How can it be that school boards are allowed to make decisions involving millions of dollars with apparently no understanding of the economics of investment valuation? The reflections below were prompted by the news of a school closure in Osoyoos, but in particular by a list of criteria for long range planning at School District 8 (SD8). The highly questionable approach is amply illustrated by SD8’s table of decision criteria with percentage weights for different aspects of the decision. This letter is a critique of that table.
The list of criteria suggests a serious lack of understanding of economic optimization and unfamiliarity with investment valuation on the part of the district. This is perhaps understandable as no one has the required background, but the effect is a convoluted and highly questionable process of decision making that is unlikely to produce rational outcomes.
Society should expect that persons entrusted to make school planning decisions can make them competently. However, the process devised by SD8 is so involved as to be impenetrable by residents affected by the decisions, preventing them from identifying and objecting to the fallacies.
To illustrate, item 2 in the list of criteria states: “Minimize total initial capital expenditure.” That seems completely irrational, as it implies just postponing the initial outlay, ignoring how large the expenditures are in total.
Item 1 states: “Minimize total net capital cost over planning horizon.” Item 3 states: “Minimize total operational costs over planning horizon.” Minimizing both capital and operating costs fails to recognize the typical situation of trade-offs between them, e.g. saving on future energy costs by spending more on insulation.
A proper investment analysis discounts annual expenditures for operation to obtain their present value, which is then compared to the initial expenditure. Analyzing the trade-offs between capital and operating costs is critical in investment valuation. There is no evidence that the board has considered, for instance, how investments in solar cell technology might save on future electricity costs, which would influence facilities design.
The document also contains conflicting criteria. Item 12 states: “Maximize the potential to respond to future change.” That would imply that only portables should be used and no permanent facilities constructed. There is basic logic in maintaining a certain flexibility in building decisions, but item 12 is in direct conflict with item 10, “Improve the safety and quality of educational facilities.”
That the percentages add to 101 is a minor matter, but to imply that percentages measured in such different units as dollars, safety, quality, potential and disruption are additive, is serious. The SD8 criteria table contains multiple fallacies. As it is central to the approach of the school district to its long range planning, it seems important to make the district aware of this before significant decisions are taken based upon an improper foundation.
Christian Janssen, Victoria