Privatization of Driver Education

Privatization of Driver Education

Business Plan

Executive Summary

Table of Contents

I.Background
II.Business Description
III.The Market
IV.Development and Production
V.Sales and Marketing
VI.Management
VII.Financial Documents
VIII.Appendix

DRIVER EDUCATION BUSINESS PLAN

Table of Contents

Background

Reason for Business Plan2

Clarifications to Original Memo 2

Additional Information 3

Business Plan Format4

Business Description

Overview of the Industry4

Description of the District’s Program5

The District’s Positioning in the Market 6

Existing Competition6

Pricing Strategy 7

Management of the Program7

Continuing with a District Run Program

Customer/Market Trends8

Competition/Market Share8

Pricing Strategies8

Advertising and Promotion11

Impact on Administration11

Rationale for Continuing the Program 11

Rationale for Eliminating the Program 11

Contacting with a 3rd Party

Definition12

Developing RFP12

Community Recreation and Enrichment 12

Pricing Strategies13

Advertising and Promotion13

Impact on Administration13

Rationale for Contracting13

Rationale Against Contracting 13

Allowing Renting by a 3rd Party

Communication with Potential Renters 14

Pricing Strategies14

Advertising and Promotion14

Impact on Administration14

Rationale for Renting Space14

Rationale Against Renting Space15

Administrative Recommendation

Program Recommendations15

Timing Issues15

DRIVER EDUCATION BUSINESS PLAN

B

ackground

Reason for Business Plan

On (Date)February 2, 2004, the Board of Education of (School District)South Lyon Community Schools discussed the funding cut of the State of Michigan in support of the District’s Driver Education Program. The Board of Education directed the Assistant Superintendent for Business and Finance to prepare two business plans. The first business plan would address the feasibility of continuing to offer and administer the Driver Education Program as a District program. The second business plan would address the ramifications of allowing a third party to operating the program within the high school. Since both Business Plans share the same information regarding history, market conditions, etc, I have separated all the scenarios within this one Business Plan document.

Clarifications to Original Memo

On (Date)February 2, 2004, a memo was presented to the Board of Education (see Appendix) that did not provide enough information to determine what fee needed to be charged to the students to continue to run the program as a District program. Also, the student fees collected for 2002-03 did not seem to add up, based on the amount of students identified in the program, as well as the fee per student that was charged.

2002-03 Fee – As the memo stated, the total cost for the program was $106,566 for the 2002-03 program year. Based on the 282 students in the program, the cost per student is calculated at $378, which is clearly above the market rate of private programs. However, the memo stated that we would only need to increase our fee to the private company going rate in order to be self-supporting. I believe at one point in the analysis we were looking at only direct costs. Therefore, if the District chose not to charge an indirect cost, the student fee would be reduced closer to the going rate for private companies. I believe the direction at this point is to cover both direct and indirect costs.

For 2004-05, the cost per student should likely be less than the $378. This is explained further in the Pricing Strategy section.

Discrepancy of Student Fees and Revenues Reported – The student fees that were collected for the 2002-03 program year totaled $58,631. This number is verified both in the District’s final audited figures as well as in the Driver Education Report that was sent to the State of Michigan. Taking the $58,631 and dividing by 282, results in a per- student charge of $208. In the further researching of this issue, there are a number of reasons for the average fee of $208.

First of all, the driver education fee was $185 for the first two Segment I classes that occurred in the fall of 2002 and the spring of 2003. For the final Segment I classes in June, the fee was raised to $235.

In addition, there were 11 students who received a credit. Therefore, they have already paid for the program, but had to drop due to extenuating circumstances, i.e., they were in the $58,631 figure, but not the 282.

Also, we had 13 students that chose to take Segment II with the District. Therefore, they took Segment I with another company. The $50 charge increased the overall student revenues, but the students were not counted in the 282 number.

Finally, there were 7 students in the last reporting year that were dropped from Driver Education due to disciplinary issues and they were not refunded their money. Moreover, there were 16 students that attended the entire program, but did not pass one or all of the sections. The reported figure of 282 participants represent students that passed the entire course.

Additional Information

Segment I versus Segment II - Segment I includes passing a visual screening test, 24 hours of classroom instruction, a three hour State written exam, and six hours of road instruction. Prior to taking Segment II coursework, a student must drive a minimum of six months and 50 hours with a parent/guardian. Segment II encompasses three, two hour classes in defensive driving.

The District has collected the full payment upon the registration for Segment I, even though the student may not be taking Segment II for up to 15 months after completing Segment I.

For students that have taken only Segment II with the District, the charge has been $50.

Existing Liability for Segment II –Therefore, the District received dollars in 2002-03 or earlier for Segment II classes that have not yet occurred. Specifically, according to the High School, there are currently 163 students that have not yet taken Segment II with the District. It is possible that this number is lower, if a student opted to take a Segment II class with another company and did not request a refund.

Since a decision has not yet been made as to the fate of the Driver Education Program, the application for the spring 2004 Segment 1 offering this program year, has been modified to incorporate Segment 1 only. This means instead of charging the $235 for both Segment 1 and II, we will charge $185 for Segment 1, with additional verbiage that a future Segment II may or may not be offered by the District beyond June of 2004. Students will begin to sign up for this session on (Date)March 1, 2004.

In terms of the 163 students, the High School anticipates that about 100 students will be taking Segment II during the next three sessions offered in April, May, and June. In the event the District discontinues the operation of the program, we will send a letter to the student in question indicating the final Segment II offerings available, and offer a refund to the students that will not take Segment II with us.

Business Plan Format

The following Business Plan format is commonly used in the start up of a new business. I have modified it to better apply to the not-for-profit program that we are currently running. AAs discussed earlier, this plan is meant to discuss the feasibility of continuing to run the program as we have in the past, with the intent to make the program self-supporting, or look at another party running the program.

Business Description

Overview of the Industry

The first instruction to deal with driver education occurred in the 1920’s. The instruction was incorporated into other subjects and taught as classroom-only coursework. The first course, including both classroom and behind-the-wheel instruction was taught in 1933. By 1940, over 20 states had courses of study, and several hundred high schools had begun teaching driver education. In 1949, the first National Conference on High School Driver Education was held. As a result of this conference, recommendations were made covering all aspects of a driver education program. Also, the following objectives of driver education were identified:

1)Promoting the safe, efficient, and enjoyable use of equipment and environment

2)Developing a strong sense of personal and social responsibility for the common welfare

3)Developing pride in maintaining high standards of performance

4)Promoting effective habits of cooperation in meeting and solving common problems

5)Preparing people for useful vocations suited to their individual abilities

In the fall of 1955, Michigan became the first state to pass a driver education law and the first state to establish a Highway Traffic Safety Center. This law required that:

1)All school districts make a driver education course available to all eligible students, including those attending parochial or private schools and out-of-school youth

2)All students wishing to be licensed before their 18th birthday must satisfactorily complete a high school driver education course

3)The Michigan Department of Education would promulgate rules and regulations to carry out the act (The MDE established the requirements to teach driver education as holding a teaching certificate and completion of a 2-semester hour credit course in driver education)

4)Public schools be reimbursed up to $25 for every student completing the driver education course

According to the Michigan Driver Safety Education Association (MDSEA), the rules and regulations continued to be revised during the subsequent decades, with the State reimbursement to local districts increasing from $30 in 1965 to $45 in 1981, and finally, to a reimbursement level in the past few years of $70 - $85 per student.

A major change in regulations occurred in 1997 with the introduction of graduated licensing requirements. These regulations resulted in the program being divided into segments (segment I and segment II), with mandated behind the wheel calendar time and hours with a parent/legal guardian.

In April of 1998, new legislation was passed that allowed local school districts to charge students for a portion of the driver education expenses, as long as matching dollars were provided by the local school district. Also in 1998, for the first time school districts were allowed to discontinue offering driver education programs to their students.

According to Greg Lantzy, Supervisor of the Public Transportation, Driver and Rider Safety Program, private companies have existed since the beginning of driver education. The rules governing both private and public programs are basically the same, although school districts instructors must hold a Michigan teaching certificate, while private instructors must be licensed by the Michigan Department of State. According to Mr. Lantzy, about 120,000 students take driver education each year, either through a school district or private company.

As a result of the significant budget problems at the State level, Executive Order 2003-23 was passed in January of 2004 which indicated that as of February 1, 2004, the driver education fund will no longer be available to support driver education. Mr. Lantzy indicated that currently 79% of school districts run a driver education program. This number will be decreasing as a result of this Executive Order, although he did not speculate by how much.

Description of the District’s Program

(School District)South Lyon Community Schools has operated a driver education program since at least the 1960s, and probably much earlier. The following chart depicts the number of students that completed the requirements of our program:

1988-89 / 291
1989-90 / 209
1990-91 / 270
1991-92 / 258
1992-93 / 292
1993-94 / 271
1994-95 / 255
1995-96 / 301
1996-97 / 358
1997-98 / 274
1998-99 / 218
1999-00 / 249
2000-01 / 272
2001-02 / 271
2002-03 / 282
2003-04 / ???

The program, as it is currently configured, has two distinct segments. Segment I includes passing a visual screening test, 24 hours of classroom instruction, a three hour State written exam, and six hours of road instruction. Prior to taking Segment II coursework, a student must drive a minimum of six months and 50 hours with a parent/guardian. Segment II encompasses three two hour classes in defensive driving.

The District’s Positioning in the Market

(School District)South Lyon Community Schools has been a leader in our geographical area in terms of Driver Education. Currently, we believe we are perceived in the marketplace as a low-cost, good quality program. We also have a market niche for early morning sessions.

In terms of location, we are centrally located in the community. We are close to drive to, and are very convenient for students since they can come to class before or after school, without having to drive somewhere else. In terms of our perception in the community, we have received numerous positive comments by parents.

With the elimination of State and District funding, I believe we would continue to be perceived as good quality, but in terms of cost we would go from low-cost to a relatively high cost program, in order to be fully self-supporting.

Market Share of Public Schools

According to Greg Lantzy, approximately 120,000 students take driver education each year. Of this amount, approximately 80,000 receive this education through local school districts. This results in a market share for local school districts of about 67%, keeping in mind that about 20% of school districts do not offer driver education. The following chart depicts the number of students in school district programs who have passed Segment I over the past few years.

1996-97 / 98,039
1997-98 / 81,225
1998-99 / 75,174
1999-00 / 78,839
2000-01 / 78,112

Market Share of (School District)South Lyon Community Schools

We were not able to gather the data to precisely calculate the market share of the school district, since the eligibility for driver education is based on age and students do not always take the program as soon as they are eligible. Nonetheless, taking an average high school class of about 500 students, we can calculate an approximate market share of 56% of potentially eligible student, which means the actual market share is higher. When asked independently, the High School indicated that about 65% of our 9th graders take our program versus private providers.

Existing Competition

There are three main companies that we are in competition with. These companies are (Driving School #1)A&A Driving School, (Driving School #2)Sears Driving School, and (Driving School #3)All Star Driving School.

(Driving School #1A&A Driving School – Located in (City or Cities)Plymouth, Livonia, and Canton. Their fee is currently $305 for Segment I and $40 for Segment II, for a total of $345.

S(Driving School #2)ears Driving School – Located in (City or Cities)Novi. Their fee is currently $299 for Segment I and $30 for Segment II, for a total of $329.

(Driving School #3)All Star Driving School – Located in (City or Cities)Ann Arbor, Brighton, Whitmore Lake. Their classroom instruction in Brighton takes place at Brighton High School. TTheir fee is currently $319 for Segment I and $39 for Segment II, for a total of $358.

Competitive Advantages

Based on the conversation with Mr. Lantzy, the difference in quality between public school programs and private programs can be argued both ways. From a perception standpoint, he feels that some parents place value on the requirement of a school district instructor to possess a teaching certificate. In terms of programs, he has seen both good and bad public and private programs.

The only advantage that appears to be consistently brought up with private companies is simply the convenience for the student. Parents that were asked why they chose a private company for driver education cited the scheduling conflict that occurred with the school program, and were willing to pay the extra dollars.

Pricing Strategy

Prior to 1998, school districts were prohibited to charge student fees to enroll in driver education programs. For fiscal year the 1998-99 fiscal year, (School District)South Lyon Community Schools began charging a student fee of $158 (See memo in Appendix). This fee was a reflection of the District matching the State funding level, with the remaining costs being passed on to the students. The fee was subsequently raised to $185, and in June of 2003, the fee was increased to the current level of $235 for both segments, and $50 for just Segment II.

With the elimination of the state funding and local contributions to the program, districts are now free to charge students a fee based solely on a district’s discretion.

Management of the Program

The program is administered at the high school in the office of (Designated Employee)Linda Bowman, (Title)Assistant Principal. The Secretary of the (Designated Employee above)Assistant Principal is the primary clerical person responsible for the program. All day to day responsibilities of the program are run out of this office. In addition, reporting requirements of the program are supported by the District’s Business Office and the associated payrolls and account payable functions of the program are also supported in the Business Office.

Option 1 – Continuing With a District Run Program

Customers/Market Trends

State Level - While it has not been verified through a demographic study of the State’s population by age, it is assumed that we will continue to have approximately 120,000 students annually enrolled in some type of driver education program.

Local Level – Based on the current demographics of the school district, the number of eligible drivers will continue to increase annually in the 2% - 4% range.

Competition/Market Share

As discussed earlier, our current market share is about 65%. This will certainly be reduced as we become less competitive in terms of our fee (assuming our fee is above market), and as a result, become less competitive as our program would retract in terms of offerings.

There is no hard data for schools that offer year-round programs – the majority of schools offer summer only – it is difficult to speculate on the loss of market share. For summer only districts, a loss of 50% of students that would previously have enrolled in the district program is not uncommon. To remain competitive, we would need to continue to offer programs year-round, and at times that are convenient for students. If we are able to do this, I believe we would lose between 25% - 40% of our students who would normally enroll in our program.

If the District chose to continue to supplement the program, either by assessing only direct costs or continuing with historical support, the market share would likely remain about the same.

Pricing Strategies

There are three pricing strategies that we could pursue; below market price, at market price, and above market price. To determine the pricing structures, we must first define the term “self-supporting”.

Defining Self-Supporting – There are four main expenditure categories for the program, instructor compensation, supplies and materials, vehicle expenses, and indirect cost.