedIn that you visited this site, so we can measure our advertising and reach people like you. This shares data with LinkedIn, a third party outside this site.
GPC. Your browser sends a Global Privacy Control signal, so the advertising purpose is declined automatically and we do not ask you about it.
- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Cost-to-Serve Analysis
- 3The Whale Curve
- 4TDABC vs ABC
- 5Make-or-Buy and Relevant Costs
- 6Cost-Volume-Profit (CVP) and Break-Even Analysis
- 7Customer Profitability Analysis
- 8Methods & Frameworks: how we cost, defensibly
- 9TDABC for Financial Services
- 10How to calculate cost to serve, step by step