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The Integrated Studies Society of Ontario (ISSO) Sample Solution

Note: The following represents just one of many possible acceptable solutions. There is no single ‘correct’ answer.

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A REPORT TO THE BOARD OF GOVERNORS OF THE INTEGRATED STUDIES SOCIETY OF ONTARIO (ISSO)

Submitted by Kerry Pratt, CMA

EXECUTIVE SUMMARY ISSO finds itself in a situation where it has run into some difficulties in avoiding operating deficits but, at the same time, is encouraged by some opportunities to further spread the use of its integrated studies curriculum.

ISSO has some decisions to make regarding strategy, as follows:

1. School configuration – Should ISSO maintain two schools or expand to three? Should it divest the Sarwin school and/or acquire the southeast school?

2. Curriculum development – Should ISSO divest its curriculum development function

or accept one or both proposals that it has received to sell rights to use the curriculum in Canada and the U.S.? Should it develop integrated studies modules for high school grades?

3. Teacher training – Should ISSO expand its operations by providing teacher training

for its integrated studies curriculum, within Canada and/or in the U.S.? The recommended strategy is to close the Sarwin school and sell the school’s facilities, acquire a school in southeast Lotha, sell rights to use the integrated studies curriculum to schools in Canada and the U.S., and implement teacher training in both Canada and the U.S. As the cash flow increases and funds become available, begin developing the high school curriculum modules, and plan to expand the schools to add high school classes.

ISSO also has some operational issues to address. The most important issues relate to its changing governance model and its staffing. ISSO should address governance by implementing a board control model and having the principal serve as its officer responsible for operations. The major staffing issue can be resolved by using the training courses to add qualified teachers to its staff.

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Table of Contents Introduction Situation Analysis

Current Mission Statement Stakeholder Preferences Environmental Analysis Financial Assessment

Strategic Analysis 1. School Configuration:

Alternative 1A – Close and Sell the Sarwin School and Acquire the Southeast (SE) School

Alternative 1B – Keep the Sarwin School and Acquire the Southeast School as a Third School

2. Curriculum Development: Alternative 2A – Canadian Option – Direct Sale of User Rights To CISA Schools Alternative 2B – Canadian Option – Lump Sum Sale of User Rights To CISA Alternative 2C – U.S. Option – Sell Site Licenses to TISA Alternative 2D – Develop Integrated Studies Modules for High School Grades 3. Teacher Training: Alternative 3A – Teacher Training in Lotha for Canadians Alternative 3B – Teacher Training in Dallas, Texas Strategic Recommendations Implementation Plan Analysis of Operational Issues

A. Succession and Governance B. Human Resources C. Tuition and Daycare Fees D. Promotion and Communications E. Accounting and Systems F. Private Loans

Conclusion Exhibits

Exhibit 1 – SWOT Analysis Exhibit 2 – Financial Assessment Exhibit 3 – Southeast Lotha School Projections Exhibit 4 – Curriculum Module Sales – Supporting Calculations Exhibit 5 – Teacher Training – Supporting Calculations

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INTRODUCTION The purpose of the report is to provide the board of governors with a recommended strategic plan and advice on other important issues that require the board’s attention.

To this end, I have carried out an evaluation of the current situation of ISSO, drawn on this information to assist in the analysis of several strategic options available to the Society and analyzed some of the operational issues facing it. On the basis on these analyses, I have developed strategic and operational recommendations, and prepared an implementation plan for use by administrators in carrying out these recommendations should they be accepted by the board.

SITUATION ANALYSIS

Current Mission Statement

Although the originating governors did not formulate a formal mission statement, they developed the following initial mandate:

‘To provide a system of education for children that would facilitate integrated learning and development of all aspects of each child.’

The development of the schools over the past decade has led to a more specific approach to the development of the whole child. A possible implied mission could now be stated as follows:

‘ISSO seeks to intentionally develop the whole child (physical, psychological, emotional, and intellectual) through the use of experiential educational methods. The Montessori Method is used at the pre-school level, and internally developed integrated studies modules are used at the grade school levels.’

Stakeholder Preferences

Board of Governors

The members of the board have many ideas regarding what direction they would like ISSO to take. Pillar, Hill and the Long-Range Planning Committee are interested in opening a school in southeast Lotha as either a high school or a replacement for the Sarwin School. Brooks is concerned with restoring ISSO’s financial stability. Dollar would also like to see financial stability restored so that a former governor who advanced funds to ISSO can be repaid. Most of the board members are interested in improving the effectiveness of education and feel that integrated studies are the potential answer. Riel appears to favour the role of teacher training and curriculum

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development, whereas Sofa appears to favour concentrating on delivering the curricula and running schools.

Parents

Most parents select ISSO for their children for its innovative and integrated approach to education. The Sarwin school parents have expressed a need for increased administration and executive presence, a gym to improve the physical education program, and improved communication between themselves and ISSO’s board.

Environmental Analysis

A detailed list of strengths, weaknesses, opportunities, and threats (SWOT) are presented in Exhibit 1.

ISSO’s major strengths lie in its expertise in the development and delivery of integrated studies curricula. The school has a good reputation largely due to the highly skilled teachers delivering the innovative program to the students.

The major weaknesses appear in the areas of governance and administrative support. ISSO is in the midst of a shift in governance and management style, due to the resignation of its founder and previous principal, Myra Homes. Its current principal is also doubling as a teacher, which is creating excessive stress for her. The administrative staff members appear to be overburdened and communication within the schools require improvement. ISSO is also struggling financially and finding it more difficult to staff its upper elementary and intermediate level classrooms.

The opportunities for ISSO are currently quite attractive. Along with the proposals that are evaluated in the next section (Strategic Analysis), there is a general change in attitude among the populace that current education methods do not adequately prepare children for the realities of life. This provides a potential for growing markets, both domestically and globally, for integrated studies schools, teacher training, and curriculum development and support. As well, Lotha is expected to have significant population growth over the next decade, providing an opportunity for expansion.

The major threats facing ISSO include an overall declining population of school age children, the lack of availability of qualified, integrated studies teachers at the higher grade levels, and the termination of grant funding for curriculum development.

Financial Assessment

There is a brief financial assessment of ISSO in Exhibit 2. ISSO is suffering from a recent financial setback caused by a reduction in attendance at its Sarwin school and the termination of grant funding for developing its integrated studies curriculum. The historical ratios do not reflect the current position because the impact will not be felt until 2006. The situation as represented at June 30, 2005, is actually fairly good. However,

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there is the potential for financial trouble because the schools are partly financed by the deferred revenue derived from parents paying fees some seven months in advance, and enrolments are projected to decrease if ISSO does not make some changes.

STRATEGIC ANALYSIS

The main strategic options facing ISSO fit into three categories: maintain two schools or expand to three; enter into curriculum sales and support or divest the curriculum rights; and enter into teacher training either alone or with the Texas Independent Schools Association (TISA).

1. School Configuration

Alternative 1A – Close and Sell the Sarwin School (SS) and Acquire the Southeast (SE) School

Advantages: • An immediate stop could be put to the deficit situation of SS.

• The SE school is in a much better location than SS. It is more easily accessible and is located in a residential area experiencing rapid population growth.

• The SE school is in good condition and has a gymnasium.

• A large proportion of parents are prepared to transfer their children from SS to another ISSO school in southeast Lotha.

• The SE school could be acquired for only $300,000 more than the proceeds from the sale of SS (i.e. cost of SE of $2.4 million less $2.1 million proceeds from sale of SS).

• Although the projected deficit for SS is less than for the SE school in 2006-2007 (see Exhibit 3), SS will be close to breaking even by 2008-2009, whereas the SE school would likely incur increasing deficits assuming enrolments continue to decline.

Disadvantages: • SS is an established school with an established community.

• ISSO has a responsibility to the current student population; not all parents of SS students would be willing to transfer their children to the SE school.

• ISSO would suffer a loss of $1 million (i.e. $3.1M - $2.1M) on the disposition of the building.

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• It may be difficult to raise the $300,000 financing required.

• The SE school would generate deficits for the first three years (see Exhibit 3) and may never realize the target 7% return on investment.

• SE will reach effective capacity after three years. There is no indication that there would be room for expansion on the SE property.

Alternative 1B – Keep the Sarwin School (SS) and Acquire the Southeast (SE)

School as a Third School

Advantages: • Although projections for 2006 are not attractive, SS has carried its financial load in

past years.

• SS is a fairly new facility designed for ISSO with potential for building expansion, albeit on limited land.

• Having three locations would provide the space required to expand into high school grades.

• The projected population growth for Lotha supports future expansion.

• The SE school is suitable for almost any of ISSO’s potential uses, so its purchase is consistent with ISSO’s mission of making integrated studies available as widely as possible.

Disadvantages: • The parents of SS students are requesting that a $900,000 gymnasium be added,

which will not be sustainable for several years, if ever.

• The current trend of decreasing enrolments at SS may continue; the population of school-age children in Canada is projected to decline, which could have a negative impact on future enrolments at ISSO schools.

• The property value of the SS facilities may continue to drop.

• If the SE school is started as a third school, there will be significant short-term deficits.

• There will be additional administrative costs and complexities if the SE school is added as a third school.

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• ISSO appears to be over-extended both as to financing and personnel.

• SS is not well located (mainly commercial rather than residential) for use as an elementary school, high school or training centre (although the latter is an option).

Summary The preceding analysis is difficult because of various factors that come into play, especially if SS is not closed. Some of these factors are as follows:

• Can ISSO finance a third school? • Are there alternative constructive uses for the third school while it develops a

student base? • Can SS and the West school supply a sufficient student body to a third school and

recover their own population bases in short order? These are issues that the board will have to consider and the answers will depend, in part, on what other strategic decisions are made.

Conclusion

In the current context, the best decision would be to close SS, sell its facilities and open the SE school. The concern about the current students at SS is taken care of by providing an alternative that is reasonably accessible and that has a gymnasium. The capital loss on the sale of the Sarwin facility is unfortunate; but the value of the SE school is more likely to appreciate in the future than the Sarwin facility.

2. Curriculum Development

Alternative 2A – Canadian Option – Direct Sale of User Rights To CISA Schools

Advantages: • It has always been ISSO’s intent to develop integrated studies techniques for the

benefit of children in a global sense. Any means of distribution that will help offset curriculum development and upgrade costs is positive.

• Although the proposed sale of three units in 2006 for $25,000 each is a modest start, sales are likely to increase in successive years. Exhibit 4A projects the minimum net present value of this option to be about $370,000.

• The prospect for upgrade fees is positive, since ISSO will have to maintain its curriculum for internal purposes in any event or pay upgrade fees to CISA in due course.

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• Retaining the rights to the curriculum will enable ISSO to sell its curriculum to schools in the U.S. and globally.

Disadvantages: • It requires ongoing funding and administrative support for curriculum development,

which detracts from the operation of ISSO’s own schools.

• Development of the French units is of no value to ISSO’s own schools, and the combined Quebec and French immersion market is limited.

• The proceeds are small relative to the costs, in the short term.

Alternative 2B – Canadian Option – Lump Sum Sale of User Rights To CISA

The first advantage and the first two disadvantages for Alternative 2A also apply to Alternative 2B. The following points are also applicable.

Advantages: • As per Exhibit 4B, the net present value of selling the rights to CISA would be about

$1.1 million.

• After the French modules are complete, ISSO would eventually no longer be responsible for developing and upgrading the curriculum and could focus on its schools.

Disadvantages: • Having a strong relationship with the new executive director of CICA (i.e. Myra

Homes) might be damaged by refusing to sell the rights to CISA.

• ISSO is not so much focused on running schools as it is on providing integrated studies resources to as many children as possible.

• ISSO would give up control of the curriculum and would eventually have to pay for upgrades.

• There is a much larger market (U.S. and global) than just the Canadian market.

• The Canadian market stands to be much larger than members of CISA and there is potential for further growth in demand of a proven technique.

• ISSO would not be able to sell the rights to TISA.

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Alternative 2C – U.S. Option – Sell Site Licenses to TISA

Advantages: • As per Exhibit 4C, TISA sales would generate a minimum net present value of

contributions of over $2.2 million.

• The cash flow from the first year will help to eliminate the expected deficit.

• It provides an entry point for a long-term mutually beneficial relationship.

• ISSO would maintain control of its curriculum.

• It provides a window to the large U.S. market.

• It will provide ISSO with a sound financial base from which to fulfill its mission of making integrated studies widely available.

• U.S. currency is currently worth more than Canadian currency.

Disadvantages: • Curriculum sales will require that training be made available.

• This option introduces international difficulties such as exchange risk and possible legal requirements and restrictions.

• ISSO will need to increase its curriculum development department since adaptation is required for the U.S.

Alternative 2D – Develop Integrated Studies Modules for High School Grades

Advantages: • Adding high school grades would fit with the preferences of several board members

and is consistent with ISSO’s mission of making integrated studies widely available.

• It is a natural extension of adding grades 7 and 8 at the existing schools, since parents of these students may be looking to continue the integrated approach for their children’s high school education.

• Use of integrated studies at high school would provide a natural lead in to the increasing number of post-secondary institutions in North America using the approach.

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Disadvantages: • The board deferred the addition of high school grades in 2004, and nothing

significant has happened to prompt a change in that decision.

• Investment in expansion at the two existing schools or in a third school would likely be required.

• There has not yet been a systematic study of what proportion of parents would send their children to an integrated studies high school, especially if the high school classes are held at a different location than the grade school classes.

• ISSO has not yet developed the high school curriculum, and doing so would require additional funding commitment to curriculum, especially if ISSO wants to avail itself of other opportunities regarding curriculum at the grade school level. Assuming the development costs would be approximately $300,000 per grade (one grade per year), the total development cost would be $300,000 x 4 = $1.2 million.

• Neither CISA nor TISA has expressly offered to purchase the rights to high school curriculum.

Summary There appears to be no reason to reject the option to sell the curriculum directly to CISA schools (Alternative 2A), although, its impact in the short-term is insubstantial.

The only reason to accept the CISA proposal to sell all the rights to the grades one through eight modules (Alternative 2B) is if the board wishes to get out of the curriculum business. The main focus of ISSO seems to be integrated studies rather than schools, the sustainability of the schools alone is questionable (e.g. projected annual deficits for the next few years), and vast openings are on the horizon for wide distribution of the curriculum. Therefore, ISSO should not accept Alternative 2B unless it becomes the only means for ISSO’s survival.

Conclusion

ISSO should sell user rights for the curriculum modules directly to CISA schools (Alternative 2Aand proceed with the TISA proposal (Alternative 2C). The combined net contribution of accepting Alternative 2A and 2C would conservatively be estimated at in excess of $2.6 million ($370,690 from Exhibit 4A plus $2,275,753 from Exhibit 4C), compared to $1.1 million if ISSO commits to a lump sum sale to CISA (Alternative 2B).

ISSO should also plan to develop the high school curriculum modules (Alternative 2D) using the income raised from the TISA contract.

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3. Teacher Training

Alternative 3A –Teacher Training in Lotha for Canadians

Advantages: • Exhibit 5A calculates net revenue for ISSO of $27,650 for 2006.

• ISSO is the only source of trained integrated studies teachers and curriculum developers to train others for the purpose of using the curriculum.

• Canadian schools will not acquire the curriculum if they have no means of having their teachers trained. Thus, teacher training is essential to support sales of the curriculum.

• ISSO has an opportunity to establish itself as the leader in integrated studies teacher training.

• ISSO can recruit some teachers and have them take the training as well.

• ISSO can very effectively acquire the best of the training groups for their own schools and mitigate the shortage and recruiting problems that they currently are experiencing.

Disadvantages: • ISSO staff will be needed to prepare and carry out the training initially.

• Demands for trainers will increase from year to year so there will be pressure on ISSO to conduct training in house, further stretching the current development team.

• It will not be possible to conduct courses in both Lotha and Dallas because of the limited amount of time available and the current lack of trainers.

Alternative 3B –Teacher Training in Dallas, Texas

With the exception of the first and last advantages under Alternative 3A, the other advantages and disadvantages apply equally to running a training school in Dallas. The following points also apply.

Advantages: • Training of TISA teachers provides ISSO with increased net revenue of $44,107 in

the first year (Exhibit 5B).

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• For the first year, TISA is willing to pay the accommodation expenses of all Canadian applicants to take the course in Dallas. This relieves ISSO of the need to run two courses to train both Canadian and Texas teachers.

• If this course is not provided, it is unlikely that the interested schools would purchase the integrated studies modules.

Disadvantages: • It will not be possible to deliver courses in both Lotha and Dallas because of the

limited two month (July and August) time window and the lack of trainers.

• For the first year, training will be limited to grade one.

• ISSO will lose the opportunity for a trial run on which to establish a Canadian training centre for the future.

Summary There is a major attraction for ISSO to run the Dallas course. Opening the TISA door offers tremendous potential since the sale of modules is expected to be closely tied to the provision of training. The main negative point is the lost opportunity to establish a Canadian training precedent. As well, the need for additional trainers has the possibility to explode as the popularity of the integrated studies approach grows.

Conclusion Teacher training would generate some cash inflows to help finance curriculum development, ensure a supply of qualified teachers, and support ISSO’s desire to facilitate integrated learning and development of children. Therefore, ISSO should investigate alternatives for efficiently conducting training sessions for both U.S. and Canadian teachers.

STRATEGIC RECOMMENDATIONS Given the preceding analysis regarding the school configuration, it appears that the Southeast school is a much better located and flexible facility than the Sarwin school. Under the current situation of projected deficits, it may not be possible to find the cash to acquire and operate three schools. Therefore, it is recommended that the Sarwin School be sold and the Southeast school be acquired. Additional financing of $300,000 will need to be obtained, and bridge financing may also be necessary depending on how quickly the Sarwin school can be sold.

Since the teacher training and curriculum sales are closely connected, the decisions should be taken together. Clearly, the TISA proposal provides the superior financial

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results and the US$300,000 advance would be helpful. The only reason not to accept the TISA proposal would be if ISSO wants to focus on delivering the curriculum in the schools rather than developing the curriculum and training teachers. Although the schools are an excellent place to test the research, to focus on them at the expense of the potential for much more extensive spread of the integrated studies approach seems inconsistent with the wishes and curriculum development strength of ISSO. As well, focusing only on delivering the curriculum in the schools would likely result in operating deficits, at lease over the next few years. The more lucrative TISA joint venture would help to offset these deficits.

Given all the circumstances, it is recommended that ISSO partner with TISA to train the Canadian and U.S. teachers in Dallas, and sell the rights to use the integrated studies curriculum directly to CISA schools and to U.S. schools. Once these initiatives generate sufficient cash flows, ISSO should begin to develop high school modules and expand one or both of its schools to accommodate high school classes.

IMPLEMENTATION PLAN Mission

Given the recommended strategy, the implied mission statement should be revised as follows:

‘The purpose of ISSO is to provide a system of education for children that would facilitate integrated learning and development of all aspects of each child through assisting as many schools as possible, anywhere in the world, to implement the integrated studies curriculum with trained instructors.’

Strategic Implementation

To facilitate the purchase and sale of the buildings in time for the commencement of school in September of 2006, Riel should ask the board to reestablish the Building Committee. In conjunction with the Finance Committee, the Building Committee should pursue the sale of the Sarwin school property and the purchase of the Southeast school as soon as possible. The treasurer and the chair of the Building Committee should be jointly responsible for these transactions. Should the financing not be available for any reason, the transactions should be terminated.

To facilitate the summer courses to be held in Dallas, Riel should contact Dunn to make arrangements. She should also discuss the necessary preparations with Dupuis and Atack. This includes developing the training programs and, if necessary, engaging a contract researcher to complete the modifications to the grade one curriculum for use in the U.S. Since the need in Canada is for qualified teachers in the upper primary and

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elementary grades, it will be necessary to arrange for additional supplementary training courses for Canadian teachers, either in Texas or Lotha.

Analysis of Operational Issues

A. Succession and Governance

A policy is needed for succession of the principal as well as board members. The governance model has to change to one where the board plays a more active role, especially in strategic decision making, with the principal primarily responsible for day-to-day operations. This may require training of board members.

Furthermore, the board needs to acquire a member that can support a financial/audit committee so that the issues of allocation, segregation and currency exchange pertaining to financial reporting can be rectified.

B. Human Resources

The need for upper elementary and intermediate grade teachers may be partially resolved by the teacher training program over the next few years. However, initially, there is likely to be more interest from other schools in training at the primary level as shown by the proposed 2006 training program in Texas and the interest expressed by Canadian teachers. ISSO will also have to consider developing and providing training sessions for high school teachers to enable students to continue to benefit from integrated studies after high school curriculum has been approved for development.

Since there have been no cost of living raises since 2003-2004, the issue of staff compensation needs to be addressed. It may be preferable to hold off on cost of living increases again next year, but ISSO does not want to risk losing good teachers. On the other hand, most teachers stay at ISSO because they like the integrated studies approach and the school community. The impact on teacher retention of the relocation of the second school should be minimal.

Administrative staff are overworked, although the recent addition of Van Wick may help somewhat. On the other hand, her duties should be more precisely defined. To reduce the burden on the administrative staff, board member Tony Sofa could head a committee charged with investigating the Internet and wireless opportunities within the schools and development organization.

Dealing pleasantly with prospective parents is essential and Atack should discuss telephone etiquette with Rizzo. It may be necessary to provide additional staff support so that people who answer the telephone are not pressed by other duties. The human resource expertise of Marg Badger, a new board member, would be useful in providing input to resolve this problem and suggesting useful training programs through the Human Resources Committee.

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C. Tuition and Daycare Fees

Given the high enrolment at the toddler level and the quality of ISSO’s program, toddler fees should be increased to be in line with the competition. Since the daycare operation is a break-even prospect, care is required before reducing fees. The daycare operation provides a high level of convenience and flexibility to parents of children enrolled in other ISSO programs, so ISSO may be able to command a higher daycare fee.

General tuitions need to be reviewed and increased, if possible. However, it may not be advisable to increase fees next year when Sarwin students will have to relocate and new parents in southeast Lotha will have to be convinced of the benefits of private education. When ISSO decides to add high school grades, fees will have to be established for these students as well.

D. Promotion and Communications

Although word-of-mouth promotion was sufficient in the past, the recent downturn at the Sarwin school and the slight drop in private school enrolment in general suggest that more active promotion is now required. The new school is in a more favourable location, but it will also be necessary to attract new students. Therefore, a marketing strategy should be developed to emphasize the benefits of integrated studies and ISSO’s reputation for quality teachers and strong parental involvement.

Internal communications within the schools should be increased, as well as between the parents and ISSO’s executive and board members. It is likely that some of the declining enrolment at the Sarwin school is a result of the insufficient communication between parents and ISSO executives. This could also be an important factor in the success of the new location in southeast Lotha.

E. Accounting and Systems

The allocation of salaries and benefits (of both office staff and curriculum developers) and interest expense between the two schools should be refined to reflect their usage. One option is to allocate salaries based on student population and to allocate interest based on the proportion of debt attributable to each school. This will allow for a more accurate assessment of each school’s performance.

Curriculum development can be managed as a separate business unit, having its own revenues and expenses for the modules and upgrades. In that way, the cost for this service will be allocated based on usage rather than how it is currently allocated.

The accounting for U.S. transactions will be at actual exchange rates, as is currently being done for the purchase of Montessori materials.

Any joint venture with TISA would have to be accounted for using proportionate consolidation.

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A new accounting system is required as soon as possible to avoid any downtime in the case that the current system crashes. The new system should be capable of providing useful reports appropriate for an academic and not-for-profit organization. It should facilitate proper control and monitoring of the various business segments of ISSO (e.g. schools, curriculum development, training).

F. Private Loans

With the completion of the outlined plan, ISSO should be adequately financed to be able to repay the loans provided by previous board members. Riel should contact these creditors to explain the strategic plan and inform them that they will be repaid once revenues are generated under the new strategy.

Operational Implementation

1. Riel should investigate sources of training for board members to enable them to provide overall strategic direction to ISSO, as well as develop a succession policy. She should also clarify Atack’s role in relation to the board, as the chief administrator in charge of operations.

2. The Finance Committee should be requested to develop several alternative proposals regarding salary increases. Atack should meet with her administrative staff to discuss realignment of duties, to ensure appropriate telephone coverage and etiquette, and to ensure appropriate use of Van Wick’s time.

3. The Finance Committee should be asked to review the tuition and daycare fees, and determine when it would be appropriate to implement changes to the fee structure.

4. Since Hill has a particular interest in communications, he should be asked to head up a new Promotion and Communications Committee to oversee the hiring of a firm to develop a marketing strategy and to put in place concrete channels for communication between all stakeholders (i.e. the board, teachers, administrative staff, executive and parents).

5. Van Wick should research alternative accounting systems, drawing on the expertise of Sofa, to ensure that any new system that is implemented will support ISSO’s future growth.

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CONCLUSION This report has analyzed the strategic alternatives of The Integrated Studies Society of Ontario, taking into account its internal strengths and weaknesses as well as the external opportunities and threats. It has also analyzed the most pressing operational issues.

If ISSO accepts the recommended strategy and implements the operational recommendations, the organization should be well placed to further fulfill its mission of making the integrated studies approach to education widely available.

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Exhibit 1

SWOT Analysis Strengths:

• Mandate in place to develop and deliver integrated studies (IS) approach to education

• Expertise in internal development of IS curriculum • Good reputation for providing integrated programs – established CISA, which is

intended to become the umbrella group for all Canadian independent schools focused on integrated studies

• IS concept has proven successful • Parental participation is an integral part of the school culture • Provides licensed daycare and grade school education at two locations. • Both school campuses are owned by ISSO • Design of Sarwin school is modular to allow for future expansion • West school is located in a residential area on a large piece of land – room to

expand • Good place to work • School community is based on strong universally accepted social and ethical values • Committed to providing a pleasant and effective learning environment • Limited turnover • Employ high quality teachers capable of facilitating the IS approach • Varied expertise and experience on the board • Some financial controls are in place as demonstrated by the budgeting process • Tuition fees are competitive

Weaknesses:

• Large projected deficit for 2005-2006, due in part to declining enrolment at Sarwin • ISSO does not have an established succession plan and is losing a key employee

(Myra Homes) • Weak board role and reporting structure – the board of governors had depended

mainly on Myra Holmes and is now struggling with its increased responsibilities • No accountants on board of governors • Perception of inadequate administrative and executive presence at Sarwin • New principal doubles as a teacher and is overworked • Rizzo’s curtness with telephone callers could be driving away potential new

enrolment • Limited administration staff; unable to support further growth • Need promotion, especially for Sarwin • Need better communication • Inappropriate allocation of administrative and interest expenses to the two schools

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• Sarwin school is poorly located for a school – in a commercial area, which is out-of-the way for most residents of Lotha

• Sarwin school has no gymnasium – could be hurting enrolment • Lack of established IS teaching base for upper-elementary and intermediate grades • Staff members have not received cost-of-living increased for two years – could lead

to higher employee turnover • Daycare fees are high and may not be competitive • Accounting system is not flexible and does not allow the production of certain useful

reports – there is a danger of the system crashing and sustaining irreparable damage

Opportunities:

• Growing interest in IS—in Canada, the U.S. and globally • New markets for IS curriculum development (and, eventually, upgrades), including

Texas • New markets for IS teacher training, including Texas • Lack of competition in IS curriculum development and teacher training • Significant interest in independent schools, even in provinces where public funding is

not available • The number of school-age children in Lotha is expected to grow by more than 3%

per year • School is available for purchase in fast-growing southeast part of Lotha • Some provincial governments provide tuition assistance for independent schools • Differences in foreign currency exchange rates could work in favour of Canadian

organizations in the global market

Threats:

• Declining population of school-age children in Canada • Growth in the percentage of Canadian children attending independent schools has

remained constant over the past two years • Inadequate supply of trained IS teachers • Minimal barriers to entry • Grant funding for curriculum development is no longer available • Educational requirements vary by province, and government intervention is a

possibility • Some provinces do not provide funding or tuition assistance for independent schools • Differences in foreign currency exchange rates could put Canadian organizations at

a disadvantage in the global market

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Exhibit 2

Financial Assessment 2005 2004 Current ratio (current assets/current liabilities) 2005 = $1,259/$1,990; 2004 = $1,855/$2,187 0.63 0.85

Total debt to equity ratio 2005 = ($1,990 + $2,587)/$2,634; 2004 = ($2,187 + $2,820)/$2,593

1.74 1.93

Long-term debt to equity ratio 2005 = $2,587/$2,634; 2004 = $2,820/$2,593 0.98 1.09

Income as a percentage of revenue from operations (including grants) 2005 = $(12)/$5,497; 2004 = $20/$5,020

(0.22)% 0.40%

Income as a percentage of revenue from operations (excluding grants) 2005 = $(12)/$5,497; 2004 = ($20 – $75)/($5,020 - $75)

(0.22)% (1.11)%

Revenue from operations (including grants) to total assets 2005 = $5,497/$7,211; 2004 = $5,020/$7,600 0.76 0.66

The above comparisons indicate that 2005 reflects an improvement over 2004 in terms of leverage, but not liquidity. If grants are included in revenues, the income as a percentage of revenue decreased, but if the 2004 grant income is excluded, this ratio shows an improvement in 2005. Overall, these ratios indicate cash flow challenges.

The financial problems currently facing ISSO are a function of events that occurred in 2005 but did not really impact the results in that year.

22 CMA Canada

Exhibit 3

Southeast Lotha School Projections ($’000s except as indicated)

2006-20071 2007-2008 2008-2009 Revenue2 $1,497 $1,903 $2,195 Expenditures3: Administration 20 20 20 Amortization 85 85 85 Facilities 280 280 280 Program support4 160 180 200 Salaries and benefits5 1,255 1,433 1,612 1,800 1,998 2,197 Surplus (deficit) $ (303) $ (95) $ (2) ROI6 (12.6)% (4.0)% (0.08)%

1 All figures for 2006-2007 are taken directly from the preliminary budget provided in

Appendix 3 of the Additional Information, which incorporates the addition of a grade seven class of 15 students.

2 Revenue for 2007-2008 = $1,497 + (20 more pre-school x $7,000 fee) + (20 more grade school x $7,600 fee) + (15 grade eight x $7,600) = $1,903 Revenue for 2008-2009 = $1,903 + (20 more pre-school x $7,000 fee) + (20 more grade school x $7,600 fee) = $2,195

3 Except as noted below, expenditures are assumed to remain constant for 2007-2008 and 2008-2009.

4 Program support is increased by $10,000 per class per year (one pre-school class and one grade eight class for 2007-2008; and one pre-school class and one grade school class for 2008-2009)

5 Salaries and benefits are increased by $99,450 per pre-school class and $78,975 per grade school class: 2007-2008 = $1,255,000 + $99,450 + $78,975 = $1,433,425 2008-2009 = $1,433,425 + $99,450 + $78,975 = $1,611,850

6 ROI 2006-2007 = $(303)/$2,400 = (12.6)% ROI 2007-2008 = $(95)/$2,400 = (4.0)% ROI 2008-2009 = $(2)/$2,400 = (0.08)%

Conclusion: The SE school would not generate a surplus in the first three years.

CMA Canada 23

Exhibit 4

Curriculum Module Sales – Supporting Calculations A. Sale of Rights Directly to CISA Schools

2006:

Revenues – Sale of 3 units (2 grade one English; 1 grade four French) @ $25,000 each

$ 75,000

Expenses – Development of French version for grade four 100,000 Net contribution $ (25,000)

2006 to 2013:

Average annual sales of 6 units for the period is used as a conservative rough estimate beginning in 2007, assuming that purchasers of the 3 units in 2006 would continue to acquire subsequent grades, year by year, and that up to 10 more schools in Canada are considering starting grade one in 2007 and subsequent years.

Revenues:

2006 3 @ $25,000 $ 75,0002007-2013 6 @ $25,000 x .873 (PV, 1 yr, 7%) x 5.389 (PVA, 7 yrs, 7%) 705,690

Present value of revenues 780,690Expenses – Development of French version, grades 4 to 8, 2006-2010

$100,000 x 4.100 (PVA, 5 yrs, 7%) 410,000Net present value of contribution $370,690

Analysis of Canadian Updates

Cost of annual update per grade $30,000Revenue per annual update sold per grade per site $2,500Breakeven number of annual updates sold per grade ($30,000 ÷ $2,500) 12

ISSO would have to update the curriculum at a cost of $30,000 per grade even if no other schools expressed interest in purchasing updates. Therefore, any updates sold would help to offset ISSO’s costs.

24 CMA Canada

B. Lump Sum Sale of Rights to CISA

Revenues: 2006 $ 100,000 2007 [$200,000 x .935 (PV, 1 yr, 7%)] 187,000 2008-2013 [$300,000 x .873 (PV, 2 yrs, 7%) x 4.767 (PVA, 6 yrs, 7%)]

1,248,477

Present value of revenues 1,535,477Expenses – Development of French version, grades 4 to 8, 2006-

2010 $100,000 x 4.100 (PVA, 5 yrs, 7%) 410,000Net present value of contribution $1,125,477

C. Sale of Rights to TISA

2006 to 2008:

Revenue 2006 2007 2008 Sale of 12 grade one units, US$300,000 x 1/.84

$357,143

Sale of 12 units each of grades two, three and four, US$300,000 x 1/.84 x 3 grades

$1,071,429

Sale of 12 units each of grades five, six, seven and eight, US$300,000 x 1/.84 x 4 grades

$1,428,572

Expenses: Researcher for U.S. adaptation ($75,000/4 = 18,750/grade)

18,750 56,250 75,000

Other costs for U.S. adaptation 100,000 100,000 Net contribution (in Cdn$) $238,393 $915,179 $1,353,572

Net present value (@ 7%) = $238,393 + ($915,179 x .935) + ($1,353,572 x .873) = 2,275,753 Analysis of U.S. Updates

Cost of annual updates per grade Cdn$12,500Revenue per annual update per grade per site (assume same

as to CISA schools but in US funds) US$2,500Breakeven number of annual upgrades sold per grade

($12,500/$2,500/.84) 4.2

CMA Canada 25

Exhibit 5

Teacher Training – Supporting Calculations A. Training in Lotha for Canadian Teachers

Revenues: 71 teachers, 1 month course @ $3,000 $21,000 71 teachers, 1.51 weekly courses @ $800 8,400 29,400 Expenses: Program materials costs (7 teachers @ $250) 1,750 Net contribution $27,650

1 Expect that 6 to 8 teachers would take 1 or 2 of the weekly courses; therefore, use

the averages of 7 teachers and 1.5 courses. B. Training in Dallas for U.S. Teachers

Revenues: 2006 2007 2008 15 U.S. teachers x 1 grade @ US$3,800 x 1/.84 $67,857 15 U.S. teachers x 3 grades @ US$3,800 x 1/.84 $203,571 15 U.S. teachers x 4 grades @ US$3,800 x 1/.84 $271,428Expenses: Program materials costs (assume $250 per

trainee) 3,750 11,250 15,000

Instructors ($8,000 + $2,000 = $10,000 per trainee)

20,000 60,000 80,000

23,750 91,250 95,000Net contribution $44,107 $132,321 $176,428

Net present value (@ 7%) = $44,107 + ($132,321 x .935) + (176,428 x .873) = $321,849