Note - so you can start making some progress on your projects and so you can do the background content for this Excel homework, I am having no Excel homework next week. This one is pretty easy. The next one after that is harder (but much more interesting). I will make these homeworks available early so if you want to progress faster you can.
This is the homework on the Math of Risk and Risk Preference. While you might be able to grind through it without viewing the content in the previous post, my expectation is that you will have done so. It will greatly increase your understanding of what is going on.
Also, if you are an eager beaver in the crowd and do the homework before class this Thursday (I applaud the eager beavers in the class) note that when you get to line 86 of the spreadsheet it says we have covered these ideas in class already. We should get to those ideas on Thursday, if only briefly.
Monday, October 10, 2016
Please look at this before you start the next Excel homework
Each of these should be reviewed before doing the next Excel homework, which assumes that such a review has been performed. They should be familiar already, based on what you've been exposed to in Econ 202 and 203. There may be some new stuff on risk preference. I'd be curious to learn what is old hat and what is new for you. Note that there is a bit of overlap between each of these. Nonetheless, I strongly encourage you to review them all, so you have a firm understanding of the fundamentals. The second one emphasizes an algebraic approach. The third, a graphical approach. You should be familiar with both.
Notes on the Math and Philosophy of Probability (This is a pdf file.) There is a slight error in this - a line I attributed to Keynes actually comes from Mark Twain. Otherwise, it is pretty basic stuff.
Increasing Risk and Risk Aversion (This a video in YouTube. You can find a link to the PowerPoint file on which it is based in the description of the video.)
Expected Utility and Jensen's Inequality (This a video in YouTube. You can find a link to the PowerPoint file on which it is based in the description of the video.)
You should be able to get through all of this in under 45 minutes. Of course, the less familiar it is to you, the longer it will take to get a good understanding.
Notes on the Math and Philosophy of Probability (This is a pdf file.) There is a slight error in this - a line I attributed to Keynes actually comes from Mark Twain. Otherwise, it is pretty basic stuff.
Increasing Risk and Risk Aversion (This a video in YouTube. You can find a link to the PowerPoint file on which it is based in the description of the video.)
Expected Utility and Jensen's Inequality (This a video in YouTube. You can find a link to the PowerPoint file on which it is based in the description of the video.)
You should be able to get through all of this in under 45 minutes. Of course, the less familiar it is to you, the longer it will take to get a good understanding.
Friday, October 7, 2016
Salary programs, inflation, and the rest of a unit's budget
In reconsidering our in class discussion yesterday, particularly when a student asked, "what about inflation?"- I was probably too flippant with my response, "forget about inflation." So here I want to consider this a little more and explain how the process is more complex than I indicated yesterday.
First, on the salary program itself, which let's say is 3% just for the sake of discussion, some fraction of this, let's say 2% out of the 3% is meant to be applied across the board to hold faculty and staff harmless from the effects of inflation, while the other 1% of the 3% is meant to pay for a merit increase. There is no guarantee that every employee will get at least a 2% increase. So an employee who got no raise at all or just a 1% raise would take a real decline in salary, when adjusting for inflation. That is possible. (I don't believe a negative percentage raise is permitted.) Likewise, how merit increases are allocated have no hard and fast rules. Whether those are near uniformly distributed or are restricted to only one or two start performers depends on the unit and the inclinations of the supervisor who makes the salary recommendations. I should add here that if an employee gets an outside offer the unit normally has a chance to respond, matching it or even bettering it some, as a way to retain the employee. Since offers don't always come near the time of the salary program, the revenues for that have to come from somewhere, meaning from a higher level in the hierarchy, outside of the unit's budget. Then when the salary program is applied, that person is taken out of the equation.
Next, on expenditures other than salary that might be subject to inflation, there are two points to consider. First, the campus as a whole maintains a budget line for something called unavoidables. This includes the health insurance premiums and the mandatory life insurance premiums that are part of each employee's benefits package. It also includes things like the cost of utilities, which may vary from year to year based on the weather, and it includes other costs that are incurred because the campus self-insures on a variety of matters and sometimes must make payouts to settle losses. The point is that in the budgeting many of the costs are covered at a higher level and are not in the unit's budget. So, for example, the air conditioning in DKH is not paid by the Econ Department. It is paid by the campus.
Then, the last part to note is that some of the unit's budget comes from sources other than off the top funding. Gifts may be given directly to a unit. Or consider grants. Typically a faculty member will write a grant proposal but then run the grant through the home unit. The grant includes an item for ICR (indirect cost recovery) to cover the costs of administering the grant. The ICR is split between the unit and the campus. And the unit may come up with new programs that generate additional revenues. In some cases (particularly with gifts and ICR) the monies don't have to be spent in the fiscal year in which they are generated. The monies can be carried forward. So a unit likely has some cash reserve that can be used as a buffer to cover cost increases on non-personnel parts of the budget.
The above is the story as I understood things when I worked in the campus IT organization, which was more than 10 years ago. The main difference now is that the campus has experienced a massive downsizing in its appropriation from the state of Illinois. So everyone is scrambling to figure out what the new normal looks like. We are still in the midst of the adjustment process.
First, on the salary program itself, which let's say is 3% just for the sake of discussion, some fraction of this, let's say 2% out of the 3% is meant to be applied across the board to hold faculty and staff harmless from the effects of inflation, while the other 1% of the 3% is meant to pay for a merit increase. There is no guarantee that every employee will get at least a 2% increase. So an employee who got no raise at all or just a 1% raise would take a real decline in salary, when adjusting for inflation. That is possible. (I don't believe a negative percentage raise is permitted.) Likewise, how merit increases are allocated have no hard and fast rules. Whether those are near uniformly distributed or are restricted to only one or two start performers depends on the unit and the inclinations of the supervisor who makes the salary recommendations. I should add here that if an employee gets an outside offer the unit normally has a chance to respond, matching it or even bettering it some, as a way to retain the employee. Since offers don't always come near the time of the salary program, the revenues for that have to come from somewhere, meaning from a higher level in the hierarchy, outside of the unit's budget. Then when the salary program is applied, that person is taken out of the equation.
Next, on expenditures other than salary that might be subject to inflation, there are two points to consider. First, the campus as a whole maintains a budget line for something called unavoidables. This includes the health insurance premiums and the mandatory life insurance premiums that are part of each employee's benefits package. It also includes things like the cost of utilities, which may vary from year to year based on the weather, and it includes other costs that are incurred because the campus self-insures on a variety of matters and sometimes must make payouts to settle losses. The point is that in the budgeting many of the costs are covered at a higher level and are not in the unit's budget. So, for example, the air conditioning in DKH is not paid by the Econ Department. It is paid by the campus.
Then, the last part to note is that some of the unit's budget comes from sources other than off the top funding. Gifts may be given directly to a unit. Or consider grants. Typically a faculty member will write a grant proposal but then run the grant through the home unit. The grant includes an item for ICR (indirect cost recovery) to cover the costs of administering the grant. The ICR is split between the unit and the campus. And the unit may come up with new programs that generate additional revenues. In some cases (particularly with gifts and ICR) the monies don't have to be spent in the fiscal year in which they are generated. The monies can be carried forward. So a unit likely has some cash reserve that can be used as a buffer to cover cost increases on non-personnel parts of the budget.
The above is the story as I understood things when I worked in the campus IT organization, which was more than 10 years ago. The main difference now is that the campus has experienced a massive downsizing in its appropriation from the state of Illinois. So everyone is scrambling to figure out what the new normal looks like. We are still in the midst of the adjustment process.
Thursday, October 6, 2016
Since we talked about determining whether a person is trustworthy
I thought students might find the piece linked below interesting, as well as the snip I captured from it. While this piece is for new assistant professors, much of the tone of the piece should apply equally well to new junior executives who have just become managers.
There is one caveat I want to add. If you have a technical competency and you were hired, in part, for that, it may be your skills are not replicated in your colleagues. So they may not be able to understand your work at a deep level because they don't have the necessary background. That issue is ignored in the linked piece. It does matter, sometimes quite a lot.
There is one caveat I want to add. If you have a technical competency and you were hired, in part, for that, it may be your skills are not replicated in your colleagues. So they may not be able to understand your work at a deep level because they don't have the necessary background. That issue is ignored in the linked piece. It does matter, sometimes quite a lot.
To do list
This is meant to assist you in organizing your own efforts for the course. These are ordered by importance/immediacy. Also note that there is no Excel homework for next week, in part to help you accomplish the third and fourth items.
1. Take the Quiz in Moodle. It is available now.
2. Write the blog post due tomorrow evening.
3. Read the paper your project team was assigned. This may be a challenge. These papers are for the most part not intended for an undergraduate audience. So if you have questions on what you are reading write those down. (In other words, take notes.) This will be a readying activity for you to meet with your team members and discuss the paper.
4. There is some online presentation/lecture material on our next topic. It will be available on Monday. I expect it to take you under an hour to review. Some of it is on content in Econ 202. Some of it is on risk preference, which you may have not seen before. Please do go through it in advance of the Excel homework due a week from Wednesday.
1. Take the Quiz in Moodle. It is available now.
2. Write the blog post due tomorrow evening.
3. Read the paper your project team was assigned. This may be a challenge. These papers are for the most part not intended for an undergraduate audience. So if you have questions on what you are reading write those down. (In other words, take notes.) This will be a readying activity for you to meet with your team members and discuss the paper.
4. There is some online presentation/lecture material on our next topic. It will be available on Monday. I expect it to take you under an hour to review. Some of it is on content in Econ 202. Some of it is on risk preference, which you may have not seen before. Please do go through it in advance of the Excel homework due a week from Wednesday.
Tuesday, October 4, 2016
Some further observations about revenues and costs with undergrad education at the U of I.
I'm not sure whether I connected all the dots in class today, so here are some things to consider and some puzzles that still need to be resolved.
The old model
Back when I started at the U of I in 1980 and as recently as 10 years ago, there were comparatively few transfer students. So there'd be fewer sophomores than there were freshman the previous year, because of some attrition, and there would be still fewer juniors than sophomores, etc. On the other hand, expenditure per student (the cost of the instructor, the TAs, and any other personnel involved in teaching the course) was much lower for freshman, who took a lot of large lecture classes, than it was for seniors, who were in smaller classes. So, in this sense the first year and possibly the first two years provided a subsidy (profit) to pay for junior and senior classes that were more expensive, since they had much smaller class size.
Why the old model stopped
Tuition, not just at the U of I but nationally, has grown in a hyperinflationary way since I started as an assistant professor. (This means that the rate of increase in tuition has surpassed the normal inflation rate, so in real terms tuition has risen.) Indeed, the in-state tuition now at the U of I is definitely higher in real terms than the tuition my parents paid for me to attend Cornell (a ritzy private university) back in the 1970s. Tuition was not a big deal when I went to college. It is a big deal now.
The politics of that, especially in the last decade when the U of I changed its approach and became quite aggressive about tuition, suggested there needed to be ways for people of modest means to be able to afford getting a degree from the University. So an idea was developed, I believe originally in California which has several really great public universities, that affordability could be found if students first attend community college, which has much lower tuition, and only after that transfer to the University. This was the so called 2 + 2 model. It was quite popular politically. After embracing it, the U of I started to accept many more transfer students.
But.....
Those transfer students weren't taking nearly as many of those high enrollment courses that subsidized the rest of the operation. So the question is whether their tuition is covering the marginal cost of their instruction or not. (I don't know the answer to that.) However,....
We went to the new model prior to the financial crisis.
The new model might still make sense economically, even if the U of I loses on each transfer student, in the sense that expenditure on these students exceeds revenue generated from the tuition they pay, as long as the shortfall is made up elsewhere. The obvious source of elsewhere is the State of Illinois, which gives tax revenue to the University.
But since the financial crisis, the state has been much stingier in what it contributes, not just to the U of I but to all public universities in the state.
So...
An interesting outcome that I haven't seen discussed anywhere, and I do read about these issues a fair amount in the Chronicle of Higher Education, Insider Higher Ed, and more general news outlets is time to degree for transfer students. Tuition, after all, is paid semester by semester. It is not a fixed price per degree. It is a burn rate per term. A simple, though not particularly satisfying, solution to the issue of transfer students not providing enough of a subsidy to cover the cost of their education is that they take a longer time to degree and cover the cost that way.
This is the underlying issue behind whether advanced courses in a minor get staffed at a sufficient level to accommodate the demand. The lack of staffing then might indirectly be the way to make the student spend another semester on campus. In turn, that may be needed to cover the cost of the education.
Finally
Please note this is simply idle speculation by me and not anything I've learned from talking with administrators on campus. But, for our course, the take away message is to ask - how does the organization at least break even? If it can't do that it can't sustain operations indefinitely. That the enrollments are rising suggest somebody thinks the answer might be found there.
I did mention Bernie Madoff in class today, so I'd wonder whether this is real or a Ponzi scheme. I, for one, don't know the answer to that.
The old model
Back when I started at the U of I in 1980 and as recently as 10 years ago, there were comparatively few transfer students. So there'd be fewer sophomores than there were freshman the previous year, because of some attrition, and there would be still fewer juniors than sophomores, etc. On the other hand, expenditure per student (the cost of the instructor, the TAs, and any other personnel involved in teaching the course) was much lower for freshman, who took a lot of large lecture classes, than it was for seniors, who were in smaller classes. So, in this sense the first year and possibly the first two years provided a subsidy (profit) to pay for junior and senior classes that were more expensive, since they had much smaller class size.
Why the old model stopped
Tuition, not just at the U of I but nationally, has grown in a hyperinflationary way since I started as an assistant professor. (This means that the rate of increase in tuition has surpassed the normal inflation rate, so in real terms tuition has risen.) Indeed, the in-state tuition now at the U of I is definitely higher in real terms than the tuition my parents paid for me to attend Cornell (a ritzy private university) back in the 1970s. Tuition was not a big deal when I went to college. It is a big deal now.
The politics of that, especially in the last decade when the U of I changed its approach and became quite aggressive about tuition, suggested there needed to be ways for people of modest means to be able to afford getting a degree from the University. So an idea was developed, I believe originally in California which has several really great public universities, that affordability could be found if students first attend community college, which has much lower tuition, and only after that transfer to the University. This was the so called 2 + 2 model. It was quite popular politically. After embracing it, the U of I started to accept many more transfer students.
But.....
Those transfer students weren't taking nearly as many of those high enrollment courses that subsidized the rest of the operation. So the question is whether their tuition is covering the marginal cost of their instruction or not. (I don't know the answer to that.) However,....
We went to the new model prior to the financial crisis.
The new model might still make sense economically, even if the U of I loses on each transfer student, in the sense that expenditure on these students exceeds revenue generated from the tuition they pay, as long as the shortfall is made up elsewhere. The obvious source of elsewhere is the State of Illinois, which gives tax revenue to the University.
But since the financial crisis, the state has been much stingier in what it contributes, not just to the U of I but to all public universities in the state.
So...
An interesting outcome that I haven't seen discussed anywhere, and I do read about these issues a fair amount in the Chronicle of Higher Education, Insider Higher Ed, and more general news outlets is time to degree for transfer students. Tuition, after all, is paid semester by semester. It is not a fixed price per degree. It is a burn rate per term. A simple, though not particularly satisfying, solution to the issue of transfer students not providing enough of a subsidy to cover the cost of their education is that they take a longer time to degree and cover the cost that way.
This is the underlying issue behind whether advanced courses in a minor get staffed at a sufficient level to accommodate the demand. The lack of staffing then might indirectly be the way to make the student spend another semester on campus. In turn, that may be needed to cover the cost of the education.
Finally
Please note this is simply idle speculation by me and not anything I've learned from talking with administrators on campus. But, for our course, the take away message is to ask - how does the organization at least break even? If it can't do that it can't sustain operations indefinitely. That the enrollments are rising suggest somebody thinks the answer might be found there.
I did mention Bernie Madoff in class today, so I'd wonder whether this is real or a Ponzi scheme. I, for one, don't know the answer to that.
Monday, October 3, 2016
The Tipping Point and Connectors - A different look at matching
Last week we talked about matching markets and discussed the Medical Intern Matching Program. This is one way to consider matching. Here is a quite different way, one that gives a role to management as an honest broker.
In 2000, a very popular book came out called The Tipping Point, which was about how innovations spread through society. (The more formal word that describes this spreading is called diffusion.) People who embrace the innovation at first are called innovators. (That's not very surprising, is it?) After that comes early adopters. Both of these types enjoy experimentation and trying out new things, a reward in itself. After that comes the majority. (And sometimes they don't come. Diffusion stalls and the idea fades away.) There are key people who are instrumental in getting the majority to adopt the innovation. One of those is called a connector. The connector matches the innovation with people the connector believes will benefit from adoption. Majority types then adopt as much because they trust what the connector says as because of the innovation itself.
However, not all such connections involve a general idea that diffuses. My experience is that quite often a specific and more idiosyncratic need emerges. The person with the need doesn't know how to address it. That person goes to the connector to see if the connector knows who might be able to help address the need. Often the answer to that is yes, because the connector is quite plugged into the people network, so if there is a solution the connector will find it.
Below is a link to a piece about characteristics of connectors that you might enjoy. I agree with most of these (though not #6).
In 2000, a very popular book came out called The Tipping Point, which was about how innovations spread through society. (The more formal word that describes this spreading is called diffusion.) People who embrace the innovation at first are called innovators. (That's not very surprising, is it?) After that comes early adopters. Both of these types enjoy experimentation and trying out new things, a reward in itself. After that comes the majority. (And sometimes they don't come. Diffusion stalls and the idea fades away.) There are key people who are instrumental in getting the majority to adopt the innovation. One of those is called a connector. The connector matches the innovation with people the connector believes will benefit from adoption. Majority types then adopt as much because they trust what the connector says as because of the innovation itself.
However, not all such connections involve a general idea that diffuses. My experience is that quite often a specific and more idiosyncratic need emerges. The person with the need doesn't know how to address it. That person goes to the connector to see if the connector knows who might be able to help address the need. Often the answer to that is yes, because the connector is quite plugged into the people network, so if there is a solution the connector will find it.
Below is a link to a piece about characteristics of connectors that you might enjoy. I agree with most of these (though not #6).
Subscribe to:
Posts (Atom)