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Page 5 SBDTBO12 classrooms to additional art facilities, but wider hallways came in overwhelmingly as the number-one choice. Exhibit 5 provides a list of the student's top 10 choices for a bigger school. THE PROPOSED EXPANSION Currently, the school's building area spanned just over 40,000 square feet and included a carpeted gym, a library, an auditorium and a lunchroom. In addition to the comparative lack of physical facilities, a limited amount of road space was available for parents to pick up and drop off their children. Because SCS did not have its own parking lot or a dedicated pick-up and drop-off area, cars would frequently be parked or stopped on the narrow St. Clement's Avenue, causing traffic congestion for parents and other drivers. In anticipation of the current space shortage, SCS purchased one of the neighboring houses, located on the south side of St. Clement's Avenue, west of the school building, in 1969 for $30,000. Since that date, SCS purchased every house on the south block as it came up for sale. On November 13, 2003, SCS purchased the last of the neighboring houses for $825,000. The school property was surrounded by residential housing, a parking lot, Orange Hall (a small building owned by a religious organization) and a Puma retail outlet. Parisi knew that any expansion would have to consider any concerns of these neighbors. The proposed expansion would add approximately 44,000 square feet (4,100 square meters} to the building area and would cost $11,500,000, including $10,000,000 for construction and $1,500,000 for other costs such as rezoning, design, architecture, permits. Now that the last residential house on the south block to the west of the building had been purchased, the SCS campus could be effectively doubled. With increased space, facilities would be either added or updated in order to provide students with a greater variety of educational programs, up-to-date technology and an overall better learning environment. Additional investments, such as new gym equipment, musical instruments and computers, would cost approximately $100,000. The expanded building would require twice the current amount of annual maintenance costs of $100,000 and would be depreciated using the straight-line method over 35 years. Exhibit 6 provides a full list of the new facilities available with the expansion. OTHER CONSIDERATIONS The decision to expand the facilities at SCS brought with it a number of factors affecting current and future operations. Funding The Bigger Blazer Campaign was instituted in January 2004, led by volunteer faculty, parents and afliates of the school who spearheaded the fundraising efforts for the potential project. The goal of the campaign was to ensure that any expansion did not disrupt the school's tightly knit atmosphere and its image as a competitively priced private school. Parisi estimated that over the upcoming two-year period, the campaign might be capable of fundraising between $5 million and $9 million through donations from staff, alumnae, board members, parents and friends of SCS. Parisi felt that a campaign of such a large magnitude would require up to $200,000 for marketing and approximately $25,000 of her own time. However, she wondered what the most effective use of these funds would be and whether any other fundraising avenues should be considered. Page 4 93073012 interactions between the grades were plentiful. including reading buddies and the Big Sisteri'Little Sister program. As well, SCS used a prefect system, assigning select students from grades II and 12 to be mentors for students in a class between grades I and 10. Student clubs and student council also permitted interactions between students in the different grades. In her graduating year, each student took special responsibility for a particular area of school life. The family atmosphere often beeame a little too close for comfort, howeVer, as a msult of the school's small facilities and its narrow hallways- The SCS board of governors estimated the average square footage per student ratio at Ontario private schools to be 160 square feet per student; SCS only offered half that amount of space at 80 square feet per student. Small lockers also played a role in the crowding as backpacks and personal articles were often strewn around the hallways, much to the dismay of the Student Life Coordinator. The Alumnae Network The Alumnae Association provided a link between the students of today and the students of yesterday. The association kept records of alumnae's whereabouts and activities and helped them to keep in touch with each other. Not Surprisingly, the Alumnae Association made up a large percentage of annual ll'ldl'aislg. Nelghborlng Communltlee Relationships with the surrounding neighborth were also valued. Neighbors were sent monthly neWsletters along with the rest of the SCS community and the St. Clement's Church facilities were used by the school regularly for services and ceremonies. OTHER MDTNATIONS FOR CHANGE Competltlon Toronto private schools with a similar offering to SCS included Havergal College, Bishop Strachan School and Branksome Hall. (Exhibit 4 provides a comparison of Toronto's four all-girl private schools.) These private, all-girls schools were equally equipped with superior elementary and secondary programs, low student-to-teacher ratios, athletic teams, a house system, leadership opportunities for students and a positive reputation in the academic community. However, each of these competitor schools had enrollment that ranged from 800 to almost [,000 students, almost twice the size of the SCS population. Another stark difference between these schools and SCS was their widespread physical facilities. All three schools sat on up to [3 acres of land with extensive boarding, schooling and athletic facilities. Although SCS did not see the need to board students, Parisi was concerned that many girls and their parents may have chosen another school over SCS due SCS's cramped school building and lack of such physical amenities as a performance theater and an up-to~date athletic center. Student Input In November 2003, SCS students were consulted through brainstomting sessions and group voting assemblies to provide ideas for the use of space in an expanded school. Answers ranged from larger Question 1: What are we referring to when we use the term "Working Capital"? Question 2: What is the formula for calculating WC. What is the goal of efficient working capital? Question 3: What are some factors that may affect a company's working capital needs, and how? Question 4: What are some reasons a business may keep cash on hand? Question 5: Could a business potentially have too much cash on hand? How? Question 6: What are some of the costs of having accounts payable? Question 7: Determine the decision that needs to be made by Patricia Parisi and determine the criteria she must use. Question 8: What are the qualitative pro's and con's of funding the expansion. Question 9: List the Key Stakeholders outlined in the case. Question 10: Why was this case selected for this weeks discussion on Working Capital? Pa 9 3 93073012 preparation and international recognition. SCS had one of the most extensive AP programs in Ontario and the largest AP program of any girls' school in Canada. Extracurricular Opportunities Despite its small size. SCS was able to offer a range of extracurricular opportunities. In a tradition initiated at the school's inception. upon entrance to the school. all students were randome divided into one of four \"houses\": Stuart. Tudor. Windsor. or York. Students accumulated house points for participation in academic and extracurricular activities. At the end of the year. the house with the most points won the House Cup. The arts program at SCS included plays performed by students as an annual competition between the houses. as well as an annual co-production with Crescent School (Crescent). a neighboring all-boys private school. Due to the auditorium's limited capacity. the scale of the productions that SCS could host was limited. and therefore the practices and nal performance of the coproductions usually took place at Crescent. The diverse music program included choirs, a concert band. a jazz ensemble and chamber strings. These music groups competed in many music festivals. including the Kiwanis Music Festival. Scheduling conicts often arose because the auditorium was the only room where these groups could rehearse. As a result. groups were often forced to hold practices in the cramped backstage area for lack of a better space. SCS offered a number of competitive sports teams that competed with other schools in the Canadian Independent Schools Association. To make up for the lack of sports facilities on site. SCS teams often practiced at the nearby Eglinton and Sherwood parks. as well as at the St. Clement's Church tennis courts. Because there was only one gym on the campus. practices were infrequent and often scheduled at inconvenient times for coaches and players alike. As well, when SCS hosted a game. the carpeted gym was the subject of much jest and frustration from competing schools. much to the embarrassment of both the staff and students. SCS was also a member of some internationally recognized organizations. It was the rst North American all-girls school to be accepted as a member of the Round Square, a worldwide association of schools that share a commitment. beyond academic excellence. to personal development and responsibility through service. challenge. adventure and international understanding. Round Square included more than 40 schools from six continents and provided a number of opportunities for SCS's students. including international exchanges. service projects in developing countries and global conferences. SCS also participated in The Duke of Edinburgh's Award program. This globally recognized program provided students around the world with the opportunity to earn gold. silver and bronze awards through community service. physical tness. development of specic skills and outdoor expeditions. SCS destinations for the program included cycling in Southern Ontario. Holland and Sicily: dog sledding in Northern Ontario; canoeing in Algonquin Park; and. hiking the Bruce Trail. Family Atmosphere A tremendous sense of spirit infused SCS. thanks in part to the school's small size of approximately 440 students enrolled in grades I through 12. As well. the SCS house system promoted school spirit. good sportsmanship and active participation in school activities throughout the year. Opportunities for Page 6 93038012 Parisi was also considering securing a loan to cover nancial shortages and felt that a borrowing rate of six per cent would be likely. She wondered what the impact of significant borrowing would be as she knew the board would not be pleased with a heavy burden for future generations to bear. Student Numbers and Tuition If neither the Bigger Blazer Campaign nor borrowing yielded sufficient inds, other options would have to be considered. Parisi knew that an increase in either student enrollment or tuition fees would help to cover the cost of the expansion; however, she would have to receive approval from the board for either of these actions. She estimated that a gradual increase of even 100 students over two years would be an effective means to fund the expansion. Parisi knew that increasing the number of students did not come without a cost and that she would have to increase her various items in inventory by about $10,000. As welL she estimated that the cost of various academic and other supplies was $2,000 per student per year. Although Parisi acknowledged that enrolling a break-even number of additional students to pay for expansions had been a successful undertaking for other schools, she and the faculty were strongly opposed to either an increase in enrollment or tuition. Teachers If the student population were to increase in order to cover expansion costs, it would be imperative to maintain the same student-to-teacher ratio in order to remain competitive; therefore, hiring additional staff to join the SCS faculty team would be required. The average salary in 2004 for an Ontario teacher with six years of education was approximately $42,200 plus benets of 17 per cent} Salaries and other costs were likely to increase in the next few years at the rate of three per cent per year and would likely be offset by a similar increase in tuition levels. Parisi knew that any hiring decision would have to take into account the importance of upholding the school's strong teaching reputation and the time required to interview and integrate a new instructor. CONCLUSION With the increasing popularity of private education and the ongoing competition with other all-girls schools, Parisi knew that she had to reach a decision quickly on whether to support the expansion and how best to fund it. She knew that SCS was known for its superior offering of education and extra-curricular activities and she did not want its current \"lacking\" facilities to overshadow the true SCS experience. As well, many of the neighboring all-girls private schools had recently made expansions to their facilities or were in the process of planning for changes. Parisi was unsure what the tax implications of the project would be, if any, given that SCS was a non-profit organization. Most importantly, she wondered how the students, faculty, parents, alumnae and the community would react to her decision. Parisi picked up her pink pen and began to consider the options before her. Pa e 2 981178012 Whether a school was academically dened or a religiously dened, \"the provision of superior education\" was the universal mission of every Ontario private institution. Both parents and students were receptive to this credo, as private school attendance increased to make up 5.3 per cent of the Ontario student population in 2003, up from less than two per cent in 1960. The rising popularity of private school education, competitiveness between institutions and other expenses often led to annual increases in tuition at a private school such as SCS. Exhibit 1 provides details of SCS's annual tuition. A survey by the Fraser Institute cited the dedication of teachers. an emphasis on academic quality and safety as the three primary reasons parents and students migrated to a private school environment.2 Another significant benet was the smaller class size, which offered individualized attention and a \"nurturing, supportive" environment. However, parents had to weigh these expected benets against the annual nancial costs of private school enrollment and activities. HISTORY OF 303 Founded in 1901, by Canon Thomas Wesley Powell. SCS began providing education to [5 boys and girls in the parish hall of St. Clement's Church. Enrollment in the school increased over the years and soon outgrew the parish hall, at which time classes were relocated to a nearby farmhouse at 21 St. Clement's Avenue. In 1932, SCS u'thered transitioned into an all-girls educational institution. During the 19705, a difcult decision faced SCS. The school could move to a suburban location and expand its facilities, or remain a small, urban school whose campus was its community. The latter option was overwhelmingly supported by the SCS community, and a new building was erected in 1970 in the same location the rst of what would become a series of building expansions and improvements over the next quarter century. An aerial view of the school can be seen in Exhibit 2. The mission of St. Clement's School remained essentially unchanged since the school's inception: to develop women of character by encouraging academic excellence, self-condence, leadership and independent thinking in an enriching, supportive environment. Exhibit 3 lists SCS's objectives. Parisi reported to SCS's board of' governors, which was composed of alumnae. parents of current students, parents of former students and other members of the SCS community. Although Parisi was responsible for the day-to-day running of the school, the board was responsible for strategic planning and providing direction and support for Parisi. As well, the board was responsible for the hiring and evaluation of the principal of the school. THE 508 OFFERING An Enriched Academlc Experience SCS was recognized for its rigorous academics and consistently ranked in the top of school academic ratings. SCS offered a variety of academically enriched opportunities for students at all grade levels. In addition, top-ofthe-line teaching tools, including science equipment, sports equipment and computers, added to the learning environment. The recently introduced Advanced Placement (AP) Program had become a source of SCS pride. AP courses, the equivalent of rst-year university courses, offered enrichment, exibility, challenge, university 2 mid. Richard Ivey School of Business The University of Western Ontario IVEY 9B07B012 ST. CLEMENT'S SCHOOL Jeana Poon, Kelly Mckenna, and Nooreen Bhanji wrote this case under the supervision of Professor Mary Heisz solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, clo Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright @ 2007, Ivey Management Services Version: (A) 2007-10-30 INTRODUCTION Patricia Parisi twirled her pink pen between her fingers as she peered out of her office window onto St. Clement's Avenue. As principal of St. Clement's School (SCS) for the last nine years, Parisi had numerous daily responsibilities and decisions to make regarding the governance of the staff, programs, facilities and the 12 grades of students currently attending the all-girls private school. It was November 2, 2004, and today her most pressing business was the recommendation to the SCS board of governors concerning whether to expand the school's facility and operations. SCS had recently purchased the last house on the south block of St. Clement's Avenue and had successfully attained the property rezoning required to build the proposed expansion of the school building. Parisi had a lot to think about as she considered the possible transition to a larger facility for the school. What would be the best way to fund an expansion? Would she be able to operate a bigger school within the approved budget without increasing the school's enrollment? Most importantly, would SCS be able to maintain its distinctive culture with a larger operation? PRIVATE SCHOOL EDUCATION IN ONTARIO' Private schooling was a centuries-old form of education in Canada, with some private education institutions as old as the country itself. Ontario offered both single-sex and co-educational private schools with programs for elementary- and secondary-level students. There were also private "combined schools," offering both elementary and secondary education in single-sex or co-educational environments. The total number of private schools in Ontario alone jumped to 828 in 2003, up from 551 a decade prior. Schools ranged in size from as few as 24 students up to 1,500 students. Academically defined schools had an average of 130 to 500 students, while religiously defined schools averaged 150 to 300 in attendance. All statistics in this section are taken from Derek J. Allison et al., Ontario Private Schools: Who Chooses Them and Why? The Fraser Institute, Vancouver, May 2007. Available at http://www.fraserinstitute.ca/shared/readmore.asp?sNav=pb&id =911, accessed May 20, 2007